Why the advertised rate is not the whole story
Many loans charge an origination fee, taken from the amount you receive. You still repay the full loan, so the effective cost is higher than the interest rate suggests.
How it is calculated
The calculator finds the payment from the stated rate, then solves for the rate that makes the present value of those payments equal to the cash you actually receive. It uses a repeated search until the answer settles.
Example
Borrow $10,000 over 36 months at a 6% rate with a 5% origination fee. You receive $9,500 but repay about $304 a month. The effective APR works out to roughly 9.5%, much higher than 6%.
How to use it
Compare offers by APR, not just rate. A loan with a lower rate and a high fee can cost more than one with a slightly higher rate and no fee.
Notes
Regulated lenders in many countries must disclose APR. Check your own rules and read the loan agreement.
Frequently asked questions
Is APR the same as interest rate?
No. APR also reflects certain fees, so it is a better measure of cost.
Are all fees included?
This tool includes the origination fee only.
Why is the effective APR higher?
Because you pay interest on the full amount while receiving less cash.