Determine the true cost of your loan by calculating the Annual Percentage Rate.
Base Monthly Payment:$0.00
Stated Interest Rate:0.00%
Calculated APR:0.00%
Total Interest Paid:$0.00
Total Cost of Loan:$0.00
What is the Difference Between Interest Rate and APR?
While most borrowers focus exclusively on the interest rate, the APR (Annual Percentage Rate) provides a more accurate picture of what you will actually pay. The interest rate is the percentage of the principal you pay annually to borrow the money. However, APR includes that interest rate plus other costs such as loan processing fees, mortgage insurance, and discount points.
Why APR is Usually Higher Than the Stated Rate
When you take out a loan, you often pay "upfront costs" or "closing costs." These are deducted from the money you receive or added to your total debt. Because you are paying these fees to get the loan, the effective cost of borrowing increases. If a loan has zero fees, the APR and interest rate will be identical.
Example Calculation
Imagine you borrow $200,000 at a 7% interest rate for 30 years with $4,000 in upfront fees.
Interest Rate: 7.00% (The rate used to calculate your monthly payment).
Monthly Payment: $1,330.60.
The APR Logic: We calculate what interest rate would result in that same $1,330.60 payment if you only actually received $196,000 ($200k minus $4k fees).
Resulting APR: Approximately 7.21%.
Key Factors Impacting APR
1. Discount Points: Paying points upfront lowers your interest rate but increases your APR initially because of the high upfront cost.
2. Loan Term: Fees are spread out over the life of the loan. A shorter-term loan with high fees will have a much higher APR than a long-term loan with the same fees.
3. Origination Fees: These are the "administrative costs" charged by the lender to process your application.
function calculateRateVsAPR() {
var P = parseFloat(document.getElementById('loanPrincipal').value);
var ratePercent = parseFloat(document.getElementById('statedRate').value);
var years = parseFloat(document.getElementById('loanTermYears').value);
var fees = parseFloat(document.getElementById('upfrontFees').value);
if (isNaN(P) || isNaN(ratePercent) || isNaN(years) || isNaN(fees) || P <= 0) {
alert("Please enter valid positive numbers for all fields.");
return;
}
var n = years * 12;
var r = (ratePercent / 100) / 12;
// Monthly Payment Formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
var monthlyPayment = 0;
if (r === 0) {
monthlyPayment = P / n;
} else {
monthlyPayment = P * (r * Math.pow(1 + r, n)) / (Math.pow(1 + r, n) – 1);
}
var totalInterest = (monthlyPayment * n) – P;
var totalCost = totalInterest + P + fees;
// APR Calculation (Iterative solver for Internal Rate of Return)
// We need to find the rate 'apr_r' such that:
// (P – fees) = monthlyPayment * [(1 – (1 + apr_r)^-n) / apr_r]
var netPrincipal = P – fees;
var lowRate = 0;
var highRate = 1; // 100% monthly is unrealistically high, good ceiling
var apr_r = 0;
for (var i = 0; i netPrincipal) {
lowRate = midRate;
} else {
highRate = midRate;
}
}
apr_r = (lowRate + highRate) / 2;
var annualAPR = apr_r * 12 * 100;
// Display results
document.getElementById('resMonthlyPay').innerText = "$" + monthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resStatedRate').innerText = ratePercent.toFixed(3) + "%";
document.getElementById('resAPR').innerText = annualAPR.toFixed(3) + "%";
document.getElementById('resTotalInterest').innerText = "$" + totalInterest.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotalCost').innerText = "$" + totalCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('aprResults').style.display = "block";
}