The annual percentage rate (APR) is a crucial factor to consider when applying for a personal loan—or any type of credit—as it determines the overall cost. APR includes both the interest rate and any fixed fees, such as origination fees, charged by the lender.

APR can vary significantly based on the lender, loan amount, credit score, income, and other factors

The APR (Annual Percentage Rate) represents the total annual cost of borrowing, including interest and fees. It’s a useful metric for comparing the cost of different financial products, such as personal loans, auto loans, mortgages, and credit cards.

When evaluating personal loan offers, the APR helps you understand the overall cost of the loan and how much you’ll pay each month.

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

Many lenders list their APR online. If you want to calculate it yourself, follow these steps:

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

Alternatively, you can use a loan APR calculator to simplify the process.

While APR and interest rate are sometimes used interchangeably, they represent different costs of borrowing. The interest rate is the percentage charged on the loan principal, either as simple interest or amortized over time.

APR, however, combines the interest rate and additional fees, such as administrative, origination, or application fees. This makes the APR typically higher than the interest rate.

If a lender doesn’t charge additional fees, the APR will match the interest rate. However, no-fee loans are extremely rare.

APRs can vary based on several factors, including your loan amount, loan term, credit score, annual income, and debt-to-income (DTI) ratio. Personal loan APRs typically range from about 8 percent to 36 percent. According to a Bankrate study, the average APR for a personal loan is 12.21 percent as of May 29, 2024.

A good APR on a personal loan is usually one that falls below the national average. To qualify for such an APR, you’ll likely need a credit score above 670 and a stable source of income—or a creditworthy co-signer who meets these criteria.

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

APRMonthly paymentTotal cost
8%$202.76$12,165.84
13%$227.53$13,651.84
18%$253.93$15,236.06

The APR can give you an idea of what your loan will cost, but it’s just one of many factors to consider when comparing personal loans:

  • Loan term: Your APR will likely be influenced by the term length. Compare different terms to find the best lender for your needs. Remember, the loan term will affect your monthly payment and the total amount you pay over time.
  • Fees: Lenders may charge various fees, with origination fees typically ranging from 1% to 12%. Late fees and prepayment penalties are not included in the APR but can still impact your total cost.
  • Eligibility: Lenders often have specific eligibility criteria beyond basic credit score and income requirements. Some lenders only serve customers in certain states or cater to those looking to consolidate debt.
  • Additional features: Look for features that can enhance your borrowing experience. These might include easy online applications, prequalification tools, extended customer service hours, discounts, and unemployment protection.

When considering a personal loan, the APR is a crucial factor as it determines the overall cost of the loan.

Good credit, a low DTI ratio, and a stable income can help you secure a low APR. However, if your credit is less than perfect, you can still find an affordable loan by choosing a lender that specializes 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 applying to get the best deal available.