APR vs Interest Rate Calculator
How it works
The monthly payment is calculated on the full borrowed amount (including any fee added to the balance). But the APR you compare against is solved against what you actually receive. The bigger the fee relative to the amount, the bigger the gap.
Worked example
£10,000 at 8.9% with £495 fee added to the balance, 36 months:
- Monthly: £334 on £10,495 borrowed
- You receive £10,000
- True APR: ~12.4% — over 3 percentage points above the headline rate
Who should use this
- •Anyone comparing loans with different fee structures
- •Mortgage shoppers comparing rate + product fee combos
- •Car finance buyers comparing dealer offers
Common mistakes
- ×Comparing on headline rate when fees differ
- ×Forgetting that 'representative APR' applies to only 51% of accepted applicants — your actual rate may be higher
- ×Confusing APR with AER (savings) or EAR (overdrafts)
- ×Treating monthly rate × 12 as the annual rate (it ignores compounding)
Frequently asked questions
What's the difference between APR and AER?▾
APR = annual cost of borrowing (loans). AER = annual return on savings (deposit accounts). Both account for compounding/fees, but APR adds the cost angle.
Why is APR higher than the interest rate?▾
Because it includes mandatory fees and the timing of payments. Loans with no fees have APR ≈ interest rate.
Is APR the same in the UK as the US?▾
Similar concept but US APRs include some fees that UK ones don't (e.g. some title fees on mortgages). UK APRC for mortgages is the broadest measure.
Why do credit cards quote APR if they let you avoid interest?▾
It's the cost if you carry a balance. Pay the statement balance in full each month and APR doesn't apply.