What is the difference between Interest Rate and APR?

The Interest Rate is the cost of borrowing the principal amount. The APR (Annual Percentage Rate) includes the interest rate PLUS other costs like broker fees, closing costs, and points. APR is a more accurate measure of the total cost of a loan.

Why is APR higher than the interest rate?

Because APR factors in the upfront fees you pay to get the loan. Since you receive less money (net of fees) but pay back the full amount plus interest, the effective rate is higher.

Does this work for mortgages?

Yes. Mortgages are required by law (Truth in Lending Act) to disclose APR so consumers can compare loans with different fee structures.

Simple APR Calculator | Loan Effective Rate Calculator | Finmato

Compare Loans Like a Pro

Banks love to advertise low interest rates while hiding fees in the fine print. Lender A offers 5% interest with $2,000 fees. Lender B offers 5.5% interest with $0 fees. Which is cheaper? Our Simple APR Calculator levels the playing field by combining rate and fees into a single percentage number, allowing for apples-to-apples comparisons.

What is APR?

**APR** stands for **Annual Percentage Rate**. It represents the yearly cost of funds over the term of a loan. Unlike the "nominal interest rate," APR accounts for fees and additional costs associated with the transaction.

In the US, the Truth in Lending Act (TILA) requires lenders to disclose the APR to borrowers, ensuring transparency in lending.

How to Use This Tool

Gather your Load Estimate document and input:

Loan Amount: The principal you are borrowing.
Interest Rate: The rate quoted by the bank.
Term: How many months/years the loan lasts.
Costs/Fees: Sum up "Origination Charges", "Application Fees", and "Points".

We will calculate the new effective rate (APR). If the APR is significantly higher than the Interest Rate, you are paying high upfront fees.

Mortgage Shopping

Should you pay "points" to lower your rate? Compare the APR of a "No Point" loan vs. a "1 Point" loan to see which is mathematically superior.

Personal Loans

Fintech lenders often charge large "origination fees" (up to 8%). A 10% rate with an 8% fee might actually be a 15% APR loan!

Car Loans

Dealerships might wrap "processing fees" or "warranties" into the loan. Including these costs in the APR calculation reveals the true price of the deal.

Frequently Asked Questions

Can APR be lower than the interest rate?

Generally, no. APR is almost always higher because it *adds* costs. However, in rare "lender credit" scenarios where a bank pays you to take a higher rate, APR could technically be lower (very uncommon).

Does APR affect my monthly payment?

Not directly. Your monthly payment is determined by the Interest Rate. APR is just a measurement tool for comparison. However, if you finance the fees (roll them into the loan), your principal increases, which *does* increase your payment.

Is a lower APR always better?

Mathematically, yes. A lower APR means lower total cost of borrowing. However, if you plan to pay off the loan very early, a loan with high upfront fees (even if it has low APR over 30 years) might be a bad choice.

Financial Accuracy

Calculations follow standard banking formulas for APR. Actual loan offers may vary based on creditworthiness.

Data Privacy

We do not store your loan data. All math is performed locally in your browser.

Simple APR Calculator