APR Calculator — Free Online True Cost of Loan Tool

How to Use the APR Calculator

This APR calculator determines the true annual cost of borrowing by incorporating fees that increase your effective rate above the stated interest rate. Use it to compare loan offers from different lenders on a level playing field, or to verify the APR disclosed on your loan agreement.

1. Enter the loan amount. Input the total principal of the loan before any fees are deducted. This is the amount stated on your loan agreement, not the amount you actually receive after origination fees. For example, if you are approved for a $25,000 personal loan with a 3% origination fee ($750), enter $25,000 as the loan amount.
2. Enter the monthly payment. Input the scheduled monthly payment from your loan agreement or quote. This is the amount you pay each month to the lender. If you do not know the payment, use our payment calculator first to compute it from the stated interest rate and term, then return here to find the APR including fees.
3. Choose the loan term. Select the total repayment period in months. Use the full original term, not the remaining term if you have already made payments. The APR calculation requires the complete payment timeline to accurately annualize the fees and interest costs.
4. Enter total fees. Input all upfront charges deducted from the loan amount or added to your cost. This includes origination fees, processing fees, underwriting fees, application fees, and any mandatory closing costs. Do not include optional products like payment protection insurance or extended warranties. The more comprehensive your fee total, the more accurate the APR will be.
5. Review the results. The calculator shows the true APR (which is higher than the stated rate when fees are present), the effective annual rate (which accounts for monthly compounding), total interest paid, total cost of the loan (all payments plus fees), and the net loan amount you actually received. The pie chart visualizes how your total outflow is distributed among principal, interest, and fees.

Compare the APR against the stated interest rate on your loan agreement. If they differ significantly, the loan has substantial fees relative to the principal. Use this calculator with multiple loan offers to find the lowest true cost of borrowing.

APR Calculation Formula

APR is calculated by finding the interest rate that, when applied to the net loan amount (principal minus fees), would produce the same monthly payment over the same term. This is solved iteratively using a numerical method because there is no closed-form formula for APR when fees are involved.

Where:

• Net Loan = The actual amount received by the borrower (principal minus all upfront fees)
• Payment = The fixed monthly payment amount
• APR = The annual percentage rate being solved for
• n = Total number of monthly payments
• Effective Rate = The true annual rate accounting for monthly compounding

Worked Example

Calculate the APR for a $25,000 loan with a $500/month payment, 60-month term, and $750 in origination fees:

1. Net loan received: $25,000 − $750 = $24,250
2. Total payments: $500 × 60 = $30,000
3. Total interest: $30,000 − $25,000 = $5,000
4. Total cost: $30,000 + $750 = $30,750
5. Stated rate: Solving for the rate on $25,000 with $500/month for 60 months gives approximately 7.42%
6. APR: Solving for the rate on $24,250 (net loan) with $500/month for 60 months gives approximately 8.10%
7. Effective annual rate: (1 + 0.0810/12)¹² − 1 = 8.41%

The $750 origination fee increases the effective borrowing rate from 7.42% to 8.10% APR (8.41% effective). This means the fee costs the equivalent of an additional 0.68% annual interest on the full $25,000 loan. On larger loans or longer terms, the same dollar fee has a smaller impact on APR because it is spread over more payments.

Practical APR Examples

These scenarios show how fees and loan structures create differences between the stated rate and the true APR across common lending situations in 2026.

Personal Loan with Origination Fee

Emma is comparing two personal loan offers for $20,000 over 48 months. Lender A offers 7.0% interest with a 4% origination fee ($800). Lender B offers 8.5% interest with no fees. Lender A stated payment: $479/month, but the APR is approximately 9.0% because she receives only $19,200 after the fee while repaying the full $20,000 plus interest. Lender B payment: $492/month with a 8.5% APR (no fees, so APR equals the interest rate). Despite the lower stated rate, Lender A actually costs more: total cost is $23,814 ($22,992 payments + $800 fee already deducted) versus $23,616 from Lender B. The APR comparison reveals that Lender B is the better deal by $198.

Mortgage APR vs. Interest Rate

Michael is getting a $350,000 mortgage at 6.75% interest for 30 years. Closing costs include $3,500 origination fee, $1,200 in discount points, and $800 in lender-required fees, totaling $5,500 in APR-included charges. The monthly payment based on the 6.75% rate is $2,270. The APR accounting for the $5,500 in fees is approximately 6.87%. The difference seems small (0.12%), but over 30 years it represents approximately $5,500 in additional effective cost. For a different mortgage with 2 discount points ($7,000) to buy down the rate to 6.25%, the APR would be approximately 6.45%. Despite higher upfront costs, the lower rate saves significantly over 30 years if Michael keeps the mortgage long enough.

