What is the difference between interest rate and APR?

The interest rate prices the borrowing itself; APR (annual percentage rate) also includes mandatory upfront costs like origination fees and points, spread over the loan's life. That makes APR the apples-to-apples number for comparing loan offers.

APR Calculator

Q: Why is APR higher than the interest rate?

Because fees reduce the money you effectively receive while payments stay based on the full amount. A $200,000 mortgage at 6.5% with $6,000 in fees has an APR of roughly 6.78%.

Q: Is a lower APR always the better loan?

For loans you'll keep to term, generally yes. If you may sell or refinance early, a low-fee loan with a slightly higher rate can beat a low-APR loan with big upfront costs, because you won't be around long enough to amortize the fees.

Two loans, same rate, different fees — very different costs. Find the true APR of any loan offer once the fees are counted.

Effective APR (fees included)

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Monthly payment

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Amount you effectively receive

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Total interest + fees

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APR premium over rate

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How APR is computed

APR answers: what rate would produce these same payments if the fees were baked in? Formally, it's the rate that makes the present value of your payments equal the amount you actually received (loan minus fees). There's no closed-form solution — it's solved numerically, which is what this calculator does.

Find r such that: Loan − Fees = Payment × [1 − (1+r/12)⁻ⁿ] ÷ (r/12)

Worked example

$200,000 mortgage at 6.5% for 30 years with $6,000 in fees:

Payment: $1,264.14/mo on the full $200,000 — but you effectively received $194,000.

Solving for the rate on $194,000 gives an APR of about 6.78%.

Using APR to compare offers

Lenders must disclose APR under the Truth in Lending Act precisely so you can compare across different fee structures. When comparing: hold the term constant (a 15-year APR can't be compared to a 30-year), watch for "no-fee" loans that hide costs in a higher rate (the APR reveals it), and if you expect to sell or refinance early, weight upfront fees more heavily than the APR does — the refinance calculator's break-even logic applies to points, too. Model any offer's payment with the loan calculator or mortgage calculator.

Frequently asked questions

What's the difference between interest rate and APR?

Rate prices the borrowing; APR adds mandatory fees, making it the true comparison number.

Why is APR higher than the interest rate?

Fees shrink what you receive while payments stay full-size. $200,000 at 6.5% with $6,000 fees ≈ 6.78% APR.

Is a lower APR always the better loan?

If you keep the loan to term, usually. Exiting early favors low-fee loans even at slightly higher rates.

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Note: Computed by numerical solution on a fixed-rate amortizing loan; official APR disclosures may classify fees slightly differently. Not financial advice. Last reviewed: July 2026.