Key takeaways

  • APR reflects the total annual cost of a personal loan, including both fees and interest.
  • Many lenders state their APR online to make it easier to compare before you apply.
  • Your APR will be based on your credit score, income and other financial factors.

The annual percentage rate, or APR, is one of the most important factors when applying for a personal loan — or any credit. It determines the overall cost. The APR combines the interest rate and any set fees, like origination fees, your lender charges.

APR varies widely depending on the lender you choose and your loan amount, credit score and income, among other factors.

What is APR on a loan?

The APR is a percentage representing the total interest and fees you’ll pay each year. You can use it to compae the cost of borrowing different financial products, including personal loans, auto loans, mortgages and credit cards.

When comparing personal loan offers, the APR will help you determine how much the loan will cost you overall and how much you’ll pay each month.

How the APR for a personal loan is calculated

To calculate the APR, lenders take the interest rate for a personal loan and add in the finance charges, which include origination fees and any other administrative fees.

Many lenders list their APR online. If you want to crunch the numbers yourself, you can do so by following a few steps.

  1. Add up the loan’s interest rate and fees.
  2. Divide that figure by your original loan amount or principal balance.
  3. Then, divide the resulting figure by the number of days in your loan’s term.
  4. Multiply that figure by 365.
  5. Finally, multiply that figure by 100 to turn that number into a percentage.

You can also use a loan APR calculator to get this percentage if you want to keep calculations simpler.

What is the difference between APR and interest rate on a personal loan?

While APR and interest rate are sometimes used interchangeably, the interest rate is the amount you are charged when you borrow. Interest rates are expressed as percentages and can be simple or amortized. Interest is charged on top of the principal balance — the amount you borrowed.

The APR, on the other hand, is a combination of the interest rate and fees. These can include administrative fees, origination fees or application fees. This is why the APR is often higher than the interest rate.

If a lender doesn’t charge any additional fees, the APR will be the same as the interest rate — but no-fee loans are extremely rare.

What is the average APR on a personal loan?

APRs can vary based on a variety of factors, including your loan amount, loan term, credit score, annual income and debt-to-income (DTI) ratio. APRs for personal loans can range from around 8 percent to 36 percent. According to a Bankrate study, the average APR for a personal loan is 12.36 percent as of July 17, 2024.

What is a good APR on a personal loan?

A good personal loan APR is typically below the national average. But to qualify for it, you’ll likely need a credit score above 670 and a stable source of income — or a creditworthy co-signer that meets these requirements.

Securing a low APR can save you thousands of dollars over the life of a loan. For example, if you borrow $10,000 for five years, you will pay over $3,000 less with an APR of 8 percent versus an APR of 18 percent.

APR 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 rates

The APR can help you get a sense of what your loan will cost, but it’s just one of many factors to consider when you’re comparing personal loans.

  • Loan term. Your APR will likely be based on term length. Compare terms to choose the best lender. Additionally, your loan term will influence your monthly payment and how much you pay overall.
  • Fees. While lenders may charge various fees, many will have an origination fee between 1 to 12 percent. Late fees and prepayment penalties are not factored into the APR but can impact your total cost.
  • Eligibility. Lenders may have eligibility criteria beyond the basic credit score and income requirements. Some lenders only serve customers in certain states, while others only offer personal loans to those looking to consolidate debt.
  • Additional features. Consider other features that might make your borrowing experience smoother. These can include easy online applications, prequalification tools, a range of customer service hours, discounts and unemployment protection.

The bottom line

When choosing any type of personal loan, APR is one of the most important factors. It will help you determine the overall cost of the loan.

Good credit, a low DTI ratio and a stable source of income can all help you secure a low APR. But even if you have less-than-perfect credit, you can still secure an affordable loan by choosing a lender specializing in fair or bad credit loans or by applying with a co-borrower or co-signer. If you don’t have a co-signer or joint applicant, compare bad credit loan rates before you apply to get the best deal available.