Annual Percentage Rate (APR) measures the total cost of credit expressed as an annual percentage. It includes the base interest rate plus upfront lender fees.

Why is APR higher than the interest rate?

APR is higher because it incorporates loan fees and prepaid costs alongside interest. If a loan has zero fees, the APR equals the nominal interest rate.

What fees are included in mortgage APR?

Mortgage APR typically includes loan origination fees, discount points, broker fees, document preparation fees, and mortgage insurance premiums.

Are third-party fees included in APR?

No, standard third-party fees like title fees, home inspection charges, appraisal fees, and legal notary fees are generally excluded from APR.

How can borrowers use APR to compare loans?

Borrowers can compare identical loans from different lenders by looking at the APR. The loan with the lower APR represents the more cost-effective financing deal.

Finance Tool

APR Calculator

Calculate the true Annual Percentage Rate (APR) of a loan. Include lender fees, closing costs, and interest rates to reveal the true cost of credit.

Interactive APR Calculator Workspace

Live Solver

Total Loan Principal ($)

Stated Interest Rate (%)

Loan Term (Years)

Financing & Closing Fees ($)

True Cost Of Borrowing Summary

True Loan APR6.287% APReffective annual rate

Stated Interest Rate6%nominal rate

Monthly Payment$899.33regular installment

Total Borrow Cost$178,257.28interest + loan fees

Mathematical Formula & Variables

Equation ModelAPR = [((Fees + Interest) / Principal) / Term in Days] * 365 * 100

The Annual Percentage Rate (APR) formula converts interest charges and fees into a simple standardized yearly percentage representing the true cost of borrowing.

Variable Definitions

Symbol	Description
APR	Annual Percentage Rate
Principal	Loan base amount borrowed
Interest	Total interest paid over the term
Fees	Lender fees, origination charges, and other points
Term in Days	Total loan lifespan represented in days

How to Use the APR Calculator

Enter the Loan Principal or amount borrowed.
Specify the Interest Rate (nominal annual percentage rate).
Input the Loan Term in years or months.
Enter any additional fees (e.g., origination fees, documentation fees).
Calculate to reveal your true APR and monthly payment.

Practical Example Calculation

Scenario Context: Calculating the APR on a $100,000 mortgage loan for 30 years with a 6% interest rate and $3,000 in closing fees.

Step 1: Identify values: Principal = $100,000, Interest Rate = 6%, Term = 30 years, Fees = $3,000.

Step 2: Net amount received: $100,000 - $3,000 = $97,000.

Step 3: Calculate standard monthly payment (M) on $100,000 principal: $599.55.

Step 4: Determine the interest rate (r) that satisfies: $599.55 = $97,000 * [r(1+r)^360] / [(1+r)^360 - 1].

Step 5: Solve for APR (by iterating): APR equals approximately 6.31%.

The true Annual Percentage Rate (APR) of the loan is 6.31%, which is higher than the nominal rate of 6% due to upfront fees.

Frequently Asked Questions

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