Why is APR usually higher than the interest rate?

Because APR spreads upfront fees over the loan term as if they were additional interest, so it's almost always equal to or higher than the stated interest rate alone.

Should I compare loans by rate or APR?

APR is generally the better comparison tool between loans with different fee structures, since it standardizes for the total cost of borrowing, not just the headline rate.

APR Calculator

Estimate a loan's APR (Annual Percentage Rate) — the effective yearly cost including fees, not just the stated interest rate.

Loan amount

Interest rate (note rate)

Loan term

months

Fees & closing costs

APR

6.11%

Effective annual rate including fees

How It Works

Why APR differs from the interest rate

The stated interest rate only reflects interest. APR also factors in loan fees (origination fees, points, etc.), spreading their cost over the loan term to show the true effective rate.

How it's estimated

This calculator finds the rate that would produce the loan's stated payment if you'd only actually received the loan amount minus fees — a common approximation method for APR.

Example Calculation

A $20,000 loan at a 6% stated rate with $500 in fees has an APR somewhat higher than 6%, since you're effectively paying interest on money you didn't fully receive.

Common Mistakes

Comparing loans by interest rate alone — a lower rate with high fees can have a higher APR than a slightly higher rate with no fees.
Assuming APR is the exact rate you'll pay in every scenario — it's a standardized comparison tool, not a guarantee of your total cost in every situation (e.g. if you pay off early).

Frequently Asked Questions

Why is APR usually higher than the interest rate?: Because APR spreads upfront fees over the loan term as if they were additional interest, so it's almost always equal to or higher than the stated interest rate alone.
Should I compare loans by rate or APR?: APR is generally the better comparison tool between loans with different fee structures, since it standardizes for the total cost of borrowing, not just the headline rate.