Two loans at "7.5%" can cost very different amounts, because the interest rate ignores fees and the APR does not. This calculator computes your monthly payment from the stated rate, then solves for the true APR — the rate that accounts for upfront fees — using the same iterative mathematics lenders' disclosure systems use.
Interest Rate vs APR
The interest rate prices the principal alone. The APR (annual percentage rate) reprices the loan as if the fees were interest: because fees reduce the money you actually receive while your payment is calculated on the full amount, the effective rate rises above the stated one:
The calculator finds the rate that makes the payments — computed on the full amount at the stated rate — exactly amortize the effective principal, solving the annuity equation numerically and annualizing the result. With zero fees, APR equals the interest rate exactly; every dollar of fees opens the gap, and the shorter the term, the wider each fee dollar spreads.
Worked Example
A 500 origination fee deducted from proceeds:
- Monthly payment (on 622.12**
- Total paid: 2,396.32
- Money actually received: 500 = $19,500
- True APR: 9.22%
The fee — just 2.5% of the loan — added 1.72 percentage points to the real rate, because it is recovered over only three years. Stretch the same loan and fee over 60 months and the APR premium shrinks (the fee amortizes over more payments); compress it into 12 months and the premium balloons. That term sensitivity is precisely why APR exists: it puts a 3-year loan with fees and a 5-year loan without them on one comparable scale.
Comparing Offers with APR
Use APR as the first screen between loan offers of the same term: the lower APR is the cheaper loan, full stop. Across different terms, pair APR with total cost — a longer loan often shows a lower APR yet costs more in total interest, and the calculator reports total interest and total payment for exactly that check. Know what the fee input should contain: origination fees, discount points, processing and underwriting charges, and broker fees are finance charges that belong in it; third-party pass-through costs (appraisals, title insurance, credit reports) are traditionally excluded from disclosed APR, and optional products (payment protection, extended warranties rolled into the loan) are excluded from the disclosure but very much included in your cost — add anything the lender requires you to buy into your own fee figure for an honest comparison. In the US, the Truth in Lending Act requires the APR disclosure on consumer loans for this reason; mortgage shoppers should also distinguish APR from the rate used for the payment itself, since the payment follows the note rate, never the APR.
Limitations
The calculator models a fixed-rate, fully amortizing loan with fees deducted upfront. Adjustable rates (whose disclosed APR assumes the initial rate persists), balloon payments, interest-only periods, and fees financed into the balance rather than deducted all alter the true cost picture. It also annualizes a monthly-compounded rate; jurisdictions with different APR conventions (the EU's APRC uses its own formula) can produce slightly different figures for the same loan.
Frequently Asked Questions
Why is my payment based on the interest rate, not the APR?
Because the payment is a cash-flow fact: principal, note rate, term. APR is an analytical construct that folds fees into a rate for comparison — no lender bills you "at the APR." This calculator shows both so you can budget by the payment and shop by the APR.
Can APR be lower than the interest rate?
With positive upfront fees, no — fees only add cost. A lender credit (negative fees, where the lender pays you toward closing in exchange for a higher rate) can push the effective APR below the note rate, which is the mirror-image trade: lower upfront cost, higher ongoing cost, usually wrong for long-held loans.
What fees should I enter?
Everything the lender charges you to get the loan: origination, processing, underwriting, points, broker fees. Skip genuine third-party pass-throughs (appraisal, title, government recording) if you are matching a disclosed APR — or include them if what you want is your personal all-in cost of borrowing; the math obliges either way.