 TITLE: What Is APR and How Does It Affect Me? CONTENT: How Is APR Calculated for Loans?\n--------------------------------\nRemember, the interest rate is what the lender charges to allow you to use its funds. But it's not the only cost associated with borrowing. Depending on the type of loan, the APR calculation may also include various other fees you'll be charged.\nThis is where credit cards and loans differ in how they calculate APR—even if a credit card has an annual fee or other fees, it's not included in the APR formula. With loans, however, the APR truly encompasses the total cost of the debt.\nFor example, a mortgage APR may include points, which are fees paid to lenders at closing in exchange for a lower interest rate. Lender fees and other charges you may need to pay to secure the loan also count toward a loan APR. APRs for dealer-underwritten auto loans sometimes include compensation for the dealer because it's handling the financing. Also, some personal loans carry an origination fee, which is deducted from your loan proceeds before you receive them.\nA loan APR takes these additional costs into account, which is why the APR is typically higher than your interest rate. END