APR vs Interest Rate Calculator

The interest rate is the cost of borrowing the principal amount. APR (Annual Percentage Rate) includes the interest rate plus all fees and costs associated with the loan (origination fees, points, closing costs). APR gives you the true cost of borrowing and is the best metric for comparing loans.

APR is higher because it incorporates loan fees and closing costs into the rate. For example, a loan with 6% interest and $3,000 in fees might have a 6.3% APR. The APR spreads these costs over the loan term, showing you the effective rate you're actually paying.

Always compare APR when shopping for loans. Two loans can have the same interest rate but different APRs due to fees. The loan with the lower APR is cheaper overall. However, if you plan to pay off the loan early, a lower interest rate with higher upfront fees might be better since you won't pay the full APR over the term.

APR typically includes: origination fees, discount points, mortgage insurance, underwriting fees, and processing fees. It does NOT include third-party fees like appraisal, title search, or credit report fees. Ask your lender for a complete breakdown of what's included in their APR calculation.

For fixed-rate loans, the APR stays the same for the entire term. For adjustable-rate mortgages (ARMs), the APR can change when the rate adjusts. Credit cards and lines of credit have variable APRs that can change with market rates. Always check if your loan has a fixed or variable APR.