What is APR?
The annual percentage rate (APR) is the yearly cost of a loan including both interest and certain fees, such as origination fees, points and some closing costs. Two loans with the same interest rate can have very different APRs. In the US, the Truth in Lending Act requires lenders to show the APR so borrowers can compare offers.
How APR is calculated
The calculator works out your monthly payment from the loan amount and interest rate. Then it finds the rate at which those same payments would repay only the money you actually receive (the loan minus up-front fees). That rate, multiplied by 12, is the APR.
Example: a $20,000 loan at 9.5% for 60 months with $600 in fees plus a 2% origination fee ($400) has an APR of about 11.7% — the $1,000 in fees adds more than two percentage points to the 9.5% rate.
APR vs interest rate
| Interest rate | APR | |
|---|---|---|
| Includes | Interest only | Interest + most lender fees |
| Used to calculate | Your monthly payment | True yearly cost for comparison |
| Usually | Lower | Equal or higher |
Tips for comparing loans
- Compare APRs for loans with the same term — fees spread over a longer term raise the APR less.
- APR assumes you keep the loan for the full term. If you’ll pay off or refinance early, up-front fees cost you more than the APR suggests.
- For credit cards, APR is simply the interest rate — there are no up-front fees built in. See the credit card payoff calculator.
- Check the full schedule with the loan calculator or mortgage calculator.
Frequently asked questions
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the money; APR adds lender fees to show the total yearly cost.
Why is my APR higher than my interest rate?
Because fees like origination charges or points are included in the APR.
Is a lower APR always better?
Usually, for loans with the same term that you’ll keep to the end.
What fees are included in APR?
Typically origination fees, points and some closing costs — but not every fee, such as appraisal or late fees.