APR Calculator

The interest rate sets the monthly payment; the APR sets nothing and describes everything. The APR is the rate at which the payments, discounted back to today, come to exactly what the borrower actually received after fees. If there are no fees the two are identical. Every fee, point and closing cost pushes the APR above the rate while leaving the payment untouched.

Usually the lower APR, if you keep the loan for its full term. The comparison changes if you will sell or refinance early, since fees are paid once at the start but the rate difference accrues over the whole term. A low-rate, high-fee loan is a bet on staying put, and the shorter you hold it the worse that bet looks.

Anything the borrower pays as a condition of getting the loan: origination fees, discount points, broker fees, most closing costs. Charges that are not a condition of borrowing, such as home insurance or property taxes on a mortgage, are outside it. Lenders differ in what they include at the edges, which is one reason two APRs on the same loan can differ slightly.

Adding them to the loan usually shows the lower APR, because you keep the cash and repay the fee at the loan's own rate, while costing more in total dollars because interest accrues on it for the whole term. Both figures are honest and they point opposite ways, which is a useful reminder that the APR answers one question rather than every question.

Because a revolving balance has no fixed term or payment schedule to discount, so a card APR is a simple nominal rate: the daily periodic rate times 365. That is why a card quoted at 24 percent APR really costs 26.8 percent a year once monthly compounding is counted. A fixed loan's APR already accounts for compounding within the term.