An APR calculator that reveals the true yearly cost of a loan once upfront fees are included — the representative Annual Percentage Rate lenders 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.
How it works
The nominal monthly payment is set first with M = P · r(1+r)ⁿ ⁄ ((1+r)ⁿ − 1) on the full principal (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 − 1. Because you get less cash for the same repayments, the APR lands above the nominal rate whenever there are fees.
Example
Borrow £10,000 at 6% over 5 years with a £300 fee:
- Monthly payment (6% on £10,000): about £193
- Net cash received: £9,700
- Representative APR: about 7.4% — well above the 6% nominal rate
- Total cost of credit: about £1,900
| Loan | Nominal rate | Fee | Representative 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% |
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