APR Calculator
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APR (Annual Percentage Rate) is the true annual cost of borrowing — it includes the interest rate plus all fees and charges expressed as a yearly percentage. Unlike the stated interest rate, APR lets you compare loans on an apples-to-apples basis.
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Tip: For short-term loans (refinancing in <5 years), a lower rate with higher fees might be worse than a higher rate with no fees. Always calculate the break-even point.
- 1APR includes: interest rate + origination fees + broker fees + mortgage points
- 2APR = (fees + total interest) / (loan amount × loan term in years) × 100
- 3A loan with a lower rate but high fees can have a higher APR than a higher-rate loan with no fees
- 4Use APR when comparing loans; use interest rate to calculate monthly payments
$200,000 loan, 6.5% rate, $4,000 fees, 30 years=APR ≈ 6.72%Fees add ~0.22% to effective rate
$200,000, 6.8% rate, $0 fees, 30 years=APR = 6.80%No-fee loan may cost more overall
| Feature | Interest Rate | APR |
|---|---|---|
| What it includes | Interest only | Interest + all fees |
| Used for | Calculating monthly payment | Comparing loan total cost |
| Legal requirement | Must be disclosed | Must be disclosed (TILA) |
| Always higher? | — | APR ≥ interest rate (usually) |
| Best when comparing | Same-fee loans | Any loans |
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Fun Fact
The Truth in Lending Act (TILA) of 1968 requires lenders to disclose the APR to prevent deceptive lending. Before TILA, lenders could advertise a low rate while burying fees in the fine print.
References
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