APR Annual Percentage Rate Calculator
APR Calculator
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APR (Annual Percentage Rate) is the true annual cost of borrowing, expressed as a yearly rate. Unlike the nominal interest rate, APR includes fees, points, and other charges, making it the standard comparison tool for loans and credit cards. This calculator converts a loan's interest rate and fees into a single APR so you can compare offers accurately.
Interest Rate vs APR
The interest rate is the base cost of borrowing the principal. APR includes the interest rate plus other loan costs (origination fees, discount points, mortgage broker fees, certain closing costs) spread over the loan term. APR is always equal to or higher than the interest rate. The wider the gap, the more fees are embedded.
APR accounts for: - Interest rate - Origination fees - Discount points - Broker fees - Other required charges APR is calculated as the effective interest rate on the loan net of principal: it is the rate r such that the present value of all payments equals the loan proceeds received.
A $300,000 mortgage at 6.5% with $4,000 in fees has an APR slightly above 6.5% because you effectively borrowed less but pay back the same amount.
APR for Credit Cards
Credit card APR works differently. Cards may have multiple APRs: purchase APR, balance transfer APR, cash advance APR, and penalty APR. Unlike mortgage APR which accounts for fees, credit card APR is essentially the interest rate (since credit cards rarely have origination fees). Daily periodic rate = APR / 365.
| Credit Card APR Type | When It Applies |
|---|---|
| Purchase APR | Standard purchases when balance is not paid in full |
| Balance Transfer APR | Balances moved from another card |
| Cash Advance APR | ATM withdrawals, often higher |
| Penalty APR | After late payment, can be 29.99%+ |
| Promotional APR | 0% intro offer, usually 12-18 months |
Frequently Asked Questions
Should I compare loans by interest rate or APR?⌄
Always compare by APR when loans have different fee structures. Two loans with the same interest rate can have very different APRs if one charges significant origination fees. The loan with the lower APR is generally cheaper. However, if you plan to pay off or refinance before the loan term ends, a lower-fee loan with slightly higher rate may actually cost less -- APR assumes you hold the loan to maturity.
Why is APR sometimes lower than the interest rate?⌄
This should not happen for standard loans. If you see it, it may be a calculation error or the lender is using a non-standard APR definition. For adjustable-rate mortgages, the APR sometimes starts lower than the initial rate because it uses a different calculation methodology that accounts for expected rate adjustments.
What is APY and how is it different from APR?⌄
APY (Annual Percentage Yield) accounts for compound interest and is used for savings and investment products. APR is used for loans. APY is always higher than or equal to the nominal interest rate because it includes the effect of compounding. When comparing savings accounts, APY is more useful because it shows the actual annual return including compounding.
Does APR affect my credit score?⌄
APR itself does not affect your credit score. However, the behaviors associated with high-APR debt (carrying large balances, making minimum payments) can hurt your score by increasing credit utilization. Shopping for a loan generates hard inquiries, which have a small temporary impact. Multiple mortgage or auto loan inquiries within 14-45 days are typically counted as a single inquiry.