What next?
APR lets you compare deals. These are the tools that use it on a specific decision.
What your result means
The effective APR is the yearly rate that makes the cash you actually receive equal to the stream of repayments you make. Because fees reduce the cash you receive without reducing your payments, APR is always at least the nominal rate — and the gap between the two is exactly what the fees cost you.
Why this one is different
A row labelled "cash you actually receive" is the one to watch: an arrangement fee reduces the advance rather than being added to the bill, and the APR is solved by iteration against that smaller sum. Monthly payment, total interest and fees, and total repaid complete the picture, so an offer can be judged on the rate and on the cash it puts in your account.
A lower rate with a fee can be the more expensive loan
Lenders can shift cost between the headline rate and the fees. A 5.9% loan with a large arrangement fee frequently costs more than a 6.9% loan with none, especially over a short term where the fee is spread across fewer payments.
APR collapses both into one number, which is why regulators require it in advertising. Compare APRs over the same term — an APR on a two-year loan is not directly comparable to one on a ten-year loan.
How it works
APR is an internal rate of return. The calculator finds the monthly rate at which the present value of all your repayments equals the net amount you actually receive after fees, then compounds that monthly rate over twelve months to express it annually.
How to use this calculator
- Choose your currency.
- Enter the loan amount before fees.
- Set the nominal rate and term.
- Enter any fees deducted at the start or added to the balance.
- Compare the resulting APR against other offers over the same term.
Formula
net = amount received after fees, M = monthly payment, i = the monthly rate solved for, k = 1…n payments.
Example calculation
A £15,000 loan at 6.9% over 5 years with a £295 fee:
Cash received = £14,705
Effective APR ≈ 8.0%
The gap between 6.9% and 8.0% is the fee, expressed as an annual rate.
Frequently asked questions
What is the difference between APR and interest rate?＋
The interest rate is the cost of the money alone. APR bundles the interest rate together with compulsory fees and expresses the whole thing as one yearly figure, so it is the fairer basis for comparison.
Why does my lender quote a different APR?＋
Lenders follow prescribed rules about which fees must be included and how part-years are treated. Optional insurance, for example, is usually excluded. Small differences in those conventions move the figure slightly.
Is a lower APR always better?＋
Over the same term and amount, yes. Across different terms it can mislead — a short loan concentrates fees into fewer payments and shows a higher APR even when the total cost is lower.
Which fees count towards APR?＋
Fees that are compulsory to obtain the credit — arrangement fees, product fees, mandatory insurance. Optional extras and charges that only apply if something goes wrong, such as late payment fees, are excluded. This is why two lenders can compute different APRs on identical borrowing if they treat a fee differently.
Why does a short-term loan show such a huge APR?＋
Because APR annualises the cost, and a fee that is small in absolute terms is enormous when expressed as an annual rate on a loan lasting weeks. A thirty-day loan with a modest fee can produce an APR in the hundreds or thousands of per cent. The figure is arithmetically correct but close to meaningless for very short terms.
What is representative APR?＋
The rate offered to at least fifty-one per cent of successful applicants — which means up to forty-nine per cent are legitimately offered something worse. Your actual rate depends on your credit profile, and being quoted more than the advertised representative APR is normal rather than a mistake.
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Assumptions & limitations
Every figure here comes from a simplified model. Keep these limits in mind when reading your result:
- Assumes fees are paid at the outset and repayments are monthly and equal.
- Uses the internal-rate-of-return method; statutory APR rules vary slightly by jurisdiction.
- Excludes optional insurance, late fees and variable-rate changes.
- Compare APRs only across loans of the same term.