Cost composition
Principal
Interest
Fees
Scenario comparison
No fees
Current
High fees
Scenario table
| Scenario | APR | Payment | Total repayment | Real cost |
|---|
Fee drag guide
| APR uplift | Meaning | Band |
|---|---|---|
| < 1.0 point | Fees have limited effect on the real cost | Low fee drag |
| 1.0 to 3.0 points | Fees meaningfully raise effective borrowing cost | Moderate fee drag |
| > 3.0 points | Fees materially distort the true loan cost | High fee drag |
What APR means
APR is the annual percentage rate that reflects not just the stated interest rate but also required fees and borrowing structure. It helps compare the true cost of credit across offers.
APR vs interest rate
The nominal interest rate only captures the contractual interest charge. APR includes fee drag and therefore better reflects what the borrower is really paying.
Core logic
Net proceeds = loan amount − upfront fees paid separately
Payment stream = scheduled loan payments + required ongoing fees + balloon if any
APR = annualized internal rate that discounts all borrower payments back to net proceeds received
Payment stream = scheduled loan payments + required ongoing fees + balloon if any
APR = annualized internal rate that discounts all borrower payments back to net proceeds received
How fees affect APR
Financed fees increase the amount borrowed and therefore increase the interest base. Upfront fees reduce the actual cash the borrower receives, which can push APR materially above the nominal rate even if the payment looks manageable.
Frequently Asked Questions
What is APR?+
APR is the annualized effective borrowing rate after accounting for required fees and the full payment stream.
Why is APR higher than the stated rate?+
Because fees reduce borrower proceeds or increase required payments, raising the effective cost above the headline rate.
Does APR include fees?+
APR should include required charges tied to the loan, such as origination fees and compulsory service charges.
Is a lower APR always better?+
Usually, but payment flexibility, term length and balloon structure can still matter for affordability and risk.
What if fees are financed?+
Then the borrower pays interest on those financed fees, which can widen the difference between nominal rate and APR.