4 Facts You Need to Know About Personal Loan APRs

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Personal loans have gotten popular in recent years, thanks in part to their relatively low costs of borrowing.

Although CreditCards.com lists the national average APR on a credit card at 16.38% as of January 2018, the rates on three-year unsecured loans are only 9.22% for credit unions and 10.09% for banks as of March 2018, according to the National Credit Union Association.

An online lender might provide an even lower personal loan APR, with FreedomPlus offering rates starting at 5.99% and SoFi at 5.99%.

But while these personal loan options boast rates that are lower than those on most credit cards, what do they tell us about the costs of a personal loan? Here are four important facts about personal loan APRs that you need to understand before you borrow.

1. Personal loan APR includes interest and most fees

An APR reveals how much you’ll pay in interest and fees on your personal loan. Because it includes fees, it’s a more comprehensive measure than interest rate alone.

That said, your APR might equal your interest rate if your personal loan doesn’t come with any other fees. Santander’s personal loan page, for example, states, “Santander does not have any upfront fees so the APR and the interest rate are the same.”

Note that penalty fees, such as those for a late payment or a bounced check, are typically not included in an APR. So your costs of borrowing could be greater if you fall behind on repaying your loan.

APR is typically expressed as a percentage of your total loan balance. You can enter your APR into our personal loan calculator, along with your loan amount and repayment term, to understand how much you will pay in interest and other fees.

If you borrow a $10,000 personal loan with a 10.00% APR and a one-year repayment term, for example, you can expect to pay $550 in interest and fees. Crunch the numbers before you borrow so that you understand the true costs of borrowing.

2. Your APR depends on many factors

When it comes to APR, each lender determines its rates. Plus, most lenders offer different APRs and origination fees to different borrowers.

Your rates and terms depend on a few factors, including your:

  • Credit score
  • Debt-to-income ratio
  • Loan amount
  • Repayment terms

The better your credit score, the lower rates you’ll get. You might also get a lower rate if you choose a shorter repayment term.

Of course, a shorter repayment term means higher monthly payments. So although a one- or two-year term could save you money on interest, a four- or five-year term might work better with your budget.

3. You can use APR to compare personal loan offers

Personal loan lenders are all different when it comes to rates and terms. Earnest, for example, offers rates as low as 5.99%, whereas Avant starts at 9.95%.

SoFi charges no origination fee, while LendingClub charges between 1% and 6%.

With all these variations, it’s tough to compare one personal loan offer with another. Fortunately, APR helps you compare personal loans on an apples-to-apples basis.

Thanks to the Truth in Lending Act, all lenders must disclose loan costs so you can comparison shop. Because personal loan APR is defined the same way across the board, you can use it to compare loans easily.

For instance, consider the following comparison of Loan A and Loan B. Both loans have terms of three years and interest that compounds on an annual basis.

Loan A

Loan B

Loan amount

$10,000

$10,000

Repayment term

3 years

3 years

Interest rate

12.00%

10.00%

Origination fee

$0

$500

APR

12.00%

13.74%

Total loan cost

$11,851.95

$12,120.65

As you can see, Loan B has a significantly lower interest rate than Loan A (10.00% compared to 12.00%). But because of its origination fee, Loan B has a higher APR and costs $268.70 more in the long run.

Loan A would be the more affordable choice in this instance. Rather than merely looking at the interest rate, you can look to APR for a full picture of loan costs.

4. Your repayment terms affect your costs of borrowing

Although APR is a useful comparison tool, it’s not the only factor to take into consideration. You should also think about how long it will take you to pay off the loan.

In the example above, both loans had a three-year repayment term. But what if you extended the term to seven years?

Loan A

Loan B

Loan amount

$10,000

$10,000

Repayment term

7 years

7 years

Interest rate

12.00%

10.00%

Origination fee

$0

$500

APR

12.00%

11.73%

Total loan cost

$14,554.14

$14,446.56

In this case, Loan A would be the slightly more expensive option because you would be paying a higher interest rate for a longer amount of time. Correspondingly, you can see that Loan A has a higher APR than Loan B.

On the flip side, let’s say you shortened your repayment term to one year.

Loan A

Loan B

Loan amount

$10,000

$10,000

Repayment term

1 year

1 year

Interest rate

12.00%

10.00%

Origination fee

$0

$500

APR

12.00%

20.61%

Total loan cost

$10,627.45

$11,052.16

On a one-year term, Loan B is more expensive than Loan A. In fact, you would pay $424.71 more over the course of the year.

Your repayment term has a big effect on the costs of borrowing. So as you compare APRs, make sure you’re taking repayment terms into account. The length of your loan could make a big difference in which lender you choose.

Shop around for the best rates and terms

When it comes to personal loans, you have a lot of lenders from which to choose. You might borrow from an online loan company or go with a traditional bank or credit union.

Although you have more options than ever, your main goal remains to find the loan with the lowest costs of borrowing.

Make sure to shop around with more than one lender and compare your offers.

Many online lenders let you check rates without a hard credit inquiry, so it won’t affect your credit score. And if a bank or credit union doesn’t offer a rate quote, you can still compare general terms and conditions.

Take the time to look at APR offers to compare personal loans comprehensively and find the best one for you.

Interested in a personal loan?

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 17.88%1 $5,000 to $100,000
5.69% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
compare rates on Lendingtree now
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

Published in Loans, Personal Finance

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