The interest rate measures the price charged for borrowing principal. Annual percentage rate (APR) is a broader disclosed measure that combines the interest rate with certain loan fees. Compare interest rate with interest rate and APR with APR. Do not enter APR into a payment formula that expects the contractual nominal rate unless the methodology explicitly says to do so.
Compare offers: use the Loan Comparison Calculator to model equal monthly payments from the nominal rates, terms and upfront fees you enter. Then compare the lender-disclosed APRs separately.
The interest rate drives the basic payment calculation
For a conventional fixed-rate amortising loan, the contractual rate is converted to a periodic rate and applied to the outstanding balance. The standard equal-payment formula is:
payment = principal × r ÷ (1 − (1 + r)−n)
Here, r is the monthly interest rate and n is the number of monthly payments. Fees do not enter this formula unless they are financed into the loan balance.
APR brings specified fees into one comparison rate
The CFPB describes APR as a measure of the interest rate plus additional fees charged with the loan. The exact regulated calculation and included charges depend on the product and jurisdiction. Use the official disclosure instead of trying to reverse-engineer a regulated APR from an incomplete fee list.
A lower interest rate can still come with higher modeled cost
Consider two offers for €25,000:
| Input or result | Offer A | Offer B |
|---|---|---|
| Nominal annual rate | 7.00% | 6.50% |
| Term | 48 months | 60 months |
| Upfront fee | €300 | €700 |
| Monthly payment | Approximately €598.66 | Approximately €489.15 |
| Interest plus upfront fee | Approximately €4,035.49 | Approximately €5,049.22 |
Offer B has the lower rate and monthly payment, but its longer term and higher fee create the higher modeled borrowing cost. This is why payment size alone is not a complete comparison.
Compare the same scope and time horizon
- Use the same amount borrowed for each offer.
- Check whether fees are paid upfront, deducted from proceeds or financed.
- Confirm whether the rate is fixed or variable.
- Compare APR with APR, not APR with a nominal interest rate.
- Check the total amount repayable and any balloon payment.
- Review early-repayment charges, optional insurance and required add-ons separately.
When the cheaper offer depends on repayment timing
APR generally supports a full-term comparison. If you expect to repay early, upfront fees have less time to be spread across the borrowing period and prepayment rules become material. A simple full-term calculator cannot know the actual repayment date or contractual charge.
Methodology and sources
The example is an original Finance Charts calculation using equal end-of-month payments, monthly interest and fees paid separately. It excludes tax, optional products, variable rates and penalties. Displayed values are rounded.
Important: a calculator can model entered cash flows, but the lender’s regulated disclosure and contract determine the actual APR, payment obligations and fees.