Guide
APR vs Interest Rate: Which Number Should I Compare?
A loan offer can show an interest rate and a different annual percentage rate, or APR. They answer different questions. The interest rate describes the charge on the borrowed balance. APR is a broader annual measure of borrowing cost that includes certain fees. Compare like with like rather than choosing the smallest number on the page.
Why can APR be higher?
A lender may charge interest plus an origination fee or other borrowing charges. APR expresses applicable costs as an annual rate, so it is often higher than the interest rate. Exactly which costs are included depends on the loan and the disclosure rules that apply.
APR is not simply the interest rate plus a fee percentage. The amount received, payment schedule and timing of charges matter. Ask the lender for the disclosed APR rather than inventing one from a fee total.
Which rate goes into this calculator?
Use the loan's annual interest rate in the “Interest rate % / year” field, alongside the loan amount and term in years. The Loan Calculator estimates equal monthly payments and the interest paid on a fixed-rate, monthly repayment schedule.
Do not substitute APR to make the calculator include fees. It does not have a fee field or calculate APR. If a fee is financed, confirm whether it is already included in the loan principal before entering the amount.
A payment example before fees
Enter a loan amount of 10,000, an annual interest rate of 12 and a term of 1 year. The estimated monthly payment is 888.49, with about 661.85 in interest over 12 payments. These are amortizing-loan figures, not a simple 12% charge on the original balance for a whole year.
If a separate upfront fee of 200 applies, add it to your budgeting comparison. It is not included in the calculator's displayed total, and adding it does not by itself give you an APR.
How to compare offers fairly
Compare loans with similar amounts, terms and rate types. Check APR, fees, monthly payment and total repayment together. A longer term can lower the payment while increasing total cost.
For adjustable-rate loans, an advertised APR does not tell you the highest future rate. Ask what can change and whether early repayment charges apply. Use calculator estimates for planning, then confirm the payment and disclosures with your lender.
Sources and further reading
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