APR Calculator
↻ Updated 2026Fees and points make a loan cost more than its quoted rate. See the true effective APR once upfront fees are folded into the cost of borrowing.
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How to read the gap between your rate and your APR
A 6.5% loan with $600 of fees costs 7.74% — the fee is worth 1.24 percentage points, which is a bigger difference than most rate shopping ever finds. The gap isn't a fixed property of the fee, though. The same $600 is worth 5.58 points on a one-year loan and 0.29 points on a thirty-year one, because a fee paid once is spread across however long you borrow.
How fees are converted into an effective APR
APR answers one question: if this loan had no fees at all, what interest rate would make it cost exactly what it costs? The trick is that you pay interest on money you never received. Borrow $20,000 with $600 of fees financed and you're making payments on a $20,600 note while $20,000 landed in your account. Your payment is a $20,600 payment; your loan is a $20,000 loan.
The calculation runs in two steps: compute the real payment on the full note at the quoted rate, then ask what rate would produce that same payment on just the amount you received. The amortization formula can't be inverted for the rate algebraically, so the tool bisects — guessing, computing the payment, and narrowing eighty times until the two match well beyond the penny.
nominal payment = loanPayment(amount + fees, nominal rate, n) = $403.06 on the defaults solve for APR such that: loanPayment(amount, APR, n) = nominal payment i.e. the rate at which a loan of only the money you received would carry the payment you actually make APR gap = APR − nominal rate
- amount
- What actually reaches you — the amount financed — not the note amount; this is the number the whole calculation pivots on
- fees
- Upfront charges: origination, points, processing — assumed financed into the loan rather than paid in cash at closing
- nominal rate
- The quoted interest rate, before fees — what the loan is advertised at — the number that means least
- n
- The term in months — the fee is spread across it, so a longer term dilutes the same fee into a smaller APR gap
- APR
- The effective annual rate, with fees folded in — the single figure that makes two offers comparable
This is close to how APR is legally defined. Under the Truth in Lending Act, implemented in Regulation Z, the APR is derived from the amount financed — principal minus prepaid finance charges — and the payment stream on the note, which is precisely the calculation above. Regulation Z's tolerances and its rules about which charges count are more intricate than any calculator, so your disclosure may differ slightly from this figure.
One distinction trips people up: a fee financed into the loan and a fee paid in cash at closing are the same cost but different arithmetic. This tool models the financed case. Write a cheque for the $600 instead and your payment is lower — but you're still out $600, and your APR is very nearly the same. APR is doing its job when it refuses to be fooled by which pocket the money came from.
Worked examples
Example: $20,000 at 6.5% with $600 of fees over 5 years
The calculator's defaults. You receive $20,000, the lender charges $600 in origination and points, and the note runs 60 months at a quoted 6.5%.
| Amount you receivethe amount financed | $20,000 |
| Fees3.00% of the loan | $600 |
| Note amountwhat you actually make payments on | $20,600 |
| Monthly payment$20,600 at 6.5% over 60 months | $403.06 |
| Effective APRthe rate at which $20,000 carries a $403.06 payment | 7.74% |
| APR gapwhat the $600 is worth, expressed as rate | 1.24% |
| Total interest over the term$403.06 × 60 − $20,600 | $3,583.76 |
A 3% fee bought a 1.24-point rate increase. Put differently: this "6.5% loan" is a 7.74% loan, and a competing offer at 7.5% with no fees would be cheaper despite quoting a whole point higher. That inversion is common and it's the reason APR is a mandatory disclosure rather than a courtesy — the quoted rate is not a comparable number, and it isn't meant to be one.
Example: the same $600 fee on a 1-year and a 30-year loan
Hold everything constant — $20,000 received, $600 of fees, 6.5% quoted — and move only the term slider. The fee never changes. Its effect changes enormously.
| 12 monthsgap of 5.58 points | APR 12.08% |
| 24 monthsgap of 2.93 points | APR 9.43% |
| 36 monthsgap of 2.00 points | APR 8.50% |
| 60 monthsgap of 1.24 points — the default | APR 7.74% |
| 120 monthsgap of 0.66 points | APR 7.16% |
| 360 monthsgap of 0.29 points | APR 6.79% |
The same $600 is worth 5.58 points over a year and 0.29 points over thirty. A fee is a one-time charge, so the longer you borrow, the more months it's spread across and the smaller its annualised bite. Two consequences follow. Fees hurt most on short loans, where there's little time to dilute them. And APR systematically understates the cost of a fee on a loan you'll repay early — a 30-year mortgage APR of 6.79% assumes you keep it for 30 years, and almost nobody does.
