How to use
- Choose what you know — the fee per period, the payment per period, or the total you will repay.
- Enter the amount borrowed, the number of monthly payments and that fee, payment or total.
- If a fee is taken out before you receive the money, enter it as the fee deducted at the start.
- Read the real APR, the compounded effective rate and the total cost.
Options explained
- Real APR
- The monthly rate at which the payments are worth exactly what you received, multiplied by 12. This is the nominal APR lenders quote for regular loans.
- Effective annual rate
- The monthly rate compounded over a year, (1 + monthly rate)^12 − 1. Slightly higher than the APR.
- Advertised flat rate
- The fee per period × 12. The fee is charged on the full amount every month even though you repay part of it each month, so this badly understates the cost.
- Fee deducted at the start
- An arrangement or origination fee subtracted from the money you receive. Repaying the full amount on less money raises the real rate.
Flat fees and their real APR
For 10,000 borrowed, with the fee charged each month on the full amount and the principal repaid in equal parts:
| Payments | Fee per month | Flat rate | Real APR | Total fees |
|---|---|---|---|---|
| 3 | 0.80% | 9.60% | 14.34% | 240 |
| 6 | 0.70% | 8.40% | 14.26% | 420 |
| 12 | 0.60% | 7.20% | 13.03% | 720 |
| 24 | 0.60% | 7.20% | 13.27% | 1,440 |
The cost of an upfront fee
Borrowing 10,000 at 10% over 12 months costs 879.16 a month, and the APR is 10%. If a 500 fee is deducted so you receive 9,500 but the payments stay the same, the real APR rises to 19.81%.
Frequently asked questions
Why is a 0.6% monthly fee about 13% APR rather than 7.2%?
The fee is always charged on the original amount, but you pay back part of it every month, so on average you only have about half of it. Measured against the money you actually hold, the rate nearly doubles.
Which figure should I compare between lenders?
Compare the real APR. The effective annual rate adds the effect of compounding and is useful for comparing with savings rates.
How does this handle interest-free instalments?
If you repay exactly what you received, the rate is zero. If an "interest-free" plan charges a one-off fee, enter it as a fee deducted at the start to see its real cost.
Is this the same as the APR in my loan agreement?
It uses the same internal-rate-of-return method. Agreements can include other charges, such as insurance or early repayment fees, so check the figures in your contract.
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