APR Calculator

How to use the calculator

1. Loan amount: the principal in the offer.
2. Interest rate: the note rate, usually quoted per year.
3. Term: the number of monthly payments, e.g. 60 for a 5-year loan or 360 for a 30-year mortgage.
4. Fees: prepaid finance charges, such as origination or underwriting fees and discount points. Leave out costs that are not finance charges (see below).
5. Fees added to the loan: tick the box if the fees are rolled into the balance. Leave it unticked if they are paid at closing or deducted from the money you receive.

How APR is calculated

The calculator first works out the monthly payment from the loan balance and the note rate. It then finds the monthly rate r at which the money you actually receive equals the present value of all payments:

amount financed = Σ payment ÷ (1 + r)^t, t = 1 … n

The APR is r × 12. This is the actuarial method that Regulation Z (12 CFR 1026.22) requires, with the details in its Appendix J. Because fees reduce the amount financed but not the payments, the APR is higher than the note rate whenever there are fees.

• Amount financed is what you receive: the loan amount minus fees paid upfront.
• Finance charge is the total of payments minus the amount financed: interest plus fees.
• Effective annual rate compounds the same monthly rate: (1 + r)^12 − 1. It is not part of the federal disclosure.

What counts as a finance charge. Under 12 CFR 1026.4, it includes interest, points, loan fees, service charges and, for most loans, appraisal and credit report fees. For loans secured by real estate, title, appraisal, credit report, notary and document preparation fees are excluded if bona fide and reasonable. An application fee charged to every applicant is also excluded.

Worked examples

1. $20,000 personal loan with an $800 origination fee

At 8% for 60 months, the payment is $405.53. If the $800 is deducted from the loan, you receive $19,200. The finance charge is $5,131.67 and the APR is 9.744%, compared with an 8.000% APR without the fee.

If instead the fee is added to the loan, you borrow $20,800, receive the full $20,000 and pay $421.75 a month. The finance charge is $5,304.94 and the APR is 9.675%.

2. The same fee over a shorter term

With 36 payments instead of 60, the payment is $626.73 and the APR rises to 10.796%. A flat fee weighs more heavily when it is spread over fewer months.

3. Mortgage points

The APRs are almost identical, because the APR spreads the points over all 30 years. If you expect to sell or refinance much sooner, the points have less time to pay off.