How this works
The interest rate a lender quotes is rarely the rate you actually pay. Origination fees, discount points, and other upfront charges raise the true cost of borrowing — and the way to compare lenders fairly is the APR (Annual Percentage Rate), which folds those fees back into an effective interest rate. This calculator works it out for you: enter the loan amount, the nominal rate, the term, and total upfront fees, and it computes the monthly payment based on the headline rate, then solves for the APR that produces the same payment when applied only to the cash you actually receive.
The formula
P = loan amount. r = monthly nominal rate. n = total months. Fees include origination, points, broker fees and any upfront mandatory charge. The calculator uses bisection to find the APR — accurate to ~0.001%. Excludes optional add-ons (extended warranties, optional insurance) since those vary by user.
Example calculation
- You're offered a $25,000 loan at 6.5% over 5 years with $800 in origination fees.
- Monthly payment based on the nominal rate ≈ $489. Cash you actually receive: $25,000 − $800 = $24,200.
- True APR ≈ 7.84% — almost 1.4 percentage points higher than the headline 6.5% rate.
Frequently asked questions
Why don't lenders just advertise the APR?
Many are required to (US Truth in Lending, EU Consumer Credit Directive) but the headline number you see in marketing is almost always the lower nominal rate, which makes the deal look better. The APR usually appears in the small print or on the disclosure page. Always check both before signing.
What's a 'point' on a mortgage?
1 point = 1% of the loan amount, paid upfront, usually in exchange for a lower interest rate (typically 0.25 percentage points lower per point). Whether it pays off depends on how long you keep the loan: enter the points as part of "Upfront fees" to see the true APR with and without paying them.
Is APR the same as APY?
No. APR is the cost of borrowing — what you pay. APY (Annual Percentage Yield) is the return on savings, including compounding — what you earn. A 5% APR loan and a 5% APY savings account are not symmetric: the APR ignores intra-year compounding (it's a simple annualised rate), the APY includes it.
When should I use the lower-APR loan vs the lower-monthly-payment loan?
Lower APR almost always wins on total cost — that's what APR is for. A lower monthly payment usually means a longer term, which inflates total interest paid even at the same rate. Pick lower payment only if cash flow is genuinely tight; otherwise go with lower APR and shorter term.