How this APR calculator works
The APR calculator has two tabs. Loan APR works for any fixed-rate loan, such as a personal, car, or business loan: enter the loan amount, term, interest rate, how interest compounds, how often you pay, and the fees, split into fees added to the loan and fees paid upfront. Mortgage APR is a mortgage APR calculator for U.S. home loans: enter the home price, down payment, term, rate, lender fees, discount points, and PMI. Both tabs show the APR next to the payment, total interest, and total cost, so the Loan APR tab also works as a car loan APR calculator for a dealer's financing offer.
For example, a $30,000 loan at 7.5% for 5 years with monthly payments and $900 in upfront fees costs $601.14 a month. Because you only walk away with $29,100 but repay as if you borrowed $30,000, the APR is 8.792%.
What is APR?
APR, or annual percentage rate, is the yearly cost of a loan including both interest and most lender fees, expressed as a single rate. In the U.S., the Truth in Lending Act and its Regulation Z require lenders to disclose the APR so borrowers can compare offers that mix different rates and fees. An annual percentage rate calculator lets you check a disclosed APR or compare quotes before you apply.
APR vs. interest rate
The interest rate sets your payment: it is what the lender charges on the balance. The APR adds the cost of fees on top, so it is the same as the interest rate when there are no fees and higher when there are. On the Mortgage APR tab, the default $382,500 loan at 6.5% for 30 years with $4,200 in lender fees, one point ($3,825), and $150 a month in PMI for 94 months has a 6.993% APR. Two loans with the same rate can have very different APRs, and a loan with a lower rate but high fees can cost more than one with a slightly higher rate.
How to calculate APR
First, the regular payment is found from the interest rate, the amount borrowed (including any fees added to the loan), and the number of payments. The interest rate is converted to a rate per payment period using the compounding you chose. Next, the calculator finds the rate per period at which those same payments would repay only the cash you actually receive, which is the loan amount minus fees paid upfront:
Loan amount − upfront fees = Σ payment ÷ (1 + i)k, k = 1 … n
Following Regulation Z's actuarial method, the APR is that rate per period i × the number of payment periods in a year (12 for monthly, 26 for every 2 weeks, 365 for daily). For a mortgage, the lender fees and the cost of points come off the loan amount, and PMI is added to each payment for the months it is charged.
Frequently asked questions
Is a 0% APR possible with fees?
No. With a 0% interest rate and no fees the APR is 0%, but any fee you pay pushes the APR above zero because you receive less than you repay.
Which fees go into the APR?
Finance charges such as origination, underwriting, and processing fees, discount points, mortgage broker fees, and mortgage insurance count, as does an application fee charged only to approved borrowers. An application fee charged to every applicant, costs you would pay in a cash purchase, and reasonable appraisal, title, and credit report fees on a mortgage are usually left out. Enter only the fees that count.
How do I use this as an APR calculator for a loan with fees deducted?
If the lender takes an origination fee out of the loan before paying it to you, enter the full loan amount and put the fee under fees paid upfront. A $10,000 personal loan at 10% for 3 years with a $500 fee deducted has a $322.67 payment and a 13.562% APR.
Can I convert an APR back to an interest rate?
Not from the APR alone; an APR to interest rate calculator needs the fees and term too. Enter the loan's fees and adjust the interest rate here until the APR matches the one you were quoted, or use the Interest Rate Calculator if you know the payment.
Why does the APR understate the cost if I pay off early?
The APR spreads the fees over the full term. If you sell, refinance, or prepay a mortgage after a few years, the fees are spread over fewer payments, so the true yearly cost is higher than the APR. When you expect to pay off early, favor the loan with lower upfront fees.
Limitations
The calculator assumes a fixed rate, equal payments starting one period after the loan is made, and no prepayment. PMI is charged until the scheduled balance falls to 80% of the home price; your lender may remove it at a different point, and automatic removal happens at 78%. Lenders follow detailed Regulation Z rules for odd first periods and which fees count, so the APR on your disclosure may differ slightly. Treat results as estimates, not financial advice.
What's changed
- Fixed the amortization schedule at very high interest rates, where principal could stay unpaid until the last payment.
- Launched.
References
- Regulation Z, Appendix J to Part 1026, Annual Percentage Rate Computations for Closed-End Credit Transactions
the actuarial method this calculator follows: the APR is the rate per unit period multiplied by the number of unit periods in a year
- Regulation Z, 12 CFR 1026.22, Determination of annual percentage rate
the APR relates the amount and timing of what the borrower receives to the amount and timing of payments
- Regulation Z, 12 CFR 1026.4, Finance charge
points, loan fees, and premiums for insurance protecting the lender against default, such as PMI, count as finance charges, while application fees charged to all applicants are excluded, as are title, appraisal, and credit report fees on a mortgage if they are bona fide and reasonable in amount
- CFPB: When can I remove private mortgage insurance (PMI) from my loan?
you can ask to cancel PMI once the balance reaches 80% of the home's original value, and it ends automatically at 78%