Quick answer: A 100,000 loan repaid at 1,933.28 a month for 60 months is 6.00% without fees; with 2,000 in upfront fees the APR is 6.84%.
How it's calculated
The APR is the rate at which the money you actually receive (the loan minus upfront fees) equals the present value of all your payments: amount − fees = M × (1 − (1 + i)^−n) ÷ i, where i is the monthly rate and APR = 12 × i.
There is no direct formula for i, so the calculator solves it numerically, as the US Regulation Z actuarial method does. Gulf central banks also require lenders to show an annual percentage rate so offers can be compared.
Flat-rate quotes look much cheaper than their APR. To convert a flat or Murabaha profit rate, use the loan and Murabaha calculator; for a loan with an origination fee, the personal loan calculator works out the payment and APR together.
Worked examples
- 100,000, no fees, 1,933.28 × 60: rate = 6.00%
- Same payments, 2,000 fees: 98,000 = 1,933.28 × (1 − (1 + i)^−60) ÷ i → APR 6.84%
Frequently asked questions
What is the difference between the rate and the APR?
The rate (or profit rate) sets the payment. The APR also counts fees you pay to get the loan, so it shows the full yearly cost.
Which fees should I include?
Fees you must pay to get the loan: admin, arrangement, processing or origination fees. Optional insurance you could buy elsewhere is usually left out.
Can the APR be lower than the rate?
Not when you pay fees. With no fees the APR equals the rate.
Why should I compare APR and not only the rate?
Two loans with the same rate can cost different amounts if their fees differ. APR puts the fees into one figure, so it is fairer for comparing offers of the same length.
Does a shorter term raise the APR?
With the same upfront fee, yes. The fee is spread over fewer months, so it adds more to the yearly cost.
Is APR the same as the flat rate some lenders quote?
No. A flat rate charges interest on the original amount for the whole term, so its APR is much higher. Ask for the reducing rate or APR when you compare.