An APR calculator that reveals the true yearly cost of a loan once upfront fees are included — the representative Annual Percentage Rate that lenders in the UK and EU are required to quote. Use it to compare loans on a level footing when one has a low rate but a chunky arrangement fee and another is fee-free.
Why APR and the nominal rate differ
The nominal (or headline) interest rate tells you the interest charged on the outstanding balance, but it ignores fees. Lenders often advertise a low rate while burying the real cost in an arrangement fee, product fee, or broker fee. APR rolls those fees into a single annualised rate so you can compare any two credit products on the same basis, regardless of how their costs are structured.
How it works
The nominal monthly payment is set first with the standard amortisation formula on the full principal (because the lender adds fees to the loan, so you repay it all). But you only receive the principal minus the upfront fees. The APR is the rate that makes the present value of your repayments equal that net cash received. The tool solves for the monthly rate i by bisection, then annualises it by compounding 12 times:
APR = (1 + i)¹² − 1Because you receive less cash for the same repayments, the APR always lands above the nominal rate whenever fees are present.
Worked example
Borrow £10,000 at 6% nominal over 5 years with a £300 fee:
- Monthly payment (6% on £10,000): approximately £193
- Net cash received after fee: £9,700
- Representative APR: approximately 7.4% — materially above the 6% nominal rate
- Total cost of credit over the full term: approximately £1,900
| Loan | Nominal rate | Fee | Approx. APR |
|---|---|---|---|
| £10,000 | 6% | £0 | 6.0% |
| £10,000 | 6% | £300 | ~7.4% |
| £10,000 | 6% | £750 | ~9.4% |
| £5,000 | 9% | £200 | ~12.0% |
These are illustrative figures to show the direction of effect. Your own numbers will produce your specific APR.
When to use APR — and when to check total cost too
APR assumes you hold the loan for the full term. Over a short term, a loan with a high upfront fee but a low rate can have a high APR but low total interest paid in cash — because the rate applies to fewer months of outstanding balance. Conversely, a loan with no fee but a slightly higher APR can cost more in total if the term is long.
The most complete comparison uses both: APR for a like-for-like cost rate across different products, and total cost of credit (total repayments minus principal) for the actual cash you will pay. This calculator shows both figures.
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