What Is The Difference Between APR And Interest Rate On A Personal Loan?

Interest rates are charged on top of the principal amount of the loan and APR helps in evaluating the cost of the loan.

An interest rate and APR- Annual Percentage Rate are both important when it comes to personal loans, but they’re not the same thing. They both have their own share in a personal loan and it is important that borrowers know how these two work.

Interest Rate on Personal Loan

An interest rate is basically the fee of borrowing the loan. Many people borrow personal loans depending upon how much they need; this could be for medical emergencies, student loans or other debts they may have. When they borrow a personal loan from a lender, they get the desired principal amount, along with an interest rate.

This interest rate is a percentage rate which is charged on the principal amount and is paid with every monthly installment. The interest rate can be variable or fixed- depending upon the nature of the policy, and it is important to pay the interest rate during the course of the loan. Interest rates on unsecured loans typically range from 5% to 36%. One missed payment on the loan can pile up the interest rate, often making it hard to pay it all off in the end.

For example, you borrow a personal loan of $10,000 on a fixed interest rate of 5%. Now when the 5 years of the loan end, you have to pay a total of $10,500. That divided over the course of 5 years becomes $2,100 each year and if you want to further divide it by 12 to get the monthly payment, you get $175. So in short, for this personal loan, you’re required to pay $175 each month, for 5 years.

How to calculate Annual Interest Rate?

An annual interest rate is the real return paid on savings or the real cost of a loan as it takes into account the effects of compounding and any fees charged.

Effective Annual Interest Rate=(1 + (nominal rate / number of compounding periods)) ^ (number of compounding periods) – 1


i=Nominal interest rate

n=Number of periods

APR on Personal Loan

APR stands for Annual Percentage Rate, which is a combined figure of the interest rate AND any other fees liable on the loan. If there are no fees, the APR and interest rate remains the same. While comparing loans, the best way to do so is by comparing the APR rate because it includes all costs like broker fees, cost of procuring the loan etc.

The APR should always be greater than or equal to the nominal interest rate, except in the case of a specialized deal where a lender is offering a rebate on a portion of your interest expense.To get a great APR on a personal loan, lenders look for credit history. Your credit score plays a HUGE role when it comes to deciding APR, here’s how:

Credit Score Average Personal Loan APRs
Excellent (720 – 850) 10.3% – 12.5%
Good (680 – 719) 13.5% – 15.5%
Average (640 – 679) 17.8% – 19.9%
Poor (300 – 639) 28.5% – 32.0%

For people with a poor credit, there might not be many lenders willing to lend. And if there are, it isn’t necessary that borrowers get the most competitive rates.

In this table below, we have highlighted the lenders and typically what APR they have.

Lender/Lending Platform APR
Affirm 10.00% – 30.00% (0% APR offered at select retailers)
Alliant Credit Union 6.49% – 10.49% with AutoPay
American Express 6.90% – 19.98%
Avant 9.95% – 35.99%
Backed 2.90% – 15.99%
Best Egg 5.99% – 29.99%
Citibank 7.99% – 17.99% with discounts (rate may be higher)
Citizens Bank 6.80% – 20.91% with AutoPay
Discover Personal Loans 6.99% – 24.99%
E-LOAN 7.99% – 35.99%
Earnest 5.99% – 17.24%
FreedomPlus 7.99% – 29.99%
KeyBank 7.49% – 15.24% with AutoPay
LendingClub 6.95% – 35.89%
LendingPoint 9.99% – 35.99%
LightStream 4.99% – 19.99%
LoanStart 4.85% – 35.99%
Marcus 6.99% – 19.99%
Mariner Finance Up to 36.00%
Mr. Amazing Loans 19.9% – 29.9%
Navy Federal Credit Union 8.19% – 18.00%
OneMain Financial 18.00% – 35.99%
Payoff 5.99% – 24.99%
Peerform 5.99% – 29.99%
PersonalLoans.com 5.99% – 35.99%
PNC Bank 5.99% – 25.49% with AutoPay
Prosper 6.95% – 35.99%
Regions Bank 7.50% – 18.83% with AutoPay
RocketLoans 7.161% – 29.99%
Santander Bank 6.99% – 16.99% with ePay
Self Lender 10.58% – 14.77%
SoFi 5.99% – 18.83% with AutoPay
TD Bank 6.99% – 18.99% with AutoPay
Upgrade 7.99% – 35.97%
Upstart 7.46% – 35.99%
Wells Fargo 5.49% – 22.99%


What is a good APR for a Personal Loan?

