What is an APR calculator?
An APR calculator estimates the annual percentage rate associated with a loan. APR is designed to express the cost of credit as a yearly rate and can reflect certain finance charges in addition to the interest rate used to calculate scheduled loan payments.
This calculator is built for a regular closed-end installment loan with equal monthly payments. If you first need a standard payment estimate, use our Loan Calculator. It is useful for educational comparisons when you know the loan amount, note interest rate, number of monthly payments and prepaid finance charges you want included in the estimate.
How does the APR calculator work?
First, the calculator determines the scheduled monthly payment from the loan amount, note rate and term. For a month-by-month principal and interest view, the Amortization Calculator provides the detailed schedule. It then subtracts the prepaid finance charges entered from the loan amount to estimate the amount financed.
Next, it solves for the monthly rate that makes the present value of the scheduled payments equal to that amount financed. The estimated annual percentage rate is the solved monthly rate multiplied by 12.
What formula does the APR calculator use?
For the regular equal-payment loan modeled here, the monthly payment is calculated with the standard amortizing-loan formula.
The APR step solves for a periodic rate i such that the present value of all scheduled payments equals the amount financed.
The annualized estimate is then i × 12. The CFPB's Regulation Z §1026.22 describes APR as a measure of the cost of credit expressed as a yearly rate.
How do you use this APR calculator?
- Enter the principal or loan amount.
- Enter the stated annual interest rate used for the loan payment.
- Enter the number of monthly payments.
- Enter prepaid finance charges you want included in this simplified estimate.
- Select Calculate APR.
- Review the estimated APR together with the monthly payment, amount financed, finance charge and total payments.
What is the difference between interest rate and APR?
The interest rate is generally the rate applied to the outstanding principal to calculate interest. Home-loan shoppers can compare this cost measure alongside a payment estimate from the Mortgage Calculator. APR is a broader annualized measure of credit cost. When certain finance charges are part of the transaction, APR can be higher than the note interest rate even though the scheduled payment is still calculated from the note rate.
The CFPB explains finance charges under Regulation Z §1026.4. Whether a specific charge must be included in an official disclosure depends on the applicable rule and facts of the transaction.
What do the APR calculator results mean?
Estimated APR is the annualized rate solved from the amount financed and equal monthly payment stream. Amount financed is the loan amount less the prepaid finance charges entered in this simplified model.
Finance charge is the difference between the total scheduled payments and the estimated amount financed. Total of payments is the sum of the equal monthly payments over the entered term.
What are the limitations of this APR calculator?
Official APR disclosures can be more complex than a regular equal-payment example. Vehicle borrowers may also want to compare payment assumptions with the Auto Loan Calculator. Exact payment dates, odd first periods, irregular payments, payment frequencies, fee exclusions, tolerances and other rules may affect the disclosed APR.
The CFPB's Appendix J to Regulation Z contains actuarial-method guidance for APR computations. Use lender disclosures for the legally required APR on a real credit transaction.