Why is APR higher than the interest rate?

Because APR adds the cost of upfront fees to the interest. With zero fees, APR and the interest rate are the same.

Is the lowest APR always the best loan?

Almost always for the same term — but also check the monthly payment fits your budget and whether you plan to repay early, which makes fees weigh more than APR suggests.

Which fees count toward APR?

Fees you must pay to obtain the loan: origination, application, closing and similar lender charges. Optional extras and late fees are not included.

APR Calculator — True Annual Cost of a Loan

What APR actually means

The annual percentage rate (APR) is the interest rate plus the cost of the loan's fees, expressed as a single yearly rate. A lender can quote a temptingly low rate and quietly recover the difference in origination fees, closing costs and other charges. APR exists — and in the US is required by law on most consumer loans — precisely so you can compare offers on one honest number.

How APR is calculated

APR = the rate that makes the payments' present value equal the cash you actually receive

Your monthly payment is calculated from the full loan amount at the quoted rate. But after fees, the cash that reaches you is smaller. APR is the higher rate that would produce that same payment on the smaller, real amount you received. There is no closed-form shortcut — it is solved numerically, as this calculator does (bisection to high precision).

When APR matters most

Comparing two offers with different fees. A 7.5% loan with $2,000 of fees can cost more than a 7.9% loan with none — APR reveals which.
Mortgages. Closing costs are large, so mortgage APRs typically run 0.1–0.5 points above the note rate.
Short loans. Fees spread over a short term inflate APR sharply; the same fee on a 2-year loan hurts far more than on a 10-year loan.

The early-repayment catch

APR assumes you keep the loan for its full term. Fees, however, are paid once, upfront. Repay or refinance early and those fees are spread over fewer months — your effective cost is higher than the APR. If you expect to move or refinance within a few years, weight fees more heavily than APR does.

Worked example

You borrow $10,000 at a quoted 8% for 5 years, with $500 in upfront fees. The payment is $202.76 a month — but you only received $9,500 in usable cash. Solving for the rate that matches those payments to $9,500 gives an APR of about 10.20%: the fees quietly added more than two full points. A competing offer at 9% with no fees would be the cheaper loan, despite the higher headline rate.

How to use this calculator

Enter the loan amount from the offer.
Enter the quoted interest rate (not an APR the lender already calculated).
Enter the term in years.
Add every upfront fee: origination, application, closing, documentation — if you pay it to get the loan, it counts.
Compare the APR, not the rate, against competing offers.

APR on credit cards is different

For credit cards, APR is simply the interest rate (daily rate × 365) and does not include annual fees in the same way. For installment loans and mortgages — what this calculator models — APR includes fees as described. Always check which definition an offer is using.

APR Calculator