How this calculator works
Business loans almost always come with fees on top of the interest rate — an origination fee (often a percentage of the loan amount) and sometimes flat one-time charges for underwriting, documentation or closing. These fees are usually deducted from what actually gets disbursed, so a borrower approved for $50,000 might only receive $48,000 in their account, while still owing payments calculated on the full $50,000.
This calculator computes the standard monthly payment from the loan amount, rate and term, then layers the fees on top to show the total cost of borrowing and — most importantly — the effective annual percentage rate (APR). The effective APR is the single rate that would produce the same monthly payment if the loan had no fees at all and you'd only received the smaller, fee-reduced amount; it is always higher than the stated note rate whenever fees are greater than zero, and it is the number that lets you compare loans with different fee structures on equal footing.
The formulas
Monthly payment: standard amortization formula, P × i ÷ (1 − (1+i)⁻ⁿ), where P is the loan amount, i the monthly rate, and n the number of monthsNet proceeds = loan amount − origination fee − other feesTotal cost including fees = total interest + total feesEffective APR: the rate r for which the present value of all monthly payments, discounted at r, equals the net proceeds — found by testing rates until they matchBecause fees reduce what you actually receive but not what you repay, the effective APR is mathematically guaranteed to be at or above the stated interest rate, and strictly above it whenever total fees are greater than zero.
Worked example: $50,000 at 8% for 36 months, 3% origination fee + $500
- Monthly payment on $50,000 at 8% for 36 months is about $1,566.82, using the standard loan amortization formula.
- Fees: a 3% origination fee is $1,500, plus $500 in other fees, for $2,000 total — leaving $48,000 in net proceeds actually disbursed to the borrower.
- Total interest over the loan (payment × 36 − loan amount) is about $6,405, so total cost including fees is roughly $6,405 + $2,000 ≈ $8,405.
- Solving for the rate at which $1,566.82/month for 36 months has a present value of exactly $48,000 (not $50,000) gives an effective APR of about 10.8% — noticeably higher than the 8% stated rate, entirely because of the fees.
Frequently asked questions
Why is the effective APR higher than the interest rate on the loan?
Because fees are typically taken out of the loan proceeds before you receive them, but your monthly payments are still calculated on the full loan amount. You're effectively paying interest and fees on money you never actually got to use, which raises the true cost above the stated rate.
What counts as 'other fees' here?
Any one-time charge beyond a percentage-based origination fee — underwriting fees, documentation fees, application fees or closing costs, for example. Enter their combined total as a flat dollar amount.
Should I compare loans using the interest rate or the APR?
The effective APR, since it accounts for fees and lets you compare a low-rate loan with high fees against a higher-rate loan with low fees on the same basis — the loan with the lower effective APR is cheaper overall for the same amount borrowed and repaid.
Does a longer loan term always mean paying more?
A longer term lowers the monthly payment but generally increases total interest paid over the life of the loan, since the balance stays higher for longer. Fees also get 'diluted' across more months, which is one reason effective APR calculations always account for the loan's term, not just its rate.
Does this calculator include prepayment penalties or variable rates?
No — it assumes a fixed rate for the full term with no prepayment penalty. If your loan has either of those features, the actual effective cost could differ from what this calculator shows.