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The APR Calculator finds the true Annual Percentage Rate of a loan, including all fees, so you can compare the real cost of different borrowing options on a level playing field. Enter the loan amount, the quoted nominal interest rate, the loan term, and any upfront fees or charges (arrangement fees, broker fees, processing fees). The calculator works backwards from your actual monthly payment to find the effective annual rate that accounts for all these costs — the APR. This is the single number that regulators in the UK, US, and EU require lenders to display prominently, because it allows accurate comparisons between products with different fee structures, compounding periods, and rate presentations.
The Annual Percentage Rate is a standardised measure of the cost of credit expressed as a yearly rate. A loan with a 5% nominal interest rate and a £1,500 arrangement fee is not actually a 5% loan — the fee increases the true cost of borrowing significantly, especially on shorter-term loans. The APR captures this by spreading all fees across the loan term and expressing the total cost as an annual percentage. This is why two mortgages with identical headline rates can have different APRs — one may have lower fees and a higher rate, the other higher fees and a lower rate. Comparing APRs rather than headline rates reveals which is genuinely cheaper over the repayment period.
In the UK, lenders are legally required to display an Annual Percentage Rate under the Consumer Credit Act. UK mortgage lenders use the Annual Percentage Rate of Charge (APRC), which includes all mandatory fees over the mortgage term. In the US, the Truth in Lending Act (TILA) requires lenders to disclose APR including closing costs and other charges. However, different jurisdictions and product types calculate APR slightly differently — mortgage APR calculations include certain fees that personal loan APR does not, for example. This calculator uses a standard method appropriate for personal loans, car finance, and credit cards; for mortgage APRC comparisons, use a dedicated mortgage calculator.
The interest rate is the annual cost of borrowing the principal, expressed as a percentage, without including any fees. The APR is a broader measure that includes the interest rate plus all mandatory fees (arrangement fees, broker fees, etc.) expressed as a single annual percentage. APR is always equal to or higher than the interest rate because it includes additional costs.
Because they have different fees. A loan with a 5% rate and a £2,000 arrangement fee has a higher APR than a loan with a 5% rate and no fees, because the fee increases the total cost of borrowing. APR spreads all costs across the loan term, so a £2,000 fee on a short-term loan inflates the APR more than the same fee on a 25-year mortgage.
Generally yes — a lower APR means a lower total cost of borrowing on an equivalent loan. However, APR comparisons are only valid between loans with the same term. A 5-year loan at 6% APR is not directly comparable to a 10-year loan at 5% APR because the total interest paid depends heavily on the term length. Always compare loans with the same repayment period when using APR as the deciding metric.
APR is calculated using the Internal Rate of Return (IRR) method — it finds the annual rate that equates the present value of all repayments to the amount borrowed after deducting all upfront fees. The mathematical process requires iterative approximation (solving for the rate rather than applying it directly), which is why this calculator is far faster than doing it by hand.
Under UK Consumer Credit Act rules, APR must include all compulsory fees that are a condition of the credit — arrangement fees, administration fees, broker fees paid to the lender, and any insurance that is a condition of the loan. Voluntary insurance, optional early repayment fees, and late payment charges are generally excluded from the APR calculation.