Annual Percentage Rate (APR) Calculator

Annual Percentage Rate (APR)

6.189%

The Numbers

  • Monthly payment: $1,199.10
  • Amount financed: $196,000.00
  • Total finance charge (interest + fees): $235,676.38

What This Means

  • Fees push the true cost 0.189 percentage points above the 6% note rate — compare this APR, not the note rate, across lenders.

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Includes your inputs and results for this calculation, plus any additional calculations you've compared.

Disclaimer

This calculator provides estimates for informational purposes only and does not constitute financial, medical, legal, or tax advice. Always consult a qualified professional about your specific situation.

How This Calculator Works

APR (Annual Percentage Rate) is a loan’s true yearly cost once upfront fees are folded in — almost always higher than the interest rate printed on the loan quote. Enter the loan amount, the lender’s stated interest rate, the term, and any fees or closing costs, and this calculator finds the effective APR.

Lenders quote an interest rate, but that rate alone doesn’t capture the full cost of borrowing. Origination fees, discount points, and other closing costs are typically subtracted from what you actually receive — even though you keep making payments calculated on the full loan amount. The APR expresses this gap as a single, higher rate, which is exactly why U.S. federal law (the Truth in Lending Act) requires lenders to disclose it: it’s the one number that lets you fairly compare two loan offers with different fee structures, not just their headline rates.

The Formula

There’s no simple closed-form formula for APR — it has to be solved numerically, but it leans on the same fixed-rate amortization formula as the Mortgage Calculator:

M=P×r(1+r)n(1+r)n1M = \vA{P} \times \frac{\vB{r}(1+\vB{r})^{\vC{n}}}{(1+\vB{r})^{\vC{n}} - 1}
  1. Compute the monthly payment MM from the full loan amount, P\vA{P}, at the stated interest rate (this is your real monthly bill — fees don’t change it).
  2. Find the rate r\vB{r} that would produce that same payment MM if P\vA{P} were instead the amount actually financed (loan amount minus fees).
  3. That rate, annualized, is the APR.

Since a higher discount rate always produces a lower present value for a fixed payment stream, this calculator numerically searches for r\vB{r} using bisection — repeatedly narrowing a range until it converges on the answer.

Worked Example

A $200,000\vA{\$200{,}000} loan at a 6% stated interest rate, a 30-year\vC{30\text{-year}} term, and $4,000 in fees:

  1. Monthly payment (based on the full $200,000\vA{\$200{,}000} at 6%): $1,199.10.
  2. Amount actually financed: $200,000$4,000=$196,000\vA{\$200{,}000} - \$4{,}000 = \$196{,}000.
  3. Solving for the rate r\vB{r} that produces a $1,199.10 payment on $196,000 over 360\vC{360} months gives an effective monthly rate that annualizes to ≈ 6.19% APR — noticeably higher than the 6% note rate.
  4. Total finance charge (interest plus fees) over the life of the loan: ≈ $235,676.

Source: U.S. Truth in Lending Act (Regulation Z) APR disclosure requirements.

Frequently Asked Questions

Why is the APR higher than the interest rate?

Because it's the rate on a smaller amount. Fees and closing costs are subtracted from the amount you actually receive, but your monthly payment is still calculated on the full loan amount at the stated rate — so the same payments, applied to a smaller amount actually financed, work out to a higher effective rate. The only case where APR equals the interest rate is when there are no fees at all.

Is APR always the best way to compare loans?

It's the standard, legally-required way in the U.S. to compare loans with similar terms and fee structures. It's less useful for comparing loans of very different lengths (fees get spread over fewer or more payments) or for loans you plan to pay off early, since APR assumes you'll keep the loan for its full term.

What counts as a fee in this calculation?

Any upfront cost that reduces what you actually receive but doesn't reduce what you owe — origination fees, discount points, underwriting fees, and similar closing costs. Ongoing costs like property taxes or insurance premiums (already broken out separately by the Mortgage Calculator) aren't part of a loan's APR calculation.