Loan APR Calculator
A Loan APR calculator calculates the Annual Percentage Rate (APR) of a loan, taking into account the loan amount, term, interest rate, and any additional fees or charges.
Jan 15 2021
- Use The Calculator
- Calculator Instructions
- How Do I Calculate An APR?
- What Is A Good APR?
- Why Am I Only Offered Loans With A High APR?
- How Do I Lower My APR?
NOTE: This simple APR calculator ignores the effect of interest compounding. Visit the compound interest calculator to learn more about the impact of interest compounding on loan repayments.
To calculate an approximate APR for your loan or credit card just follow these easy steps:
- Enter the amount you will borrow into the Loan Amount field
- Enter any additional non-interest charges, such as arrangement fees, into the Additional Charges field
- Enter the number of years that the loan is for into the Duration field
- Enter the loan interest rate, otherwise known as the nominal APR, into the Interest Rate field
How Do I Calculate An APR?
APRs are designed to make loan products comparable once all charges have been taken into account. If an arrangement fee or similar will be added to the loan total this will impact the amount of interest to be paid. Here is a simplified way to calculate an approximate APR:
- Calculate interest charges on the whole loan amount after charges have been added in for each year of the loan
- Divide those interest charges by the original loan amount, excluding additional charges to give a whole term rate
- Divide the whole term rate by the number of years in the loan duration to give the Annual Percentage Rate
What Is A Good APR?
There are several factors that can influence APRs. The UK has had very low interest rates for several years now and a good APR has often been lower than 2%. However, even with these low interest rates, borrowers with a poor credit rating are likely to find that the APRs available to them are much higher, often 10% or more.
As of October 2022 interest rates have been rising in the UK and a good APR for a borrower with a good credit rating is around 5%.
Why Am I Only Offered Loans With A High APR?
Borrowers with a low credit rating tend to be offered loans with higher APRs. This is because they represent a greater risk of defaulting on loan payments. The higher APR is charged to cover this default risk across higher risk borrowers.
How Do I Lower My APR?
A good way to secure lower APRs is by building a solid credit rating. This can be achieved by ensuring personal finances are kept in a healthy state with all bills being paid on time.
Use the loan repayment calculator to see what impact a lower APR makes to monthly loan repayments.
Frequently Asked Questions
Have a question about this calculator? See our list of frequently asked questions below.
What is a loan APR?
APR stands for annual percentage rate and is the most convenient way to compare the cost of loans, credit cards and mortgages. Legislation in the UK dictates that the APR must take into account non-interest charges as well, such as administrative fees, to make APRs truly comparable.
What is a nominal APR?
Most loans and credit cards calculate interest payments monthly. The nominal APR simply multiplies the monthly interest rate by 12 to give an annual interest rate and does not consider other costs such as administrative fees.
What is a representative APR?
A representative APR is one that at least 51% of existing customers have received. This is helpful when the exact interest rate offered depends on individual customer circumstances, such as credit rating.
What is an effective APR?
An effective APR is one where the effect of interest compounding is taken into account.
What is the difference between a loan APR and a loan interest rate?
The interest rate is divided by 12 and then used to calculate monthly interest payments. The APR will include this interest rate, but could be slightly higher if the loan has non-interest charges such as administrative fees. If there are no non-interest charges then the interest rate and the APR should be equal.
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