Frequently asked questions
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the money. The APR is the cost of the loan — rate plus fees, expressed as a single annualised rate. The CFPB draws the line the same way: the rate is what you're charged on the balance, the APR is the broader measure that includes most of what the lender charges you to get it.
On the defaults here, the rate is 6.5% and the APR is 7.74%, and the $600 gap between them is invisible in the rate. That's why the Truth in Lending Act requires the APR to be disclosed on every consumer loan: it forces every lender to compute the same figure the same way, so a number that's otherwise unshoppable becomes shoppable.
Does APR include all fees?
No, and this is where APR comparison quietly leaks. Regulation Z includes charges that are part of the cost of credit — origination fees, points, underwriting and document fees, mortgage insurance premiums, and similar lender-imposed costs. It excludes charges you'd pay in a comparable cash transaction, along with things like appraisal and credit report fees when collected as an application fee, and third-party settlement or escrow costs.
So two loans with identical APRs can still cost different amounts at closing, because the excluded fees don't appear in either figure. APR is a far better comparison than the quoted rate; it isn't a complete one. This calculator makes no distinction at all — whatever you type in the fees field is folded in, which is the right treatment if you're entering the finance charges and an overstatement if you're entering every cost of the deal.
Is APR the same as APY?
No, and the two differ on both axes people expect. APR is what you pay to borrow; APY is what you earn on a deposit. That much is common knowledge. The subtler difference is what each accounts for: APR folds in fees, while APY folds in compounding.
That's why a credit card's 22.9% APR and a savings account's 4% APY aren't measured the same way. Compound a card's monthly interest through the year and the true annual cost exceeds the stated APR — US card disclosure uses the nominal APR rather than an effective compounded rate. Broadly: you want APY high and APR low, and you should never compare one to the other directly.
Is it better to pay points or take a higher rate?
It's a break-even question about time. Paying points buys a lower rate for a fee now, and because a fee's annualised cost shrinks the longer you hold the loan, points get cheaper the longer you keep it and are worst if you refinance or sell early.
The disclosed APR doesn't settle it, because APR assumes you hold the loan for its full term. Enter 360 months and the $600 fee costs 0.29 points; enter 60 months, as if you'll refinance in five years, and the same fee costs 1.24 points. Same loan, same fee — the APR describing it depends on how long you keep it, which is a fact about you rather than about the loan.
How is APR calculated on a loan?
By solving backwards, not by adding anything up. No formula converts a rate and a fee into an APR directly — you have to find the rate at which the loan's payment stream discounts back to the amount you actually received, and that equation has no closed-form solution. Every APR you've ever been quoted was produced by a numerical search. This page bisects eighty times, pinning it far past the two decimals displayed.
So APR is sensitive to the payment schedule, not just the totals: two loans with identical fees, rates and total interest can carry different APRs if the payments are timed differently. For the total-dollars view instead of the rate view, the debt consolidation calculator compares loans on total interest.
Where this APR differs from the one on your disclosure
The method matches Regulation Z's logic — amount financed against the payment stream — but a disclosed APR is built with more rules than a slider can carry.
- It doesn't know which of your fees are finance charges — Regulation Z has a specific list of what counts, and it excludes several real costs — appraisal and credit report fees collected as application fees, most third-party settlement charges. The calculator folds in whatever you enter, so entering your total closing costs produces a number higher than your disclosed APR. Only upfront charges are modelled at all: annual fees and ongoing servicing costs have nowhere to go.
- Fees are assumed financed, not paid in cash — The model adds the fee to the note and computes the payment on the larger balance. Paying the fee at closing produces a slightly different payment — the cost is nearly identical, but the arithmetic isn't, and your disclosure will reflect whichever you actually did.
- Fixed rate, fully amortizing, monthly payments only — No adjustable rates, no interest-only periods, no balloon payments, no irregular first payment. Regulation Z's Appendix J handles all of these; this page handles none of them, and an ARM's disclosed APR rests on assumptions this model can't express.
- It assumes you hold the loan to term — The biggest divergence from reality, and it's shared with the legal disclosure. Repay early and the fee is amortized over fewer months than assumed, so your realised APR is higher than either figure — dramatically so on a long loan, as the second example shows.
- ·Standard loan amortization formulas
Rates, brackets and limits here are checked against primary sources. If a number still looks off, email support@realmoneyiq.com and we'll review and fix it.
RealMoneyIQ provides free educational calculators, not financial, tax, investment or legal advice. Results are estimates based on the assumptions you enter and publicly published rates; your actual outcome will differ. Always confirm decisions with a licensed professional who knows your full situation.