APR is the yearly cost of a loan including interest plus certain fees. It is usually a little higher than the interest rate, it helps you compare similar offers on equal terms, and it can understate cost if you repay early.
Quick answers
A practical guide to APR
What APR means
APR — the Annual Percentage Rate — is a single number that estimates the yearly cost of a loan including both interest and certain fees. It exists because of truth-in-lending rules: lenders must disclose APR so borrowers can compare offers on a common basis rather than being misled by a low headline rate attached to high fees.
In this calculator, APR is the annual rate at which the present value of your scheduled payments equals the net amount you actually receive after upfront finance charges. When there are no fees, the APR equals the interest rate; every fee that counts as a finance charge nudges it higher.
APR vs interest rate
The interest rate (note rate) applies only to the principal — it is what generates your interest each period. APR is wider: it reflects the rate plus lender fees that are part of the cost of credit, so it is a better single measure of what a loan costs. The CFPB describes APR as the cost of credit expressed as a yearly rate, which is generally higher than the interest rate because it includes those charges.
A practical rule: use the interest rate to compute your payment, and the APR to compare two loans. Two loans can share a rate but differ on APR because one charges more fees.
Real APR with fees
Fees are what separate APR from the note rate. Upfront fees are paid at closing and reduce the net proceeds you receive, so you effectively borrow less for the same payments — which raises the APR. Financed fees are rolled into the loan balance, so you pay interest on them and your payment rises — which also raises the APR.
Because APR captures both effects, it is the most honest comparison of two similar loans. The wider the gap between APR and the note rate, the more the fees are costing you.
Loaned fees vs upfront fees
A loaned (financed) fee is added to the amount you borrow: it does not come out of pocket today, but you pay interest on it for the whole term. An upfront fee is paid in cash at closing: no interest, but it reduces the money you walk away with. For the same dollar amount, an upfront fee usually pushes APR slightly higher than a financed one, because it hits you immediately rather than being spread out.
This tool lets you classify each fee as financed, upfront, or excluded. Excluded fees (often appraisal, title, taxes, and prepaid insurance) are shown for budgeting but left out of APR, because whether they belong in APR depends on the loan type and local rules.
Mortgage APR explained
Mortgage APR uses the same engine but adds the charges specific to home loans: discount and origination points, lender fees, and PMI. Points are quoted as a percent of the loan (one point = 1%) and are an upfront finance charge, so they raise APR. PMI, where required, is generally treated as a finance charge for the period it applies, so including it lifts the APR too.
Crucially, mortgage APR is not your total cost of homeownership. It does not include property tax, homeowners insurance, HOA dues, or maintenance, and many third-party closing costs are excluded. Treat mortgage APR as a way to compare loan offers, not as your monthly housing budget.
Points and APR
Discount points are an upfront payment to lower your interest rate; origination points are an upfront lender charge. Both are finance charges, so they raise APR. The trade-off is that points lower your payment, so whether they pay off depends on how long you keep the loan: divide the points cost by the monthly saving to get a rough break-even in months.
A low rate bought with heavy points can show a low payment but a higher APR and a long break-even — so paying points only makes sense if you will hold the loan well past that point. Enter the rate you would get without points to estimate the break-even on the Mortgage tab.
PMI and APR
Private mortgage insurance (PMI) protects the lender when your down payment is under about 20%. Because it is a cost of getting the credit, PMI is generally included in mortgage APR for the months it is charged — which this calculator assumes lasts until the balance reaches 78% of the home’s value, the common automatic-cancellation point.
PMI is not the same as homeowners insurance, and it is not part of your loan principal. We show PMI as a monthly add-on and a total-monthly-with-PMI figure, and let you toggle whether to include it in APR, because PMI duration and treatment can vary.
APR vs APY / EAR
APR is a nominal rate: it is the periodic rate times the number of periods per year. APY (annual percentage yield) and EAR (effective annual rate) go further and account for compounding within the year, so they are a little higher than APR for the same periodic rate. Lenders disclose APR for borrowing; banks quote APY for savings.
We display APR as the headline and show the effective annual rate only as supporting context. When comparing loans, compare APRs; do not mix an APR from one quote with an APY from another.
Why APR can mislead on early payoff
APR assumes you keep the loan for its full term and spreads upfront fees evenly across every month. If you repay early, those fees are absorbed over fewer months, so your true annualized cost is higher than the APR implied. This is why a loan with the lowest APR is not always the cheapest if you plan to refinance, sell, or pay off quickly.
The Early Payoff tab shows the effective cost of holding the loan only to your expected payoff month. When upfront fees are high and the holding period is short, that effective cost can sit well above the headline APR.
How to compare two offers
Put both offers on the same loan amount and term, then look at three numbers: APR, total cost if held to maturity, and total cost if paid off at your expected month. For a full-term hold, the lower APR usually wins. For a short hold, the offer with lower upfront fees can win even at a higher rate.
The Compare Offers tab computes all three and highlights the lowest in each — under your entered assumptions, not as a recommendation. The headline takeaway: the lowest APR is not always the lowest cost if you repay early.
Worked examples
1. Personal loan with fees
A $20,000 loan at a 6.5% note rate over 60 months, with $500 of upfront fees, has a monthly payment of about $391. Because the $500 reduces the net proceeds to $19,500, the real APR is roughly 7.56% — about 1.06 points above the note rate, a high fee impact.
2. Mortgage with points
A $400,000 home with $80,000 down (a $320,000 loan) at 6.0% over 30 years, with 1 discount point (~$3,200) plus about $2,400 of lender fees, has a monthly principal & interest of about $1,919 and a mortgage APR near 6.15%. The points and fees lift the APR above the rate; property tax and insurance are not included.
3. Early payoff
Take the same $20,000 loan with $800 of upfront fees: its full-term APR is about 8.2%. But if you repay at month 18 of 60, those fees are absorbed over far fewer months, so the effective cost rises to roughly 9.8% — the same fees, compressed. That is why a low APR is not always the cheapest if you do not keep the loan.
Assumptions & limitations
This calculator models a fixed-rate amortized loan with regular payments and solves APR numerically. It assumes no missed or late payments, no variable-rate changes, and no balloon payment unless you enter one. Fee treatment follows your classification, and PMI (where entered) is assumed to apply until the balance reaches 78% of the home’s value.
Not included by default: property tax, homeowners insurance, prepayment penalties, variable-rate changes, and third-party charges you classify as excluded. A lender’s official APR may differ because fee inclusion depends on loan type, jurisdiction, and disclosure rules. Use this to compare offers; rely on the lender’s disclosure for exact figures.
Sources & methodology
APR is solved as the nominal annual rate where the present value of scheduled payments equals the net proceeds after upfront finance charges, using standard amortization. Whether a fee belongs in APR depends on loan type and jurisdiction; results are estimates, not a lender disclosure. Links open in a new tab.