How To Calculate APR: Your Guide

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You’ve likely seen the term APR when shopping for a car loan or credit card. Short for annual percentage rate, APR gives you an idea of how much it’s going to cost you to borrow money. Knowing how to calculate APR will help you quickly compare credit card or loan products so you can decide which offer is best for you.

Take a closer look at how to calculate the APR on a loan and learn why it’s important.

What Is the Formula To Calculate APR?

Calculating the APR on a standard loan is simple, but it gets trickier as you get into more complex loan products like mortgages. For all loans, you’ll need three numbers:

  1. The principal, which is the amount borrowed
  2. Fees, additional costs and amount of interest
  3. The term, or length, of the loan in days

Here’s how to calculate the APR on different types of loans.

How To Calculate APR on a Loan

To calculate APR, follow these steps:

  1. Add up all interest charges and divide by the amount you borrowed or currently owe.
  2. Multiply by 365
  3. Divide by the number of days left in the loan

For example: Finding the APR of a short-term loan of $500 with $60 in total fees and interest and a 14-day term:

  • $60 ÷ $500 = 0.12
  • 0.12 x 365 = 43.8
  • 43.8 ÷ 14 = 3.1286% APR

How To Calculate APR on a Credit Card

Calculating APR on credit cards is different than the method for other loan products. Credit card APRs change as the interest rates and prime rate set by the banks change. A bank or credit card issuer isn’t legally obligated to notify you, so it’s important to monitor for changes.

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For example, what is 24% APR on a credit card? To find a credit card’s APR, add the current U.S. bank prime loan rate and the interest rate the credit card issuer charges. The U.S. prime rate is currently 8%. If the card provider’s credit card interest rate is 16%, the consumer credit card rate will be 8% prime rate + 16% card interest rate = 24% APR.

How To Calculate APR on a Car Loan

Here’s how to calculate APR for a car loan in four steps:

  1. Get the total payment amount by multiplying the monthly payment by the term of the loan in months.
  2. Subtract the amount borrowed from the total payment amount to find the loan’s total interest payments.
  3. Divide the total interest charges by the number of years on the loan to find the yearly interest amount.
  4. Divide the yearly interest amount by the total payments to calculate APR.

For example: To calculate APR on a $16,000 vehicle loan for five years — 60 months — with a $400 per month payment:

  • $400 x 60 = $24,000 (total payment amount)
  • $24,000 – $16,000 = $8,000 (interest fees)
  • $8,000 ÷ 5 = $1,600 (yearly interest amount)
  • $1,600 ÷ $24,000 = 0.0667% APR

How To Calculate APR on a Mortgage Loan

Manually calculating the APR on a mortgage loan is tricky. Luckily, mortgage lenders are required by law to provide an APR to borrowers, so you can skip the hard work. Alternatively, you can use the GOBankingRates Google Sheets APR calculator to help you with the calculations.

What Is APR?

Simply put, APR is the total cost of borrowing money, including upfront fees and costs. Calculated on an annual basis, APR applies to credit cards and loan products, such as student loans, home loans and auto loans. APR is written as a percentage — the lower the APR, the cheaper the cost of borrowing.

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The Federal Reserve enacted the Truth In Lending Act, or TILA, in 1968, making it mandatory for lenders to disclose costs and fees in a way where “consumers can compare credit terms more readily and knowledgeably.” Depending on the type of loan product, fees usually included in the APR include:

  • Home appraisal and credit report fees initiated by a mortgage lender
  • Interest
  • Mortgage loan origination fees or points
  • Mortgage broker fees
  • Processing fees for preparing TILA disclosures
  • Charges imposed on a creditor for purchasing a loan
  • Transaction fees

Why Use APR?

APR gives you an easy way to compare the real cost of borrowing. Unlike APR, other methods, such as picking the best interest rate, aren’t always accurate.

APR Comparison Example

If you compare two loans with interest rates of 4.00% and 4.50%, it might seem like the loan with the 4.00% percent interest rate is the best deal. But what if it comes with $3,500 in closing costs, while the closing costs on the 4.50% loan are only $1,000? That’s where using APR comes in handy — those fees would have been factored into the APR.

Comparing Different Loan Types

But there’s more. You can use APR to compare apples to oranges. Maybe you’re considering a payday loan vs. a credit card for a $300 expense.

Say you qualify for either a credit card with a 24% APR or a payday loan that charges a $15 fee for every $100 you borrow. Although the payday loan sounds cheaper, it equates to a 400% APR. In this case, APR makes it obvious that the credit card is cheaper than the payday loan over the long term.

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Why Do Credit Cards Have Different APRs?

You might notice that your credit card has an APR range that shows more than one APR in the fee disclosures or your credit card statement. Credit card companies often charge a variable APR, according to the type of transaction.

The most common credit card APR categories apply to:

  • Balance transfers — usually at a lower fixed rate for a limited time
  • Cash advances — often higher and more expensive than the standard APR
  • Introductory — usually available for a limited time after sign-up
  • Penalty or late payment — often more expensive than the standard APR
  • Standard purchases — the main APR for store and online purchases

Next Steps

Now that you know how APR works, you can compare loans and credit cards with confidence and avoid getting tricked by confusing marketing language. By looking at APR — instead of fees or interest rates — you’ll know exactly how much a loan will cost you annually.

More on Interest Rates


  • What does 5.00% APR mean?
    • A 5.00% APR means that your loan or credit card will have a real annual cost of 5%, including all fees and costs.
  • What is an APR calculator?
    • Calculating the APR on loans can be complex because of all the variables, like costs, financing charges, interest and term length. A calculator can help you make sense of all the different variables and calculate APR correctly.
  • What is the difference between APR and APY?
    • Annual percentage rate and annual percentage yield, or APY, sound similar. The difference is simple – APR shows what borrowing money costs you. APY shows how much your money is growing when you keep it in an interest-yielding account, like a savings account or CD.
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Chris Ozarowski contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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