See the true cost of a loan once fees are factored in
💡 Why This Matters The interest rate a lender advertises isn't the full story — origination fees and other loan costs push the real cost higher. APR bakes those fees in, giving you an apples-to-apples number for comparing loan offers.
In the U.S., the Truth in Lending Act requires lenders to disclose APR, not just the interest rate, specifically so borrowers can compare the true cost of different loans — it's a legal disclosure requirement, not just a helpful extra.
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Your monthly payment is calculated from the loan amount and stated interest rate using standard amortization. But since fees reduce what you actually receive, the true APR is found by solving for the rate at which that same payment stream equals your loan amount minus fees — not the full loan amount. This is the same core method lenders use for Truth in Lending Act disclosures.
True APR will always be equal to or higher than the stated interest rate — equal only when there are no fees at all. The gap between them tells you how much fees are really costing you, expressed as an annualized rate rather than a flat dollar figure.
This calculator assumes fees are paid upfront and rolled into the APR calculation the standard way. Some loans have more complex fee structures (deferred fees, variable rates, balloon payments) that aren't captured by this simplified model — always check your official Truth in Lending disclosure for the lender's exact APR.
When comparing two loan offers, use APR rather than the stated rate — a loan with a lower stated rate but higher fees can end up costing more than one with a slightly higher rate and lower fees. APR puts both on the same footing.
Example: Say you borrow $10,000 at a stated 6% interest rate over 36 months, with $200 in fees rolled into the loan. Your monthly payment is based on the full $10,000 at 6%, but since you only actually receive $9,800 after fees, the true cost works out to a 7.362% APR — noticeably higher than the advertised 6% rate.
The advertised interest rate only reflects the cost of borrowing the money itself. APR adds in fees — origination fees, points, and other loan costs — spread across the loan term, giving a more complete picture of what the loan actually costs you.
APR, whenever possible — it accounts for fees, so it's the more accurate way to compare the true cost of two different loan offers, even if their advertised interest rates look similar.
Yes — the same dollar amount in fees has a smaller relative impact on a larger loan, so the gap between stated rate and true APR tends to shrink as the loan amount grows and grow as it shrinks.