The annual percentage rate, or APR, on a personal loan represents the total cost of borrowing money. It combines the interest rate with additional fees charged by lenders, such as origination fees.
APR is a key factor when comparing personal loan offers from multiple lenders. A significant difference between the quoted rate and APR may indicate high lender fees. APR varies widely based on the lender, loan amount, credit score, and repayment term.
To calculate APR, lenders start with the interest rate and add relevant finance charges, typically including origination and administrative fees. Many lenders list their APRs online, but borrowers should read the fine print to understand assessed fees.
For example, a $15,000 personal loan with a 13% interest rate, a three-year term, and a 9.99% origination fee results in an APR of 16.33%. The origination fee, calculated as a percentage of the loan amount, leads the lender to withhold $1,498.50 from the loan funds.
The primary difference between APR and interest rate is that APR considers all loan costs, while the interest rate only reflects the percentage collected monthly on the borrowed amount. APR combines the interest rate with additional costs to show consumers and regulators the total loan cost.
Comparing APRs helps gauge whether a borrower is getting the best deal on a personal loan. If the offered rate is significantly lower than the APR, upfront fees may be higher. Personal loan origination fees can exceed 10% of the loan amount and are deducted from loan funds.
If a lender charges no additional fees, the APR equals the interest rate. No-fee loans are less common and more likely for borrowers with excellent credit scores. Some lenders may use APR and interest rate interchangeably, which could indicate predatory lending. Federal lending laws require clear disclosure of both.
A good personal loan APR is typically below the national average. Qualifying often requires a credit score above 670, a stable income, or a creditworthy cosigner. Securing a low APR can save thousands over the loan's life. For instance, a $10,000 five-year loan with an 8% APR costs over $3,000 less than one with an 18% APR.
According to Bankrate data, the average APR for a personal loan is 12.19% as of Jan. 14, 2026. APRs can range from around 7% to 36%. As the Federal Reserve adjusts rates, advertised rates may change, with excellent credit needed for the lowest rates.
Borrowers with bad credit, generally a score below 580, face higher APRs, sometimes up to 36%, along with lower borrowing amounts and shorter terms. For example, a $10,000 five-year loan at 30% APR results in higher monthly payments and total interest costs compared to 13% APR.
Factors impacting APR include credit score, income and debt-to-income ratios, loan term, collateral, and lender policies. A higher credit score, stable income, low DTI ratio, shorter term, or secured loan often leads to better APRs.
When comparing personal loans, ensure an apples-to-apples comparison by focusing on APR rather than interest rate alone. Other factors to consider include loan term, fees like origination fees between 1% and 12%, eligibility criteria, and additional features such as online applications or customer service.
Reviewing both APR and interest rate is essential when choosing a personal loan. Good credit, low DTI ratio, and stable income can help secure a low APR. Borrowers with less-than-perfect credit might consider applying with a co-borrower or cosigner.