Loan True Cost & Effective APR

How to use it

Enter the amount, the quoted rate, the term and every fee attached. The calculator works out the payment, then solves for the interest rate that would produce that payment stream from the cash you actually received. That second figure is what the borrowing really costs.

Where the number comes from

• The monthly payment uses the standard amortisation formula on the principal you owe, at the quoted rate divided by twelve.
• Where fees are deducted, you owe the full amount but receive less. Where they are added, you receive the full amount but owe more. Both raise the real rate; neither changes the quoted one.
• The effective rate is solved numerically — the monthly rate at which the present value of all your payments equals the cash you received — then multiplied by twelve.
• Total cost of credit is everything you repay minus everything you received, which captures fees and interest in a single figure.
• The amortisation table splits each payment into interest on the outstanding balance and the principal that remains.

What goes wrong

The part most calculators leave out.

• This assumes a fixed rate for the whole term. A variable or base-rate-linked facility will not behave like this, and the effective rate shown becomes a snapshot rather than a forecast.
• Statutory APR calculations differ by jurisdiction in which fees must be included and how the year is counted. This figure is economically correct but may not match a regulated APR disclosure exactly.
• Early repayment charges are not modelled. On many business loans they are the largest single fee and only appear when you try to leave.
• Balloon payments, interest-only periods and payment holidays all change the shape entirely. This assumes level payments throughout.
• Insurance or security requirements sold alongside the loan are a real cost of borrowing even when they are documented as a separate product.
• Comparing an amortising loan against a merchant cash advance or invoice facility needs care — the repayment shapes are so different that the annual rate alone can mislead in both directions.

Questions

Why is the effective rate higher than the quoted rate?

Because the quoted rate applies to the amount borrowed, while the fees mean you either receive less than that or repay more than it. The effective rate is the only figure that reflects the money that actually reached your account.

Is this the same as APR?

It is the same idea, but statutory APR is defined differently in each jurisdiction — particularly on which fees must be included. Use this to compare offers on a consistent basis, not to check a regulatory disclosure.

Should I take a longer term to lower the payment?

It lowers the monthly cost and raises the total substantially, because you pay interest on the balance for longer. The right answer depends on whether your constraint is monthly cash flow or total cost — the schedule shows both.

Why does the balance fall so slowly at first?

Interest is charged on the outstanding balance, which is highest at the start, so early payments are mostly interest. Principal repayment accelerates as the balance falls.

Does anything I type get sent anywhere?

No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.