APR Calculator
Calculate the Annual Percentage Rate (APR) to understand the true cost of borrowing including all fees.
APR Formula
What is APR?
The Annual Percentage Rate (APR) represents the true yearly cost of borrowing money, expressed as a percentage. Unlike the simple interest rate, APR includes fees and other charges, giving you a more accurate picture of what a loan actually costs.
Lenders are required by law (Truth in Lending Act) to disclose the APR, making it easier for consumers to compare loan offers from different lenders on an apples-to-apples basis.
True Cost
APR shows the real annual cost including all fees.
Compare Offers
Use APR to compare loans from different lenders.
Required Disclosure
Lenders must disclose APR by federal law.
Informed Decisions
Make smarter borrowing choices with APR.
APR vs Interest Rate
The stated interest rate and APR are related but different. Understanding this difference is crucial for evaluating loan offers.
Interest Rate
The base rate charged on the loan principal. A $10,000 loan at 7% interest costs $700/year in interest (simple calculation). This doesn't include any fees.
APR
The interest rate PLUS fees, spread over the loan term. A 7% loan with $300 in fees on a 1-year term has an APR of 10%. The APR is always equal to or higher than the interest rate.
Why They Differ
Origination fees, processing fees, and other charges are added to the cost of borrowing. APR captures these, while the interest rate alone does not.
Watch the Gap
A large gap between interest rate and APR indicates high fees. A lender advertising 5% interest but 8% APR is charging significant fees upfront.
What's Included in APR?
APR incorporates various costs beyond the basic interest rate. Here's what typically gets included—and what doesn't.
| Fee Type | Included in APR? | Typical Amount | Notes |
|---|---|---|---|
| Interest | Yes | Varies | Base cost of borrowing |
| Origination Fee | Yes | 0.5-5% | Charged by lender to process |
| Points | Yes | 0-3% | Prepaid interest to lower rate |
| Closing Costs | Usually | 2-5% | For mortgages |
| PMI | Sometimes | 0.5-1%/yr | Mortgage insurance |
| Late Fees | No | Varies | Only if you pay late |
| Prepayment Penalty | No | 1-5% | Only if you pay early |
Types of APR
Different types of APR apply to different situations. Understanding which APR applies helps you understand your true costs.
Fixed APR
Rate stays the same for the loan term. Most personal loans and mortgages have fixed APRs. Predictable payments make budgeting easier.
Variable APR
Rate can change based on an index (like Prime Rate). Common with credit cards and HELOCs. Your payment can increase if rates rise.
Introductory APR
Promotional low rate for a limited time (often 0% for 12-18 months on credit cards). After the promo period, rate jumps to regular APR.
Penalty APR
Higher rate triggered by late payments (often 29%+ on credit cards). Can apply to your entire balance, not just new purchases. Avoid by paying on time.
Cash Advance APR
Rate for borrowing cash from a credit card. Usually higher than purchase APR (often 25%+) and starts accruing immediately with no grace period.
Balance Transfer APR
Rate for transferring debt from another card. Often promotional (0% for 12-21 months) but watch for transfer fees (typically 3-5%).
How to Use APR Effectively
APR is most useful when comparing similar loan products. Here's how to use it to make better borrowing decisions.
Compare Same Loan Types
Use APR to compare personal loans to personal loans, or mortgages to mortgages. Comparing a 3-year loan APR to a 30-year mortgage APR isn't meaningful.
Consider Loan Term
Fees impact APR more on shorter loans. A $500 fee on a 1-year $10,000 loan adds 5% to APR, but only adds ~0.17% annually on a 30-year loan.
Look at Total Cost Too
Lower APR doesn't always mean lower total cost. A 6% APR for 5 years costs less total than 5% APR for 7 years, even though the rate is higher.
Request Loan Estimates
Get official loan estimates from multiple lenders. These standardized forms make APR comparisons accurate and easy.
APR for Different Loan Types
Typical APR ranges vary significantly by loan type. Here's what to expect and what's considered competitive.
| Loan Type | Typical APR Range | Excellent Credit | Factors Affecting Rate |
|---|---|---|---|
| Personal Loans | 6-36% | 6-10% | Credit score, income, debt ratio |
| Auto Loans (New) | 4-12% | 4-6% | Credit, term, down payment |
| Auto Loans (Used) | 5-18% | 5-8% | Vehicle age, credit score |
| Mortgages | 5-8% | 5-6% | Credit, down payment, term |
| Credit Cards | 15-29% | 15-18% | Credit score, card type |
| Student Loans (Federal) | 5-8% | Fixed by govt | Loan type, not credit-based |
| Payday Loans | 300-700% | Avoid | Predatory, avoid if possible |
APR Red Flags
Watch out for these warning signs when evaluating loan offers by APR.
Huge Rate-APR Gap
If the interest rate is 6% but APR is 12%, fees are excessive. Ask for a fee breakdown and negotiate or look elsewhere.
APR Over 36%
APRs above 36% are considered predatory by consumer advocates. Some states cap rates at 36%. These loans trap borrowers in debt cycles.
No APR Disclosure
Legitimate lenders must disclose APR by law. If a lender won't provide APR, walk away—they're either hiding something or operating illegally.
Penalty APR Triggers
Some credit cards have penalty APRs that trigger easily (one late payment). Read the terms carefully and know what raises your rate.
Frequently Asked Questions
Why is my APR higher than my interest rate?
APR includes fees (origination, points, closing costs) that the simple interest rate doesn't. The bigger the gap, the more you're paying in fees. A loan with 7% interest and 10% APR has significant upfront costs built in.
Is lower APR always better?
Usually, but not always. A lower APR over a longer term can cost more total. Also, some 0% APR offers have deferred interest—if you don't pay in full by the promo end date, you owe all the interest retroactively.
How does APR affect my monthly payment?
Monthly payments are calculated from the interest rate, not APR. Fees included in APR are usually paid upfront or rolled into the loan balance. APR helps you compare total cost, but your payment amount comes from the interest rate.
Can I negotiate APR?
You can negotiate the components of APR—interest rate and fees. Get quotes from multiple lenders, then ask others to match or beat the best offer. Even small reductions can save hundreds over the loan term.
What's a good APR for a credit card?
Under 18% is considered good, under 15% is excellent. However, if you pay your balance in full monthly, APR doesn't matter—you won't pay interest. APR only applies to carried balances.
Does APR include compounding?
Standard APR is a simple interest calculation. 'Effective APR' or 'APY' (Annual Percentage Yield) accounts for compounding. For savings, APY shows what you earn. For debt, effective APR shows true cost when interest compounds.
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