APR Calculator

APR (Annual Percentage Rate) is the true annual cost of borrowing money, expressed as a percentage. Unlike the nominal interest rate, APR includes both interest and fees, making it the legally required disclosure for comparing credit products in the United States under the Truth in Lending Act (TILA).

APR formula: APR = [(Interest + Fees) ÷ Principal ÷ Loan Term in Days] × 365 × 100

For compound interest loans (mortgages, car loans): APR is calculated by finding the interest rate r that satisfies: Loan Amount = Σ [Payment ÷ (1 + r/12)^n] for all n monthly payments

Then: APR = r × 12 × 100

Where the payment includes amortized fees built into the calculation.

Simple APR (for short-term loans and credit cards): APR = (Periodic Rate × Number of Periods per Year) × 100 For a credit card with 1.5% monthly rate: APR = 1.5% × 12 = 18% APR

What each variable means:

• Nominal rate vs. APR: nominal rate = stated interest only; APR = interest + origination fees + broker fees + mortgage insurance + other required fees
• APR vs. APY: APR is periodic rate × periods; APY (Annual Percentage Yield) accounts for compounding and is always higher than APR for the same loan
• Credit card APR: typically 15–30%; applies to balances not paid in full each month; pay in full every month and APR is irrelevant
• Payday loan APR: a $15 fee on a $100 two-week loan = 15% for 14 days = APR of (15÷100÷14)×365×100 = 391% APR, the legal reason APR disclosure is required

Reference: typical APR ranges by product (US 2024):

• 30-year fixed mortgage: 6.5–8.0%
• Auto loan (excellent credit): 4–7%
• Auto loan (fair credit): 8–15%
• Personal loan: 8–36%
• Credit card: 15–30%
• Payday loan: 300–700%
• Business credit card: 18–28%

Worked example: $200,000 mortgage, 7.0% interest rate, $3,500 in origination fees, 30-year term.

• The monthly payment is set by the note rate, not by the fees: $1,330.60 a month for 360 months.
• The fees change what you actually received. $3,500 comes off the top, so you walk away with $196,500 and repay as though you borrowed $200,000.
• Solve for the rate that makes 360 payments of $1,330.60 worth $196,500 today: APR = 7.176%.

So the fees cost you 0.176 percentage points of rate. That is the whole point of the number, and it is the only figure that lets you compare a 7.0% loan with $3,500 of fees against a 7.15% loan with none.

One thing APR is not: an extra charge. The $3,500 is the extra cost, full stop. Restating it as a rate does not add to it, and a lender quoting both is describing one fee two ways. What APR does is make two different fee structures comparable on a single axis.

Where APR misleads is on the assumption underneath it. The figure above spreads $3,500 across the full 30 years. Sell or refinance in year five and that same $3,500 is spread over 60 payments instead of 360, so the rate you effectively paid is far higher than 7.176%. For a loan you do not expect to hold to term, compare total cost over your actual horizon rather than the APR on the disclosure.

Compare APRs, not interest rates, whenever the fee structures differ.