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, on a personal loan reflects the total cost of borrowing money. It combines the personal loan interest rate you’re offered with any set fees, like origination fees, the lender charges.
It’s one of the most important factors when comparing personal loan offers from different lenders. If there is a large difference between the rate and APR you’re quoted, that’s a sign the lender’s fees may be expensive. APR varies widely depending on the lender you choose, the amount you borrow, your credit score and your repayment term.
How does APR work on a personal loan?
To calculate the APR, lenders start with the interest rate you’re offered and then add the finance charges. Personal loan finance charges typically include origination fees and administrative fees based on a percentage of your loan amount.
Many lenders list their APR online. Make sure you read the small print to determine any applicable fees.
If you want to crunch the numbers yourself, you can take seven simple steps:
- Express your interest rate as a decimal (divide it by 100)
- Multiply your rate by the principal amount you’re borrowing
- Multiply this number by the term (in years)
- Add the loan fees
- Divide this number by the loan amount
- Divide this number by the number of days in your loan term
- Multiply by 365
- Multiply by 100 to get your APR
What is the difference between APR and interest rate on a personal loan?
The primary difference between APR and interest rate is that APR considers all the costs of your loan, while your interest rate does not. When lenders offer you an interest rate, it only reflects the percentage they collect monthly on the amount you borrow.
APR, on the other hand, is a combination of the interest rate plus costs. It’s meant to show consumers and regulators how much the loan costs, including any fees.
APR is also a tool to gauge whether you’re really getting the best deal on a personal loan. If the rate you’re offered is significantly lower than the APR, you’ll pay more in upfront fees. Personal loan fees can be over 10 percent and are deducted from your loan funds.
Understanding the differences between APR and interest can help you compare both the total costs and the interest rate on personal loan offers. This can help to make sure you get the best bang for your personal loan buck.
| What you should know about APR | What you should know about your interest rate |
| It reflects the total cost of your loan including rates | It only reflects the interest you’ll pay |
| APR is not used to calculate your monthly payment | Your interest rate may be simple or amortized and determines your monthly payment |
| Costs related to APRs are usually deducted upfront from your personal loan funds | Interest related to your loan is collected on a set payment schedule until your loan balance is paid off |
If a lender doesn’t charge any additional fees, the APR will be the same as the interest rate. No-fee loans are less common — you’re more likely to qualify for them with an excellent credit score.
Bankrate tip
Some lenders may use APR and interest rate interchangeably. This may be a red flag that you’re dealing with a predatory lender. Federal lending laws require lenders to clearly close APR and interest rates on disclosures. Watch for last-minute changes to your APR before you sign: it could be a sign of last-minute fees being added to your loan.
What is the average APR on a personal loan?
According to a Bankrate study, the average APR for a personal loan is 12.43 percent as of April 30, 2025. APRs for personal loans can range from around 7 percent to 36 percent.
Now that the Federal Reserve has begun cutting rates, keep an eye on changes to advertised rates online. You’ll likely need excellent credit to get the lowest rates. Check the APRs to make sure those low rates don’t come with high fees.
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 shopping for a personal loan.
- Loan term. Your APR will likely be based on term length. Lower rates are generally offered for shorter terms. Remember: The shorter your term, the higher your monthly payment will be.
- Fees. Lender fees vary, but many charge origination fees 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 set eligibility criteria for qualifying, including restrictions on whether you can add a cosigner or co-borrower. Some lenders only do business in certain states. Others only offer personal loans for specific purposes, like consolidating 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.
Bottom line
When choosing any type of personal loan, make sure you’ve reviewed both the APR and the interest rate. Knowing the APR may keep you from paying exorbitant fees on a personal loan, so you get as much of the money you borrow as possible.
Good credit, a low DTI ratio and a stable source of income can all help you secure a low APR. If you have less-than-perfect credit, consider applying with a co-borrower or cosigner. 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.
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