This APR calculator is designed to help you calculate the Annual Percentage Rate (APR) for a variety of loans, including personal loans, car loans, and home mortgages. The calculator will also help you understand the cost of your loan by providing you with the monthly payment amount, total interest that you will pay, and the total payments to fully pay off the loan.
APR is the annual cost of the loan, and so it includes not just the annual interest rate, but also other loan costs that you would have to pay. This might be upfront loan fees or service charges. APR gives you the true picture of the cost of borrowing, which is why knowing your loan's APR is important.
To use this APR calculator, enter your loan amount, interest rate, loan term length, and any additional fees that you have to pay for your loan. These additional fees are what makes your APR different from your loan's interest rate. If you did not have to pay any additional loan fees, then your APR would be the same as your loan's interest rate.
The formula for calculating APR involves adding the loan fees with the total interest paid on the loan, compared to the original loan principal amount and the loan term length. To calculate APR, the formula is:
Where the following is used in the APR formula:
Let’s say that you took out a $10,000 personal loan with an interest rate of 5% for a term of 5 years. The bank charged you a $500 origination fee. What would the loan’s APR be?
First off, you would need to know your monthly payment amount. You’ll be told this amount, but you can also calculate it yourself. To calculate your loan’s monthly payment:
r = Periodic Interest Rate
n = Number of Payments
Since you’re looking for the monthly loan payment, the periodic interest rate would be monthly. You can find that by dividing your annual interest rate (5%) by the number of months in a year (12). This gives you a periodic interest rate of 5%/12 = 0.4167%.
The number of payments is 12 payments in a year, for five years. That gives you a total of 12 x 5 = 60 payments.
Plugging those numbers into the loan payment formula:
Loan Payment = $188.71
Now that you know your monthly loan payment amount, you can calculate the total interest paid. To do so, find out the total amount paid, which is the monthly loan payment multiplied by the total number of monthly payments made. That would be:
$188.71 x 60 payments = $11,322.60 total paid
Next, the total interest paid would be the total amount paid minus the original loan amount of $10,000. This means the total interest paid would be $11,322.60 - $10,000 = $1,322.60.
We now have all the numbers that we need to use the APR formula. Amortized loans, which are loans that have scheduled monthly payments towards both principal and interest, have a slightly different APR calculation. This would include mortgages, personal loans, and car loans. Instead of using the original loan amount borrowed, you will need to use the average principal balance outstanding. This is roughly half of the original loan amount.
Plugging the numbers into the formula, with an average loan balance of $5,000, gives us an APR of roughly 7.30%. For a more accurate number, you can use an amortization calculator to find the average principal balance outstanding. This then gives us an APR of 6.98%.
Did you know that Canadian lenders are required by law to tell you the APR of your loan in your loan agreement? This helps to protect borrowers by ensuring that they are aware of the cost of borrowing.
When you are considering taking out a loan, make sure you ask the lender for the loan’s APR so that you can compare different offers. Remember, the lower the APR, the less you will pay in interest and fees over the life of the loan.
Some costs and fees can be included in the APR calculation, while others aren’t. This section will take a look at what is and what isn’t included in the APR.
Some lenders might charge an origination fee for personal loans, lines of credit, and car loans. For example, Symple is an online personal loan lender that charges an origination fee of up to 5%. That can significantly increase the cost of the loan, and so you’ll want to consider this when comparing loan offers. Non-government student loans, such as those by a bank or credit union, may also have additional fees.
Not all costs would be included in the APR. For example, mortgage default insurance premiums for insured mortgages, which are required for high-ratio mortgages, would not be considered a loan fee. Title insurance, mortgage prepayment penalties, and other optional charges that are not required would also not be included in the APR. Costs not related to the loan itself, such as property taxes for a home, would not be included in a mortgage’s APR. A loan's APR only includes mandatory fees and charges that are required to take out the loan.