Effective APR Calculator

The stated APR (sometimes called the note rate) is the contractual interest rate that drives your monthly payment. The effective APR is what you actually pay once you fold in fees, prepayment, and tax effects. On a 5-year personal loan with a 5% origination fee, the effective APR is typically 1.5-2.5 percentage points higher than the note rate. By federal regulation (TILA), lenders are supposed to disclose APR-with-some-fees, but the rules differ across loan types and are easy to game by labeling fees as something other than 'finance charges.' This calculator computes the cleanest version: amortize the full principal at the note rate, but the borrower only received principal × (1 − fee%), and ask what rate would justify those payments against that disbursement.

Because the origination fee gets amortized over fewer months. If you paid $1,000 in origination on a 60-month loan and pay it off at month 12, you've effectively paid $1,000 to borrow for 12 months instead of 60 months. That's a much higher annualized cost. The lender designed the loan assuming you'd take the full term; if you pay it off early, the rate they advertised understates what you actually paid. This is a standard but frequently surprising result, and it's the strongest argument against personal loans with high origination fees if you have any chance of paying them off early.

Probably not, unless it's a mortgage you itemize for, or a student loan and your income is below the phase-out. Mortgage interest is deductible if you itemize, but post-2017 SALT cap roughly 90% of US filers take the standard deduction and get no itemized benefit. Student loan interest is deductible up to $2,500/year and phases out at moderate income — for tax year 2025 returns, IRS Publication 970 lists the phaseout at roughly $85K-$100K single / $170K-$200K MFJ; check the current IRS phaseout table for the year you're filing, since these brackets are inflation-adjusted annually. HELOC interest is only deductible if used for home improvements (per the 2017 changes). Personal loans, auto loans, credit-card interest: never deductible. If you're unsure, leave the deduction toggle off — the after-tax number is meaningless if you don't actually claim the deduction.

Origination fee: the lender's compensation for processing the loan, almost always charged. You pay it whether or not you wanted to. Discount points: optional, voluntary fees you pay to buy down the interest rate (each point is typically 1% of principal and reduces the rate by ~0.25 pt). Origination is a sunk cost; points are an investment that pays off if you keep the loan long enough to recoup the upfront cost via the lower rate. This calculator handles the origination case; for points, run two scenarios (with-points lower rate, without-points higher rate) and compare the effective APRs.

Depends on horizon. A typical tradeoff: 5% origination on an 8% personal loan vs. zero origination on a 9.5% personal loan. Run both scenarios in this calculator. If you take the loan to full term, the no-fee/higher-rate option often wins on cash flow but loses on total interest; the fee/lower-rate option is the reverse. If you might pay off early, lean strongly toward no-fee — early prepayment kills the fee-loan economics fast. The number that matters is total cash out the door over your actual expected horizon, not the headline rate or the headline fee.

TILA APR is a regulatory definition that includes some fees but not others, with the inclusion rules varying across loan types (mortgage TILA APR includes more fees than personal-loan TILA APR). Real-world lender disclosures sometimes 'unbundle' fees by calling them processing or admin fees that don't count toward TILA APR. This calculator uses a single consistent definition: net-disbursement-IRR including the origination fee you enter. If your lender's disclosed APR is lower than this calculator's number, the difference is fees they classified outside TILA. Ask the loan officer for an itemized fee list and re-run.