APR Calculator
APR (Annual Percentage Rate) is the true annual cost of borrowing, expressed as a percentage. Unlike a simple interest rate, APR includes upfront fees and other charges, making it the fairest way to compare loans. In the UK, lenders are legally required to advertise APR so borrowers can compare products on a like-for-like basis. A lower APR always means a cheaper loan overall.
Loan details
APR is calculated using a Newton-Raphson numerical method to find the monthly rate that equates the loan amount to the present value of all repayments and fees.
Related: Loan Interest · Credit Card Payoff
How the APR calculator works
APR — Annual Percentage Rate — expresses the true cost of borrowing as a single annual figure. Unlike a nominal or headline interest rate, APR must include all mandatory charges, such as arrangement fees, making it the standard comparison metric for UK credit products. UK law requires lenders to display APR on all consumer credit agreements.
To calculate APR, you find the monthly interest rate r that makes the present value of all future repayments equal to the amount you actually receive — the loan minus any upfront fees. The annual rate is then derived as APR = (1 + r)^12 − 1. This calculator uses the Newton-Raphson numerical method to solve for r precisely.
Because APR captures both interest and fees, a loan with a lower headline rate but significant fees can carry a higher APR than a fee-free loan with a slightly higher rate. A higher APR always means a more expensive loan, making it the most reliable single figure to compare when choosing between credit products.
Frequently asked questions
What does APR mean?
APR stands for Annual Percentage Rate. It is the total cost of borrowing per year expressed as a percentage, including interest and any compulsory fees. UK lenders are legally required to display the APR on all credit products.
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal only. APR includes fees such as arrangement fees and broker fees, making it a more complete cost measure. Always compare APRs when shopping for loans.
What is a representative APR?
A representative APR is the rate offered to at least 51% of accepted applicants. You may be offered a higher rate depending on your creditworthiness. Always check your personal rate before committing to a loan.
Is a lower APR always better?
Generally yes, for the same loan amount and term. However, a lower APR over a longer term can cost more in total interest than a higher APR over a shorter term. Compare total repayable amounts as well as APR.