Finance · Quick Answer

How is APR calculated?

APR (Annual Percentage Rate) = ((Interest + Fees) / Principal) / Loan Term in Years × 100. It includes the interest rate plus any up-front fees, spread across the life of the loan, so APR is always equal to or higher than the base interest rate.

The formula

APR standardizes the true yearly cost of borrowing so borrowers can compare loans with different fee structures.

APR = ((Total Interest + Total Fees) / Loan Amount) / Term in Years × 100

Example

A $10,000 loan at 6% interest over 5 years, with $400 in origination fees:

Total interest: roughly $1,600
Total cost: $2,000
APR ≈ ((2,000 / 10,000) / 5) × 100 = 4% per year in fees-plus-interest amortized

That's why the APR on your loan disclosure is typically 0.25%-1.0% higher than the quoted interest rate.

When APR and interest rate differ the most

Short-term loans (fees amortize over fewer years)
Loans with heavy origination or discount-point fees
Credit cards (APR ≈ interest rate, since there are usually no up-front fees)

Run the numbers

All calculators →

Mortgage Payment Calculator

Calculate your monthly mortgage payment including principal and interest. See total cost over the life of your loan.

Auto Loan Calculator

Calculate your monthly car loan payment based on price, down payment, rate, and term.

Personal Loan Calculator

Calculate monthly payments and total interest on a personal loan.