What is APR?
APR (Annual Percentage Rate) is the true cost of borrowing money, expressed as a yearly percentage. APR includes both the interest rate and any fees associated with the loan, providing a more accurate picture of the total borrowing cost than the interest rate alone. APR helps borrowers compare different loan offers on an equal basis.
Drag the sliders or type values in the input fields for loan principal, annual interest rate, fees, and loan term. The calculator automatically computes the APR, which accounts for both interest and fees. Results update instantly as you change values, and a visual pie chart shows the breakdown of principal versus total cost. The pie chart displays immediately with default values, helping you understand APR calculations before making changes.
How to use this APR calculator
Start by dragging the loan principal slider or entering a value. This is the amount you're borrowing. Common amounts range from 1,000 to 100,000. Next, set the annual interest rate by dragging the slider or entering a value. Rates typically range from 0% to 20%, depending on the loan type and your credit score.
Enter any fees associated with the loan by dragging the fees slider or entering a value. Fees may include origination fees, application fees, processing fees, or other charges. Even if there are no fees, you can leave it at 0. Finally, set the loan term in months by dragging the slider or entering a value. Common terms range from 1 to 60 months.
The calculator instantly shows your APR, total interest, fees, and total cost. The pie chart on the right visualizes the breakdown of principal versus total cost (interest + fees) in your loan. Use this information to compare loan offers, understand borrowing costs, and make informed financial decisions.
Understanding APR
APR provides a standardized way to compare loan costs because it includes both interest and fees. A loan with a lower interest rate but high fees may have a higher APR than a loan with a higher interest rate but no fees. This makes APR essential for comparing loan offers and understanding the true cost of borrowing.
APR is calculated by combining the interest cost and fees, then expressing this total cost as an annual percentage of the principal. The formula accounts for the loan term, ensuring that shorter-term loans with the same interest and fees have higher APRs than longer-term loans. The calculator helps you see how different factors affect APR, enabling informed loan comparisons.
APR formula
The APR formula is: APR = (Total Cost / Principal) × (12 / Term in Months) × 100, where Total Cost = Interest + Fees. Interest is calculated as Principal × Interest Rate × (Term in Months / 12). This formula accounts for both interest and fees, providing the true annual cost of borrowing.
The formula demonstrates that APR depends on four factors: principal (affects total cost), interest rate (directly impacts interest cost), fees (adds to total cost), and loan term (affects how costs are annualized). Shorter loan terms result in higher APRs because the same fees are spread over fewer months. The calculator uses this formula to provide accurate APR calculations for any combination of these factors.
APR vs interest rate
Interest rate is the cost of borrowing the principal amount, while APR includes both the interest rate and fees. APR provides a more comprehensive view of the true cost of borrowing. For example, a loan with 5% interest rate and 500 in fees will have a higher APR than 5%, reflecting the total cost including fees.
When comparing loans, always look at APR rather than just the interest rate. A loan with a 4% interest rate and 1,000 in fees may have a higher APR than a loan with a 5% interest rate and no fees. The calculator helps you see how fees affect APR, enabling accurate loan comparisons and informed borrowing decisions.
Fees and their impact on APR
Fees significantly affect APR, especially for shorter-term loans. Common loan fees include origination fees (charged to process the loan), application fees (charged to apply), processing fees (charged to handle paperwork), and prepayment penalties (charged for early payoff). Even small fees can significantly increase APR for short-term loans.
For example, a 10,000 loan at 5% for 12 months: Without fees, APR is 5%. With 500 in fees, APR is 10%. The same 500 fee on a 60-month loan results in an APR of 6%. The calculator helps you see how fees affect APR, encouraging you to factor in all costs when comparing loans.
Loan term and APR
Loan term significantly affects APR because fees are spread over the loan period. Shorter loan terms result in higher APRs because the same fees are annualized over fewer months. Longer loan terms result in lower APRs because fees are spread over more months, reducing their annual impact.
For example, a 10,000 loan at 5% with 500 in fees: 12-month term has APR of 10%. 60-month term has APR of 6%. The same fees have less impact on APR for longer terms. The calculator helps you see how loan term affects APR, enabling informed decisions about loan duration.
Applications of APR
APR is used for various loan types: personal loans (compare offers from different lenders), credit cards (understand true cost of carrying balance), mortgages (compare loan offers including closing costs), car loans (compare dealer financing vs bank loans), and student loans (compare federal vs private loans). Understanding APR helps you make better borrowing decisions and avoid costly loans.
The calculator helps you plan for these applications by showing how different factors affect APR. Use it to compare loan offers, understand borrowing costs, negotiate better terms, and make informed financial decisions. The visual pie chart makes it easy to see how fees and interest contribute to total cost.
Summary
This APR calculator calculates the Annual Percentage Rate including interest and fees. Drag sliders or enter values for loan principal, interest rate, fees, and loan term. It's free, works in your browser, and requires no account. Use it for loan comparison, understanding borrowing costs, or making informed financial decisions.
The calculator uses the standard APR formula to provide accurate results. Drag sliders or type values to compare different loan scenarios. See how principal, interest rate, fees, and loan term affect APR. The pie chart visualizes the breakdown of principal versus total cost, helping you understand where your money goes. Use this tool to compare loans, understand true borrowing costs, and make informed financial decisions.