Calculate the true Annual Percentage Rate of a loan, accounting for fees and the actual cost of borrowing.
APR (Annual Percentage Rate) represents the true yearly cost of borrowing, including interest and fees. It's always equal to or higher than the nominal interest rate because it factors in origination fees, closing costs, and other charges.
The interest rate is the cost of borrowing the principal. APR includes the interest rate plus other costs (origination fees, closing costs, discount points). A loan at 5.5% interest with $750 in fees has a higher APR than a fee-free 5.5% loan.
APR allows you to compare loans on an apples-to-apples basis. A loan with a lower interest rate but high fees may actually cost more than a loan with a slightly higher rate and no fees.