A worked example
A $200,000 loan at a stated 6% rate with $3,000 in fees over 30 years has a true APR of about 6.14% — meaningfully higher than the headline rate once the fees are accounted for.
Frequently asked questions
Why is APR usually higher than the interest rate?
The interest rate only reflects the cost of borrowing the money itself. APR spreads upfront fees — origination charges, points, and similar costs — across the loan as if they were extra interest, so it's almost always equal to or higher than the stated rate.
Why does APR matter more on shorter loans?
The same dollar amount of fees gets spread over fewer payments, so it has a bigger proportional effect on a short-term loan's APR than on a long-term one — which is why a low-rate, high-fee loan can have a deceptively high APR if you don't keep it long enough to dilute the fees.
This calculator provides estimates for general informational purposes only and is not financial advice.