About the APR Calculator
APR exists for one good reason: interest rates alone do not let you compare loans. A 9% loan with a heavy arrangement fee can cost more than an 11% loan with none, and no amount of staring at the two rates will tell you that.
APR fixes it by folding compulsory fees into a single annualised figure. It is the right number to compare offers on, and this calculator works it out from either a rate or a payment.
It also shows you the three things APR does not tell you — one of which affects almost every credit card holder and is essentially never mentioned.
How to Use the APR Calculator
Pick whether you are starting from a rate and fees or from a monthly payment. The second is for when a lender quotes you "£X a month for Y months" without naming a rate at all.
Enter the amount borrowed, the term in months and any compulsory fees — arrangement, product or booking fees. Optional extras like payment protection are excluded from APR by convention, so leave them out if you want a comparable figure.
Then say whether the fees are deducted from what you receive or added to the loan. The two produce different answers.
How APR Is Actually Calculated
APR is defined by what it equates, not by a formula you can write down:
The APR is the rate at which the scheduled payments, discounted back to today, are worth exactly the cash you actually received.
On £15,000 at 9% over 60 months with a £600 fee deducted:
Payment: 15,000 at 9% over 60 months = 311.38 a month
Received: 15,000 − 600 = 14,400.00
Find r such that 60 payments of 311.38
discount back to exactly 14,400.00 → 10.76%That equation cannot be rearranged to isolate r. No closed form exists. Every calculator that reports an APR finds it by trial — narrowing a bracket until the two sides match. This one says so in the working rather than implying an algebraic step it does not have.
The fee moved the cost from 9% to 10.76% — 1.76 percentage points, from £600 on a £15,000 loan.
The Three Things APR Leaves Out
1. Compounding
This is the big one, and it applies to everyone.
APR is a nominal rate. It divides by twelve and stops. It does not compound.
24% APR → 2% a month
2% a month for twelve months → 26.83%A credit card quoted at 24% APR costs 26.83% over a year if you carry a balance. That is not a trick or a hidden charge — it is simply what the APR convention is. But it means the number on your statement is not the number you pay, and hardly anyone is ever told.
On the £15,000 loan above, 10.76% APR is an effective 11.31%.
2. Early repayment
APR spreads the fees across the whole schedule. Clear the loan early and the same fees are recovered over fewer months.
Settle this loan after 20 months instead of 60 and the effective cost is nearer 12.05%, not the quoted 10.76%. The shorter the time you hold it, the worse the fees look.
The quoted APR is the rate you paid only if you run the full term. It is not a property of the loan; it is a property of the loan plus an assumption about you.
3. Optional charges
Anything you are not required to buy is excluded — payment protection, add-on insurance, some account fees. That exclusion is what makes APRs comparable, and it also means the APR is not your total cost if you take any of it.
Deducted or Financed?
The same £600 fee, handled two ways:
| APR | Monthly | Total cost of credit | |
|---|---|---|---|
| Deducted from the payout | 10.76% | 311.38 | 4,282.80 |
| Added to the loan | 10.69% | 323.83 | 4,429.80 |
Financing the fee gives a lower APR and a higher total cost. Both are true and neither is a mistake.
Deducting it is worse on APR because you pay interest on the full £15,000 while receiving only £14,400 — the classic "paying interest on money you never had". Financing it is worse in absolute terms because you pay interest on the £600 for five years.
If two lenders structure the same fee differently, the APRs are not quite comparable. Compare the total cost of credit as well.
Step-by-Step Example
£15,000 at 9% over 60 months, £600 fee deducted.
Monthly rate: 9% ÷ 12 = 0.75%
Payment: 15,000 × 0.0075 ÷ (1 − 1.0075⁻⁶⁰) = 311.38
Cash received: 15,000 − 600 = 14,400.00
Total repaid: 60 × 311.38 = 18,682.80
Cost of credit: 4,282.80
APR: the rate discounting 311.38 × 60 to 14,400 = 10.76%
Effective: (1 + 0.1076/12)¹² − 1 = 11.31%So a loan advertised at 9% costs 10.76% on the APR basis and 11.31% once compounding is counted — and more than that if you repay it early.
Understanding Your Result
APR is the figure to compare offers on.
Against the rate shows what the fees contributed. If they contributed nothing, you have no fees and APR is doing no work.
Effective annual rate is what a year of this credit genuinely costs. On revolving credit this is the number that matters.
What it costs gives the payment, the total repaid and the cash you received — the gap between the last two is the real cost of the credit.
Worth knowing summarises which of the three caveats apply to you.
When Should You Use This Calculator?
Comparing two loan offers. This is what APR is for, and the only reliable way to do it.
Checking a lender's APR. If theirs differs from this, the gap is fees you were not told about, a different compounding convention, or optional charges included.
When you were quoted a payment, not a rate. The payment mode recovers what you are actually being charged.
Before repaying early. Knowing the effective rate rises changes whether paying a fee to exit is worth it.
On a credit card. The effective rate is the figure to hold in mind, not the APR.
Common Mistakes
Comparing an APR to an interest rate. They are different measures. Compare APR to APR.
Assuming APR includes everything. Optional insurance, late fees and over-limit charges are all outside it.
Treating APR as what compounding costs. It is nominal. The effective rate is higher, and on high-rate credit the gap is substantial.
Comparing an APR to an APY. APY is effective, APR is nominal. Comparing a 5% savings APY to a 5% loan APR is not comparing like with like.
Ignoring the term. A short high-APR loan can cost less in money than a long low-APR one. APR is a rate, not a total.
Forgetting APR assumes you hold to term. Repaying early raises the effective cost when there are fees.
Reading this as a quote. Lenders must give you a written APR, and their calculation conventions may differ slightly from these. Every figure here is an estimate for planning, not financial advice.