Watch a fee turn a 12% loan into a higher APR
Move the sliders and see how an origination fee and a shorter term push the APR above the interest rate, and why.
Why APR and the interest rate differ
The interest rate is what you’re charged on the balance. The APR adds most required fees and expresses the whole cost as a yearly rate. A fee taken out at the start means you’re paying interest on money you never received, which is why the APR climbs above the rate.
Notice what happens when you shorten the term: the same fee is spread over fewer months, so the APR rises even though the dollar cost falls. That’s why APR is best for comparing loans with the same amount and term. When terms differ, compare the cost in dollars too.
Limits
This is an illustration with a fixed rate and a fee taken out of the loan. Real disclosures may include other finance charges. Read the full explanation in APR versus interest rate.