The annual rate (APR) of personal loans reflects the total cost of debt. This combines the interest rates on personal loans offered with set fees such as origination fees, lender fees and more.
This is one of the most important factors when comparing personal loan offers from different lenders. If there is a big difference between the fees you quoted and the APR, it is a sign that the lender’s fees may be expensive. APRs vary widely depending on your chosen lender, amount of borrowing, credit score, and repayment period.
How does APR work on personal loans?
To calculate the APR, the lender will start with the interest rate offered and add the financial fee. Personal loan financing claims typically include origination fees and management fees based on the percentage of the loan amount.
Many lenders list APRs online. Read the small print to determine the applicable fee.
If you want to calculate numbers yourself, there are seven simple steps to follow.
- Express your interest rate as a decimal (divided by 100)
- I will multiply the principal I borrowed
- Multiply this number by this number (by year)
- Add loan fee
- Divide this number by the loan amount
- Divide this number by the number of days in the loan period
- Multiply by 365
- Multiply by 100 to get the APR
What is the difference between APR and interest rates for personal loans?
The main difference between APR and interest rates is that APR takes into account all the costs of the loan, but interest rates are not. If the lender offers interest, it only reflects the percentage you collect each month to the amount you borrow.
On the other hand, APR is a combination of interest rates and costs. It aims to show consumers and regulators how much the loan costs, including fees.
APR is also a tool to measure whether you are truly getting the best deals on your personal loan. If the fees offered are significantly lower than the APR, you will be paying more in advance. Personal loan fees can be over 10% and will be deducted from the loan fund.
Understanding the difference between APR and interest can help you compare both the total cost and interest rates of personal loan offers. This will help you ensure you get the best bang for your personal loan back.
| Things you need to know about APR | Things you need to know about your interest rate |
| It reflects the total cost of the loan, including rates | It only reflects the interest you pay |
| APR is not used to calculate monthly payments | Your interest rate may be simple or amortized and you may decide on your monthly payment |
| Costs related to APR are usually paid upfront from a personal loan fund. | Interest related to the loan will be collected on a set payment schedule until the loan balance is repaid. |
If the lender does not charge an additional fee, the APR will be the same as the interest rate. Free loans are less common. A good credit score will make you more likely to qualify for them.
What is the average APR for personal loans?
According to a Bankrate survey, the average APR for personal loans is 12.37% as of April 3, 2025. Personal loan APRs range from around 7% to 36%.
As the Federal Reserve has begun cutting, beware of changes to fees advertised online. You may need great credit to get the lowest rate. Check your APR to make sure these low prices do not cost you a lot of fees.
What is a good APR for personal loans?
APRs for good personal loans are usually below the national average. However, to qualify you may need a credit score of over 670 and a stable income stream, or a trusted co-signer who meets these requirements.
Ensuring a low APR will save you thousands of dollars over the lifespan of your loan. For example, if you borrow $10,000 over five years, you’ll pay more than $3,000 for an APR with an APR of 18%.
| April | Monthly payment | Total cost |
|---|---|---|
| 8% | $202.76 | $12,165.84 |
| 13% | $227.53 | $13,651.84 |
| 18% | $253.93 | $15,236.06 |
How to compare personal loan fees
While APRs can help you feel whether or not you’re paying for a loan, it’s just one of many factors to consider when shopping for a personal loan.
- Loan period. Your APR is probably based on the length of the term. Lower rates are usually offered under shorter conditions. Remember: the shorter your period, the higher your monthly payments.
- Fee. Lender fees vary, but most billing fees range from 1 to 12%. Late fees and advance penalties are not considered in the APR, but they may affect the total cost.
- eligibley. Lenders may set eligibility criteria for their eligibility, including restrictions on whether they can add Cosigner or co-borrower. Some lenders only do business in certain states. Others only offer personal loans for specific purposes, such as consolidating debts.
- Additional features. Consider other features that could make your borrowing experience smoother. These include simple online applications, prequalification tools, various customer service times, discounts and unemployment protection.
Conclusion
When choosing any type of personal loan, check both the APR and the interest rate. Knowing APR will help you get as much money as possible, as it can prevent you from paying exorbitant fees on your personal loan.
Good credit, low DTI ratios and stable income sources all help to ensure low APR. If you have perfect credit, consider applying with a co-borrower or Cosigner. If you do not have a co-signer or co-applicant, compare the bad credit loan fees before applying for the best deal.
