What is the difference between APR and interest rate?

The interest rate is the cost of borrowing the principal. APR includes the interest rate plus additional costs like origination fees, closing costs, and discount points, expressed as a yearly rate. APR is always equal to or higher than the interest rate.

Why is my APR higher than my interest rate?

Because APR factors in upfront costs. You pay fees at closing but the payment is calculated on the full loan amount. Since you effectively received less money but pay the same amount, the true cost (APR) is higher.

Is a lower APR always better?

Generally yes, but context matters. A lower APR with high upfront fees only saves money if you keep the loan long enough. For short holding periods, a slightly higher APR with low fees may cost less overall.

What fees are included in APR?

APR typically includes origination fees, discount points, mortgage broker fees, and certain closing costs. It usually excludes appraisal fees, title insurance, attorney fees, and prepaid items like taxes and insurance escrow.

How do discount points affect APR?

Each discount point costs 1% of the loan amount and typically lowers the rate by 0.25%. Points increase the APR initially but lower it over time. The break-even point is usually 4–6 years — if you keep the loan longer, points save money.

Does APR apply to credit cards?

Yes. Credit card APR represents the annualized interest rate charged on carried balances. Unlike mortgage APR, credit card APR typically does not include fees like annual fees or late charges — it is simply the annualized periodic rate.

APR Calculator

Calculate the Annual Percentage Rate (APR) for any loan including fees, points, and closing costs to reveal the true cost of borrowing.

Loan Amount

Nominal Interest Rate

Loan Term

yrs

Upfront Fees

Fee Type

Discount Points

pts

Annual Percentage Rate (APR)

6.70%

True cost of borrowing including fees

Nominal Interest Rate

6.50%

Stated rate before fees

APR vs Rate Difference

+0.20%

Extra cost from fees/points

Monthly Payment

$1,896.20

Based on nominal rate

Total Fees & Points

$6,000.00

Upfront costs rolled into APR

Total Interest

$382,633.47

Over full loan term

Total Cost

$682,633.47

All payments combined

Daily Periodic Rate

0.0183%

APR ÷ 365

APR vs Nominal Rate

Nominal Rate

6.50%

APR

6.70%

Term Comparison

Term	Monthly Payment	Total Interest	Total Paid
5 yrs	$5,869.84	$52,190.67	$352,190.67
10 yrs	$3,406.44	$108,772.72	$408,772.72
15 yrs	$2,613.32	$170,397.98	$470,397.98
20 yrs	$2,236.72	$236,812.66	$536,812.66
25 yrs	$2,025.62	$307,686.45	$607,686.45
30 yrs	$1,896.20	$382,633.47	$682,633.47

Planning notes, formulas, and examples

About the APR Calculator

The Annual Percentage Rate (APR) represents the true yearly cost of borrowing money, incorporating not just the interest rate but also fees, points, and other charges. While a lender may quote a low nominal interest rate, the APR reveals the real cost after factoring in origination fees, closing costs, and discount points.

Federal law (Truth in Lending Act) requires lenders to disclose the APR so borrowers can compare loan offers on equal footing. Two loans with the same interest rate can have vastly different APRs if one charges higher fees. Understanding APR is essential for making informed borrowing decisions.

This calculator computes the APR from your loan terms, fees, and discount points. It shows the difference between the stated interest rate and the true APR, helping you evaluate whether paying upfront fees to lower your rate actually saves money. Use the term comparison table to see how different loan lengths affect your total cost.

When This Page Helps

Lenders compete on interest rate, but the real comparison should be APR. A loan at 6.5% with $8,000 in fees may be more expensive than one at 6.75% with $2,000 in fees. This calculator strips away the marketing and shows you the true cost, enabling apples-to-apples comparisons between loan offers.

How to Use the Inputs

Enter the total loan amount.
Input the nominal (stated) interest rate.
Set the loan term in years.
Add upfront fees as dollars or a percentage.
Include any discount points purchased.
Compare the APR to the nominal rate to see the fee impact.
Use the term comparison table to evaluate different loan lengths.

Formula used

APR is calculated by finding the interest rate that equates the payment on (Loan Amount − Total Fees) to the actual monthly payment. Iterative bisection method: find r where (P − F) × [r(1+r)^n] / [(1+r)^n − 1] = actual payment. APR = r × 12 × 100.

Example Calculation

Result: APR: 6.68% vs 6.50% nominal — $6,000 in fees adds 0.18% to true cost

A $300,000 loan at 6.5% for 30 years with $6,000 in fees yields a monthly payment of $1,896. But the actual amount received is $294,000. The APR of 6.68% reflects this — you pay 6.5% interest on $300,000 but only received $294,000, making the effective rate higher.

Tips & Best Practices

Always compare APR, not just interest rate, when shopping for loans.
Higher fees increase your APR more on shorter-term loans because the cost is spread over fewer payments.
Discount points lower your rate but increase your APR for the first few years — they pay off only if you keep the loan long enough.
A no-closing-cost loan may have a higher rate but lower APR for short holding periods.
The APR does not include private mortgage insurance (PMI) or homeowner insurance — factor those separately.
If two loans have the same APR but different structures, choose the one with lower upfront costs if you might sell or refinance early.

APR and the Truth in Lending Act

The Truth in Lending Act (TILA) requires lenders to disclose the APR on every loan advertisement and disclosure. This federal regulation ensures borrowers can compare the true cost of different loan offers. Without APR, a lender could advertise a low rate while burying thousands in fees.

When APR Misleads

APR assumes you keep the loan for the full term. If you refinance or sell after 5 years, a low-fee loan with a slightly higher rate may cost less than a low-rate loan with high fees. Always consider your expected holding period when comparing APR numbers.

APR for Variable-Rate Loans

For adjustable-rate mortgages (ARMs), the initial APR reflects the introductory rate and fees but does not predict future rate changes. The margin and index determine future rates, so the initial APR may understate the long-term cost.

Sources & Methodology

Last updated: March 29, 2026

Methodology

This page treats APR as a closed-end loan worksheet. It first calculates the contractual monthly payment from the full stated principal, note rate, and term. It then subtracts entered upfront fees and discount points from the amount financed and uses a bisection search to solve for the annual rate that would amortize that lower net amount to the same monthly payment over the same number of payments.

That makes the output useful for comparing fixed-payment loan offers with different fee loads, but it is not a substitute for an official lender disclosure. Regulation Z APR calculations depend on which charges are treated as finance charges, exact payment timing assumptions, irregular first periods, and product-specific disclosure rules, so a lender's disclosed APR can differ from this simplified worksheet.

Sources

Appendix J to Part 1026 - Annual Percentage Rate Computations for Closed-End Credit Transactions (Consumer Financial Protection Bureau) — Primary Regulation Z appendix for closed-end APR computations.
§ 1026.22 Determination of annual percentage rate (Consumer Financial Protection Bureau) — APR accuracy and disclosure rule for closed-end credit under Regulation Z.

Frequently Asked Questions

The interest rate is the cost of borrowing the principal. APR includes the interest rate plus additional costs like origination fees, closing costs, and discount points, expressed as a yearly rate. APR is always equal to or higher than the interest rate.