APR (Annual Percentage Rate) is the true yearly cost of borrowing, including the interest rate PLUS all fees, points, and costs spread over the loan term. Two loans with the same interest rate can have very different APRs if one has higher fees. Federal law requires lenders to disclose APR so borrowers can make apples-to-apples comparisons.
The difference between interest rate and APR is crucial. A 6% mortgage rate with $8,000 in fees has an APR of about 6.25%. A competing offer at 6.125% with $3,000 in fees has an APR of 6.2% — the higher rate is actually cheaper.
Mortgage points (each point = 1% of loan amount) reduce your rate but increase upfront costs. Paying 1 point ($3,000 on a $300,000 loan) might reduce your rate by 0.25%. This lowers your payment by $42/month, breaking even after 71 months. APR accounts for this tradeoff.
For credit cards, APR equals the interest rate since there are no upfront fees. But credit card APR can be variable (tied to the prime rate) or promotional (0% for 12-18 months). Always check what the APR reverts to after the promotional period.
Reach for this tool whenever a financial decision hinges on this type of calculation. Small differences in rate or term become large differences in total cost or return over multi-year horizons — differences that only become visible when you run the actual numbers.
A frequent error is using annual rates where monthly rates are required (or vice versa). Simply dividing an annual rate by 12 is only an approximation — the correct conversion for compound calculations uses the (1 + r)^(1/12) − 1 formula.
A first-time buyer models three scenarios before making an offer: 10%, 15%, and 20% deposit on a £280,000 property. The calculator shows exactly how the monthly payment and total interest cost change with each deposit level, making the decision visible rather than speculative.
APR Calculation
APR solves: Loan Amount = Σ [Payment ÷ (1 + APR/12)^n] for n = 1 to N, where actual cash received = Loan − Fees
APR is the rate that makes the present value of all payments equal to the net loan proceeds (loan amount minus fees). It's solved iteratively since there's no closed-form solution.
A $300,000 mortgage at 6.25% for 30 years with $6,500 in closing costs and 1 point ($3,000).
Result: APR = 6.52%. The true cost is 0.27% higher than the stated rate, or approximately $29,000 extra over 30 years.
Interest rate is the cost of borrowing the principal. APR includes the interest rate PLUS fees, points, and other costs, giving the true annual cost. APR is always equal to or higher than the interest rate.
Generally yes, but consider the loan term. A lower APR over 30 years may cost more total than a slightly higher APR over 15 years. Also consider if you'll stay long enough to recoup upfront costs.
Credit cards are unsecured debt (no collateral), so lenders charge 15-25%+ APR to compensate for default risk. Secured loans (mortgages, auto) have lower APR because the asset serves as collateral.
A 'good' APR depends on market conditions. In 2026, below 6% is competitive for a 30-year fixed. Compare against the national average and get at least 3 quotes.
Find the interest rate that makes the present value of every monthly payment equal to the loan amount minus all upfront fees. There is no closed-form formula — it's solved iteratively. This calculator does it instantly: enter loan amount, rate, fees and term and you get the true APR to 3 decimals.
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