What is APR and why can it be higher than my interest rate?

APR (Annual Percentage Rate) expresses the yearly cost of borrowing, including interest and most fees. When fees are present, APR is typically higher than the nominal interest rate because it reflects the total cost of credit.

Which fees are included in APR?

Origination fees, discount points, and certain lender-imposed charges that are conditions of the credit are included. Taxes and optional add-ons are generally excluded. Always verify with your lender and applicable regulations.

Does financing a fee versus paying it upfront change APR?

Yes. Financing a fee increases the amount you repay over time, which affects payments and the computed APR. Paying a fee upfront reduces the net amount disbursed, also changing APR.

How accurate is this APR calculator?

The calculator uses the standard amortization formula and solves the internal rate of return to compute APR, consistent with Regulation Z methodology. Results depend on the accuracy of your inputs and assumptions (fixed rate, regular payments).

Is APR the same as APY or EAR?

No. APR expresses cost of borrowing; APY/EAR expresses yield from investing or saving, taking compounding into account. This tool computes APR for loans.

Can I use this calculator for zero-interest promotions?

Yes. If the nominal rate is 0% but there are fees, the APR will still be positive because fees create a borrowing cost.

What payment frequency does this tool assume?

Monthly payments with fixed rate and term. This aligns with most personal loans. Adjustable schedules or irregular payments are not modeled.

APR Calculator

This professional-grade APR calculator helps borrowers and lenders compute the true annual percentage rate (APR) for fixed-rate personal loans. Enter the loan terms and any fees (origination and other charges), and the tool will calculate the effective APR, monthly payment, net amount disbursed, and total finance charges.

Loan Inputs

Loan amount *

Nominal annual interest rate (%) *

Loan term *

Months Years

Origination fee (%)

Finance this fee If checked, the fee is added to the principal.

Other included fees ($)

Finance these fees If checked, these fees are added to the principal.

Ready

Results

Effective APR —

Monthly payment —

Net amount disbursed to you —

Total of payments —

Total interest paid —

Total finance charge —

Assumptions: fixed rate, monthly amortization, equal payment schedule, no prepayments. Results rounded to 2 decimals.

Data Source and Methodology

Authoritative Data Source: 12 CFR Part 1026 (Regulation Z) — Truth in Lending (TILA), current eCFR edition. View the regulation.

All calculations strictly follow the formulas and definitions provided by this source.

This calculator computes scheduled payments using the standard amortization equation and derives APR by solving the internal rate of return (IRR) of cash flows: the borrower receives the net disbursed proceeds at time 0 and repays equal monthly installments over the term. Both prepaid and financed fees that are finance charges are included.

The Formula Explained

Monthly payment for principal P, nominal annual rate R, months n:

$ r = \frac{R}{12} $

$ \text{Payment} = \dfrac{P \cdot r}{1 - (1 + r)^{-n}} $ for r > 0; otherwise $ \text{Payment} = \dfrac{P}{n} $.

Net amount disbursed (prepaid fees deducted):

$ \text{Net} = L - f_{\text{prepaid}} $

APR as the annualized IRR of cash flows (borrower perspective):

$ \text{Net} = \sum_{k=1}^{n} \dfrac{\text{Payment}}{(1 + i)^{k}} \quad \Rightarrow \quad \text{APR} = (1 + i)^{12} - 1 $

Total interest and finance charge:

$ \text{Interest} = n \cdot \text{Payment} - P $

$ \text{FinanceCharge} = \text{Interest} + f_{\text{prepaid}} + f_{\text{financed}} $

Glossary of Variables

L (Loan amount): contractual principal before fees.
R (Nominal annual interest rate): quoted yearly rate used to compute payments (APR excludes fees).
n (Term): number of monthly payments.
P (Amortized principal): L plus financed fees added to principal.
f_prepaid: finance charges paid upfront (deducted from the payout).
f_financed: finance charges rolled into the loan.
Net: amount you actually receive at time 0 (L − f_prepaid).
Payment: fixed monthly installment computed from P, R, and n.
APR: annualized internal rate of return of the loan cash flows including fees.

How It Works: A Step-by-Step Example

Inputs: L = $10,000; R = 12% APR (nominal); n = 36 months; origination fee = 5% prepaid; other fees = $100 prepaid.

Monthly rate r = 12% / 12 = 1%.
Payment = 10,000 × 0.01 / [1 − (1.01)^(−36)] ≈ $332.55.
Net disbursed = 10,000 − (500 + 100) = $9,400.
Solve IRR: find i such that PV of 36 payments of $332.55 equals $9,400 → i ≈ 1.379% per month.
APR = (1 + 0.01379)^(12) − 1 ≈ 17.8%.

This example shows how fees increase the APR above the nominal rate.

Frequently Asked Questions (FAQ)

What is APR and how is it computed here?

APR is the annualized cost of credit including most fees. This tool solves the internal rate of return of the loan cash flows (net proceeds today, equal payments monthly), then annualizes the resulting monthly rate.

Which fees should I include?

Include finance charges such as origination fees, discount points, and lender-imposed fees that are a condition of credit. Exclude government taxes and optional add-ons. Refer to Regulation Z for precise definitions.

Does paying fees upfront versus financing them change the result?

Yes. Paying fees upfront reduces the net amount you receive, raising APR. Financing fees increases the amount you repay, which can also raise APR.

Why is APR higher than my quoted interest rate?

Because APR reflects both interest and finance charges. With any non-zero fees, APR is typically higher than the nominal rate.

Can APR ever be equal to the interest rate?

If there are no finance charges beyond interest and payments are monthly, APR and the nominal annual rate are equal (ignoring compounding conventions).

What if my interest rate is 0%?

If fees exist, APR will be positive despite a 0% rate because you receive less than you repay. If both rate and finance charges are zero, APR is 0%.

Is this calculator suitable for mortgages or ARMs?

This tool assumes fixed monthly payments. Mortgages with complex escrow, adjustable rates, or irregular payments require a mortgage-specific APR model.

Tool developed by Ugo Candido. Content verified by CalcDomain Editorial Team.
Last reviewed for accuracy on: September 12, 2025.