What An APR On A Personal Loan Is | Bankrate (2024)

The annual percentage rate, or APR, is one of the most important factors to take into account when applying for a personal loan — or any type of loan — since it determines the overall cost. This figure is expressed as a percentage. It varies widely depending on the lender you choose, your loan amount, credit score and income, among other factors.

What is APR on a loan?

The APR is a percentage that represents the total amount of interest and fees you’ll pay over each year for any amount borrowed. This figure is used to compare 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 in addition to 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.

Luckily, most lenders already have the APR listed on their sites. If you still want to crunch the numbers, 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 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, there’s a difference between the two. The interest rate of a loan is the amount lenders charge borrowers for lending them money. This amount, expressed as a percentage, can be simple or amortized, and is charged on top of the principal balance or amount requested.

The APR, on the other hand, is a combination of the interest rate, along with other fees, such as administrative fees, origination or application fees, charged by the lender for issuing the loan. 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 12.22 percent as of April 24, 2024.

What is a good APR on a personal loan?

A good APR on a personal loan is typically one below 12 percent. But to qualify for it, you’ll 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, as shown in the table below.

APRMonthly paymentTotal cost
6%$193.33$11,599.68
11%$217.42$13,045.45
18%$253.93$15,236.06

If you borrow $10,000 for five years, you will pay $1,446 less with an APR of 6 percent than you would with an 11 percent APR. And if you have an APR of 18 percent, you would pay $2,191 more than you would with an 11 percent one.

How to get the lowest APR on your personal loan

When shopping for a personal loan, you might notice that the APRs offered vary significantly by lender. That is because lenders take into account other factors, such as the length of the repayment term, loan amount and loan purpose to determine your APR.

To improve your odds of qualifying for a low-interest loan, consider the following:

  • Picking a shorter loan term. Lenders typically offer lower rates on shorter term loans, as they involve less risk.
  • Opting for a smaller loan. Similarly, you pose less risk when you borrow less. A smaller loan may help you qualify for a lower APR.
  • Borrowing with purpose. It isn’t wise to go into debt for wants. A lender may impose a higher rate if you’re getting a loan to pay for a vacation than if you get a debt consolidation loan or a home improvement loan.
  • Choosing a loan with few fees. Some lenders charge minimal fees — or none at all. If possible, find one that keeps fees at bay, plus that offers rate discounts for things like signing up for automatic payments, to maximize your savings.

Additionally, you’ll need to have good-to-excellent credit, a low DTI ratio (36 percent or less), and a stable source of income to qualify for the lowest rates.

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 loan offers.

Loan terms

After reviewing the lenders’ APRs, consider the loan terms. The APR will likely be different based on the term length. Compare terms to see which lender offers the better overall deal.

Additionally, the length of your repayment term will influence how much you’ll pay each month. Longer terms lead to a lower monthly bill, but also to more interest paid over the life of the loan.

Fees

Lenders may charge fees in addition to interest. Origination fees usually range between 1 percent to 10 percent. They are common among online lenders. Also look for fees that may sneak up on you, such as late fees and prepayment penalties. These may not be factored into the APR, but they can impact your total cost.

Eligibility

Note that 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

Lastly, look at other features that might make your borrowing experience smoother. These include easy online applications, prequalification tools, a range of customer service hours, discounts and unemployment protection.

The bottom line

When it comes to any personal loan type, the APR is one of the most important factors to consider, as it will help you figure out the overall cost of the loan, in addition to how affordable it may be for you. 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 that specializes in fair or bad credit loans or by applying jointly with a co-signer.

What An APR On A Personal Loan Is | Bankrate (2024)

FAQs

What An APR On A Personal Loan Is | Bankrate? ›

APRs for personal loans can range from around 8 percent to 36 percent. According to a Bankrate

Bankrate
Bankrate is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear.
https://www.bankrate.com › about
study, the average APR for a personal loan is 12.22 percent as of May 1, 2024.

What is a good APR on a personal loan? ›

What is a good APR for a personal loan?
Borrower credit ratingScore rangeEstimated APR
Excellent720-850.12.64%
Good690-719.14.84%
Fair
Feb 9, 2024

Is 20% APR on a personal loan good? ›

No, taking a personal loan at 20% rate of interest is not a good idea. I understand that a personal loan is an unsecured loan, so the rate of interest will be much higher than a secured loan. But, that does not mean you will apply for a personal loan at 20% rate of interest.

Why is APR so high on personal loans? ›

Personal loans are typically unsecured, which means there's no collateral to back the loan. Your credit score plays a significant role in determining your personal loan interest rate, and a poor credit score can result in a higher interest rate.

