How your payment and APR are calculated
Your monthly payment comes from the loan amount, the interest rate and the term, using the same formula as a car loan or mortgage. Each payment covers the month’s interest first, and the rest lowers your balance.
The APR answers a different question: if you look at the money you actually received and the payments you’ll make, what yearly rate are you really paying? Because an origination fee shrinks what you receive while your payments stay the same, it pushes the APR above the interest rate.
Comparing offers
Two offers with the same rate can cost very different amounts once fees are counted. Run each offer through the calculator and compare the APR and the cost of borrowing. If you need a set amount in hand, check how much you’d have to borrow so you still receive it after the fee.
Common questions
What’s the difference between the interest rate and the APR?
The interest rate sets your monthly payment. The APR (annual percentage rate) also counts fees like an origination fee, so it shows the full yearly cost of borrowing. When you compare offers, compare APRs.
How does an origination fee work?
Most lenders take the fee out of the loan before sending you the money. You repay the full loan amount, plus interest, but receive less. That’s why the fee raises your APR even though your payment doesn’t change.
Is a shorter loan term better?
A shorter term means a higher monthly payment but less interest overall, and lenders often offer lower rates on shorter loans. Choose the shortest term whose payment fits comfortably in your budget.
Can I pay off a personal loan early?
Usually, yes. Many personal loans have no prepayment penalty, so paying early saves interest. Check your loan agreement to be sure.
How accurate is this estimate?
The payment and APR math is exact for a fixed-rate loan with equal monthly payments and the fee taken from the proceeds. Your actual rate and fee depend on your credit and the lender, so use the numbers from your offer.
Methodology
- Fixed-rate loan with equal monthly payments. Interest each month is the balance × (annual rate ÷ 12), rounded to the cent. The last payment absorbs any rounding.
- The origination fee is the percentage you enter × the loan amount, deducted from the money you receive.
- APR is the yearly rate at which your payments’ present value equals the money you receive (the actuarial method in Regulation Z, Appendix J), shown to two decimals.
- “To end up with the full amount” borrows the amount ÷ (1 − fee), rounded up to the nearest $10.
- Not included: late fees, prepayment penalties, or autopay rate discounts.
Sources: Consumer Financial Protection Bureau; Truth in Lending Act, Regulation Z (12 CFR 1026), Appendix J. Last reviewed .