APR Calculator
Two offers, side by side. See which one is genuinely cheaper once the fees are counted, rather than which one advertises the lower rate.
Offer B is cheaper
$216
Over 5 years, offer B costs $216 less in interest and fees — even though its quoted rate is higher.
- 7.967%
- quoted 6.9%
- 7.4%
- quoted 7.4%
- $4,205
- $3,989
- $395.08
- $399.81
Why the quoted rate misleads
A rate describes what you are charged on the balance. It says nothing about the money that never reached you.
APR is the rate at which the payments you actually make discount back to the money you actually received.
Borrow $20,000 with $500 of fees and you receive $19,500 — but you repay as though you had all of it. There is no closed form for the rate that reconciles those two, so it is solved numerically, which is why lenders quote it rather than expecting you to work it out.
What APR still misses
- It assumes you keep the loan for the full term. Pay it off early and a front-loaded fee costs you far more than the APR suggests.
- It cannot compare loans of different lengths. A lower APR over seven years can cost more in total than a higher one over three.
- Not every charge is legally required to be in it, and which ones are depends on the type of loan.
Questions people ask
The interest rate is what you are charged on the outstanding balance. The APR expresses the rate plus the fees as a single annual figure, so two offers with different fee structures can be compared on one number. With no fees, the two are the same.
Regularly. A lender charging 6.9% with a $500 fee and one charging 7.4% with none look like an easy choice until you count the fee. Which wins depends on the loan size and the term — a fee is a fixed cost, so it hurts most on small or short loans.
APR spreads a one-off fee across the life of the loan. Over seven years it barely registers; over one year it dominates. That is also why APR cannot be used to compare loans of different lengths — it answers 'what rate is this equivalent to', not 'what will this cost me'.
It is the right starting point, but not the only consideration. If you expect to repay early, a loan with no fee and a slightly higher rate is usually better than the APR implies, because you avoid the fee entirely rather than amortizing it. Prepayment penalties, flexibility and the lender's servicing all sit outside the number.
Related calculators
An estimate for comparing offers, not a quote. Which charges a lender must include in a disclosed APR is set by regulation and varies by loan type.