Can you avoid paying APR on a personal loan? ›

It's impossible to avoid paying interest on your personal loan. However, there are a few things you can do to pay less interest over the life of your loan. Paying off your loan early can help you save potentially hundreds on interest.

What APR will I get with a 700 credit score personal loan? ›

The best personal loans for a 700 credit score are from LightStream because they offer $5,000 - $100,000 with APRs of 7.49% - 25.99% and repayment periods of 24 - 84 months. You will need a credit score of 660 or higher to qualify for a personal loan from LightStream.

Can you pay off personal loans early? ›

Most personal loan lenders allow borrowers to pay off their loans early, without prepayment penalties. But before you dip into savings or use an influx of cash to pay off a loan, make sure all your financial bases are covered.

Is 7% a good rate for a personal loan? ›

A good personal loan interest rate depends on your credit score: 740 and above: Below 8% (look for loans for excellent credit) 670 to 739: Around 14% (look for loans for good credit) 580 to 669: Around 18% (look for loans for fair credit)

Why is my APR so high with good credit? ›

Key takeaways. Your credit card APR can go up if the prime rate changes, you paid your credit card bill late, your intro APR offer ended or your credit score dropped. If your APR increases, you can work on paying down your balance or transfer your balance to a card with a low or 0 percent intro APR offer.

Which bank is best for a personal loan? ›

List of Banks Offering Best Personal Loan in India
  • HDFC Bank. Max. Loan Amt. Up to ₹40L. Rate of Interest. ...
  • Axis Bank. Max. Loan Amt. Up to ₹40L. Rate of Interest. ...
  • Kotak Mahindra Bank. Max. Loan Amt. Up to ₹10L. Rate of Interest. ...
  • IDFC First Bank. Max. Loan Amt. Up to ₹1Cr. Rate of Interest. ...
  • ICICI Bank. Max. Loan Amt. Up to ₹50L.
4 days ago

What is the interest rate on a 5000 personal loan? ›

The interest rate on a $5,000 loan from a major lender is usually around 7.8% to 35.99%. It's difficult to pinpoint the exact interest rate that you'll get for a $5,000 loan since lenders take many factors into account when calculating your interest rate, such as your credit score and income.

Do you pay both APR and interest rate? ›

A loan's interest rate is the cost you pay to the lender for borrowing money. The Annual Percentage Rate (APR) is a measure of the interest rate plus the additional fees charged with the loan. Both are expressed as a percentage.

Is 12% APR good for a personal loan? ›

In most circ*mstances, a 12% interest rate on a personal loan definitely qualifies as a good rate unless the borrower has nearly perfect credit. To guarantee that you will be able to qualify for an interest rate near 12%, you will need to have a good to excellent credit score of over 700 points.

How to pay off a 5 year loan in 2 years? ›

5 Ways To Pay Off A Loan Early
  1. Make bi-weekly payments. Instead of making monthly payments toward your loan, submit half-payments every two weeks. ...
  2. Round up your monthly payments. ...
  3. Make one extra payment each year. ...
  4. Refinance. ...
  5. Boost your income and put all extra money toward the loan.

Will paying off a loan early hurt my credit? ›

Yes, paying off a personal loan early could temporarily have a negative impact on your credit scores. But any dip in your credit scores will likely be temporary and minor. And it might be worth balancing that risk against the possible benefits of paying off your personal loan early.

Does APR go down if you pay off early? ›

Your card's annual percentage rate — or APR — is the interest rate on your credit card. If you pay off your monthly balance in full by each statement's due date, you typically avoid paying interest on your purchases.

Is 24.99 APR high for a loan? ›

A 24.99% APR is decent for personal loans. It's far from the lowest rate you can get, though. Personal loan APRs tend to range from around 4% to 36%.

Is 5% APR a lot? ›

A 5% APR is good for pretty much all types of borrowing, except for mortgages.

Top Articles
Latest Posts
Article information

Author: Ms. Lucile Johns

Last Updated:

Views: 6467

Rating: 4 / 5 (61 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Ms. Lucile Johns

Birthday: 1999-11-16

Address: Suite 237 56046 Walsh Coves, West Enid, VT 46557

Phone: +59115435987187

Job: Education Supervisor

Hobby: Genealogy, Stone skipping, Skydiving, Nordic skating, Couponing, Coloring, Gardening

Introduction: My name is Ms. Lucile Johns, I am a successful, friendly, friendly, homely, adventurous, handsome, delightful person who loves writing and wants to share my knowledge and understanding with you.