About the APR Calculator

The Annual Percentage Rate (APR) is one of the most important numbers to understand when taking out a loan. It represents the true annual cost of borrowing money. Unlike the interest rate, the APR includes the interest rate plus any additional lender fees, points, and closing costs. This makes it a more comprehensive and accurate way to compare different loan offers.

Why is APR Important?

Imagine you are offered two loans. Loan A has a 6.0% interest rate, while Loan B has a 6.2% interest rate. At first glance, Loan A seems cheaper. However, if Loan A has high upfront fees and Loan B has very low fees, the APR for Loan A might actually be higher. The APR gives you an apples-to-apples comparison of the total cost of each loan.

Frequently Asked Questions (FAQ)

What fees are included in APR?

APR typically includes fees charged by the lender to set up the loan. This can include origination fees, discount points (money you pay upfront to lower your interest rate), and other administrative or processing fees. It generally does not include third-party costs like appraisal fees or title insurance.

What is the difference between APR and Interest Rate?

The **interest rate** is simply the cost of borrowing the principal loan amount. The **APR** is a broader measure that includes the interest rate plus all the lender-charged fees. Because it includes these extra costs, the APR is almost always higher than the interest rate.

What is a "good" APR?

A good APR depends on the type of loan, current market conditions, and your credit score. For mortgages, you can compare the APR you are offered to the national average, which is often published by financial news outlets. The lower the APR, the less you will pay to borrow money.