Two lenders quote you the same 6.5% rate. One charges $2,000 in fees, the other $6,000. Same rate, same monthly payment on paper — but not the same real cost. That's exactly what APR is built to expose.
Apr vs interest rate calculator, why they're not the same number
The interest rate is what you pay on the money you actually borrow. APR (annual percentage rate) treats fees and points as if they were extra interest, spreading them across the loan term — which means APR is always equal to or higher than the nominal rate, and the gap grows with the fees.
True cost of loan calculator, worked with real numbers
Take a $300,000 loan at 6.5% for 30 years, with $6,000 in fees and points. The nominal rate gives a $1,896.20 monthly payment. Solving for the rate that produces that same payment on a $294,000 net amount (the loan minus fees) gives an APR of 6.695% — nearly 0.2 percentage points above the advertised rate, just from fees alone.
Loan apr with fees, the comparison trap
A loan with a lower advertised rate but heavier fees can end up costing more than one with a slightly higher rate and lighter fees. APR is the number designed to make that comparison fair — always compare offers by APR, not by the headline rate.
