What is APR on a personal loan?
APR, or annual percentage rate, is the yearly cost of a loan including interest and required fees such as an origination fee. Because it includes fees, APR is the best single number for comparing loans. Federal law requires lenders to disclose it.
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Loan terms from 2 to 60 months. Rates vary depending on the lender, your credit and your state. Maximum APR is 35.99%.
The legal definition
- Under federal Truth in Lending rules, APR is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made.
- By law, the lender must show you the APR before you enter into the loan.
- States have laws that may limit the APR a lender can charge, so minimum and maximum APRs can vary by state.
APR vs. interest rate
- Interest rate: the cost of borrowing the principal only.
- APR: the interest rate plus required fees, expressed as a yearly rate.
- When a loan has no fees, APR and interest rate are the same.
Using APR to compare
- Compare APRs for the same loan amount and term.
- A lower APR on a longer term can still cost more in total interest.
- Check total cost in the calculator when two APRs are close.
Pre-qualified offers are estimates, not final approvals. The lender will verify your information, may run a hard credit check, and can change the terms or decline the application.
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Checking your rate uses a soft credit pull. Accepting an offer and finishing a lender's application may lead to a hard inquiry.
Common questions
What is a good APR for a personal loan?
It depends on your credit and the market. The best way to know what's good for you is to compare several prequalified offers for the same amount and term.
Does APR include the origination fee?
Yes. APR includes required fees like origination fees, which is why it can be higher than the interest rate.
Is APR the same as the interest rate?
Only when there are no fees. Otherwise APR is higher because it adds required fees to the interest cost.
Sources
- What is the difference between a loan interest rate and the APR?, Consumer Financial Protection Bureau
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Checking your rate uses a soft credit pull. Accepting an offer and finishing a lender's application may lead to a hard inquiry.