Comprehensive Guide
Learn more in our Loans & Mortgage Guide.
How it works
APR — annual percentage rate — is the honest cost of a loan, because it folds the fees into the rate instead of letting them hide. A lender can quote a low interest rate and still make the loan expensive with origination fees, and the APR is what exposes the trick. This calculator works it out from the cash flows. You receive the loan amount minus the upfront fees — that is the money that actually reaches you — but you repay the full monthly payment for the full term. The APR is the single rate that reconciles those two: the rate at which the net amount you received grows into the stream of payments you make. Because fees reduce what you get while leaving what you pay unchanged, they always push the APR above the quoted interest rate. A $20,000 loan with $800 of fees and a $420 payment for 60 months has an APR noticeably higher than the headline rate suggests. That is the number to compare across lenders — never the interest rate alone. Two loans with identical rates can carry very different APRs, and the cheaper one is always the lower APR, full stop.Formula
Solve for the rate where PV of payments = (loan amount - fees)
Tips
- Compare loans on APR, never the interest rate alone — fees hide in the gap.
- Fees reduce what you receive but not what you repay, so they always raise the APR.
- The net amount you receive is the loan minus upfront fees.
- Two identical rates can have very different APRs; the lower APR is always cheaper.
- A no-fee loan's APR equals its interest rate — fees are what push them apart.
Frequently asked questions
What is APR on a loan?
The annual percentage rate is the true yearly cost of borrowing once fees are folded into the rate. Because you receive the loan minus fees but repay the full schedule, the APR is always at or above the quoted interest rate — and it is the only figure to compare across lenders.
How is APR different from the interest rate?
The interest rate is the cost of the money alone. The APR adds the fees, spreading them over the term as if they were extra interest. A low rate with heavy fees can carry a higher APR — and cost more — than a higher rate with no fees.
How do I calculate APR from a monthly payment?
Find the single rate at which the present value of all your payments equals the net amount you received (loan minus fees). The calculator solves this for you. That rate is the APR, and it is higher than the quoted rate whenever fees are present.
Why does a fee raise the APR?
Because the fee reduces the money that actually reaches you while leaving your payments unchanged. You are paying the same to borrow less, which is a higher effective cost — and the APR is precisely the rate that captures that difference.
What is a good APR?
It depends on the loan and your credit, but the rule is universal: the lower APR is always the cheaper loan. For personal loans, single digits are strong and anything in the high teens is expensive. Compare APRs across at least three lenders before you sign.