Auto Loan Dealer Markup

Jason is financing $30,000 for a car through the dealer at 5.9% for 60 months ($580/month). The dealer adds a $695 documentation fee, $495 processing fee, and $299 "delivery charge" totaling $1,489 in fees. The stated rate is 5.9%, but the true APR is approximately 6.9% because Jason effectively receives $28,511 net while making payments based on the full $30,000. Jason pre-approved through his credit union at 6.5% with no fees. Despite the higher rate, the credit union loan costs $30,756 total versus the dealer total of $36,289 ($34,800 payments + $1,489 fees). The APR comparison reveals the credit union is cheaper by $5,533.

Small Business Loan Comparison

A restaurant owner needs $75,000 and has three offers. Bank A: 7.0% interest, 2% origination ($1,500), 60 months, payment $1,485, APR 7.6%. Online lender B: 9.5% interest, 5% origination ($3,750), 48 months, payment $1,889, APR 12.2%. SBA 7(a) loan C: 6.5% interest, 3% SBA guarantee fee ($2,250), 84 months, payment $1,104, APR 7.1%. The SBA loan has the lowest APR and lowest monthly payment despite the guarantee fee, making it the most cost-effective option. Online lender B has the highest APR due to the steep origination fee combined with a shorter term that does not spread the cost over enough payments.

APR Tips and Complete Guide

Understanding APR is essential for making informed borrowing decisions. These guidelines help you use APR effectively to compare loans, negotiate better terms, and avoid hidden costs.

Always Compare APR, Not Interest Rate

The interest rate tells you the base cost of borrowing, but it does not account for fees that increase your actual cost. Two loans with the same interest rate can have very different APRs depending on their fee structures. A 6.5% loan with $2,000 in fees is more expensive than a 7.0% loan with no fees on a $25,000 loan over 48 months. The Truth in Lending Act requires lenders to disclose the APR, making it the standard comparison metric. When shopping for loans, request the APR from every lender and compare them for the same loan amount and term.

Understand How Term Length Affects APR

The same dollar amount in fees has a smaller impact on APR when spread over a longer term. A $1,000 fee on a $25,000 loan adds approximately 1.4% to the APR on a 24-month term, 0.7% on a 60-month term, and 0.3% on a 120-month term. This does not mean longer terms are cheaper (total interest is always higher with longer terms), but it does mean that APR comparisons should be made between loans with similar terms to be meaningful. A 7.5% APR on a 36-month loan is not directly comparable to a 7.5% APR on a 120-month loan.

Negotiate Fees to Lower Your APR

While interest rates may be non-negotiable for standard products, many fees are negotiable. Origination fees, processing fees, documentation fees, and application fees are common areas where lenders have flexibility. Ask if fees can be reduced or waived. Even a small reduction in fees translates to a meaningful APR decrease on shorter-term loans. For mortgages, request the Loan Estimate from multiple lenders and compare the itemized fees line by line. Some fees are fixed (like title insurance) while others (like origination fees and lender charges) vary by lender.

When APR Is Not the Whole Story

While APR is the best single metric for comparing loan costs, it does not capture everything. Variable-rate loans have APRs based on current rates that will change. Prepayment penalties are not included in APR but can cost thousands if you pay off early. Loans with different terms have APRs that are not directly comparable. Balloon payments or deferred interest structures create APRs that understate the risk. Always read the full loan terms alongside the APR. For complex products like adjustable-rate mortgages, look at the initial APR, fully indexed APR, and maximum lifetime APR.

Common Mistakes to Avoid

• Choosing a loan based on interest rate alone. A loan advertising "lowest rate guaranteed" may have high origination fees or closing costs that make the APR higher than a competitor with a slightly higher rate but no fees. Always compare APRs, not advertised interest rates.
• Comparing APRs across different terms. A 6.5% APR on a 48-month personal loan and a 6.5% APR on a 30-year mortgage are not equivalent. The personal loan has a much higher monthly payment and lower total interest, while the mortgage has lower payments but vastly more total interest. Compare APRs only between loans with similar terms.
• Ignoring the effective annual rate. APR is calculated as a simple annual rate and does not account for monthly compounding. The effective annual rate is slightly higher than the APR and represents the true annual cost. On high-rate products like credit cards (24% APR = 26.82% effective), the difference is significant.
• Overlooking fees excluded from APR. Not all costs are included in the APR. Mortgage APR excludes title insurance and appraisals. Credit card APR excludes annual fees. Auto loan APR excludes add-on products. Factor in these additional costs separately when comparing total loan expense.
• Not recalculating APR after negotiation. If you negotiate a lower rate or reduced fees after receiving an initial quote, the APR changes. Always recalculate to confirm the new APR matches the revised terms. Lenders are required to provide an updated disclosure, but verifying independently protects you from errors.