APR Calculator
Calculate the annual percentage rate including all loan fees and closing costs to understand the true loan cost and compare loans.
Quick Answer
What's the difference between APR and interest rate?
APR includes all loan fees; interest rate doesn't. A $250,000 mortgage at 6.5% interest with $4,500 in fees has an APR of ~6.67%. Always compare APR when shopping for loans—a lower interest rate with high fees may cost more than a higher rate with lower fees.
Calculate the true APR of any loan including all fees and closing costs.
Key Takeaways
- APR is always higher than the stated interest rate because it includes all loan fees
- A $3,000 fee on a $250,000 30-year loan adds about 0.12% to APR
- Compare APR, not interest rate when shopping for loans - it shows true cost
- Shorter loan terms make fees impact APR more significantly
- APR includes origination fees, points, and lender charges but typically excludes third-party costs
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Comparison Insights
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Understanding Annual Percentage Rate (APR)
What is APR?
APR (Annual Percentage Rate) is the true cost of borrowing expressed as a yearly rate. Unlike the stated interest rate, APR includes all mandatory fees: origination fees, discount points, and lender charges. This makes APR the most accurate way to compare loans.
How Loan Fees Affect APR
Fees have a disproportionate impact on short-term loans. A $2,000 fee on a 3-year loan increases APR significantly more than the same fee on a 30-year mortgage. This is why comparing APR is essential - especially for auto loans and personal loans where fees can dramatically increase the true cost.
When APR Matters Most
- Mortgages: Small APR differences mean thousands in savings over 30 years
- Auto loans: High fees can make a "0% interest" deal more expensive than a low-rate loan
- Personal loans: Origination fees often add 1-5% to the true cost
Closing Costs in APR
APR includes most closing costs charged by the lender: origination fees, discount points, underwriting fees, and processing charges. However, third-party costs like appraisal fees, title insurance, and recording fees are typically excluded. Always ask lenders which fees are included in their quoted APR.
Frequently Asked Questions
A good APR depends on the loan type. For mortgages, under 7% is competitive. For auto loans, under 6% is good. For personal loans, under 10% is solid. Credit cards average 20-25% APR. Always compare multiple offers to find the best rate for your credit profile.
Yes, APR is almost always higher than the stated interest rate because it includes loan fees, origination fees, and closing costs. The interest rate only reflects the cost of borrowing, while APR shows the true loan cost including all fees spread over the loan term.
Yes, APR includes most closing costs such as origination fees, discount points, and lender fees. However, it typically excludes third-party costs like appraisal fees, title insurance, and recording fees. Always ask your lender which fees are included in the quoted APR.
Your APR is higher because it includes the cost of loan fees amortized over the loan term. If you paid $3,000 in fees on a $250,000 loan, the APR accounts for that upfront cost spread over 30 years, making it a more accurate representation of your true borrowing cost.
Credit cards have multiple APRs for different transaction types: purchase APR for regular purchases, cash advance APR (usually higher) for ATM withdrawals, balance transfer APR for moving debt from other cards, and penalty APR (the highest) for late payments. Each applies to different balances.
Paying discount points upfront lowers your interest rate, but may not significantly lower your APR. Points are included in the APR calculation, so while your monthly payment decreases, the APR shows the true cost including those upfront points. Points typically make sense if you keep the loan 5+ years.
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Official Sources
- CFPB: What is the difference between a mortgage interest rate and an APR? - Consumer Financial Protection Bureau guidance on APR.
- CFPB: Explore Interest Rates - Compare current mortgage interest rates.
- Federal Reserve: What is APR? - Official Federal Reserve explanation of annual percentage rate.
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