A good APR lies in between 10% to 15%, and that happens when the borrower has a good credit score. But if your credit score isn’t too good, there are ways to improve it to get an excellent APR on your personal loan.

You can start by paying your credit bills on time, even one missed payment can affect your score. Set an alarm if you have to! If you set one alarm two days prior to the due date, you will have a reminder to pay your dues and if you don’t have the money, you will have time to arrange it. And one alarm should be on the due date so you pay immediately and never miss a payment.

You should decrease your credit card limit to 30%, this way you will only use whatever is available without spending more. And make sure you stick with this. Don’t go applying for a new credit card, because it will again affect your rating. Even taking these simple measures can bring up your credit rating in only a short span of 3-6 months.

How to Calculate Annual Percentage Rate (APR)?

As discussed above, the APR helps in evaluating loan costs. You can calculate APR very easily, just bring along a pen and paper and follow the steps.

  1. Add total interest paid over the duration of the loan to any additional fees.
  2. Divide by the amount of the loan.
  3. Divide by the total number of days in the loan term.
  4. Multiply by 365 to find the annual rate.
  5. Multiply by 100 to convert annual rate into a percentage.

And voila! You have got yourself the APR. You can also check your math by running the numbers through an online APR Calculator.

Best Personal Loans for people with Bad Credit

Like it has been discussed, your interest rate on the loan and APR depends on the kind of credit rating you have, what your DTI is and several other factors. If you’re one of the people who have very poor credit, don’t feel disheartened. There are a couple of companies that give out loans to people with poor credit performance.

Here’s a table for you from where you can find the best personal loans for poor credit performers and also compare their rates.

Lender APR Loan Amount Terms Key Benefit SimpleScore
OneMain Financial 18%–35.99% Up to $20,000 Up to 60 months Same-day funding. 4.5/5
Peerform 5.99%–29.99% $4,000–$25,000 3 years Easy application process. 4/5
NetCredit 34.00%–155% Up to $10,000 6–60 months Low credit scores accepted. 3.2/5
Avant 9.95%–35.99% $2,000–$35,000 24–60 months Mobile application process available. 3.75/5
PersonalLoans.com 5.99%–35.99% Up to $35,000 90 days–72 months Short-term loans available if needed. 4.25/5
BadCreditLoans.com 5.99%–35.99% $500–$5,000 3–36 months Large affiliate network to fund your loan. 3.6/5

Note: Sample rates have been extracted online, courtesy of TheSimpleDollar.


To sum it all up, in very simple words, an interest rate is the cost of borrowing the loan and is charged on every installment that the borrower pays. Whereas an APR determines the cost of procuring the loan, broker fees and every other ‘hidden’ fees that may not be openly visible. An APR also includes the interest rate.

Both of these are heavily affected by the credit scores of the borrower; people with a good credit score will obviously get a competitive interest rate, thus a lower APR. And vice versa. But for people who don’t have a good credit rate can look for online lenders and credit unions who are willing to give loans to bad credit people. All you have to do is prove to them that you’re not a bad investment and that you will pay the loan promptly when the time comes. And make sure you do that too!

If getting a personal loan isn’t an emergency, you can always take a couple of months to improve your credit score by paying on time and make sure you don’t miss any credit deadlines from now on. Even the slightest effort can make such a big difference.

And of course, the biggest tip for a good rate on personal loans is to shop around! Look around for rates and policies and lenders and make sure you scrutinize the market to get the best rate possible. Don’t just settle for anything you’re not satisfied with. Better yet, ask your friends and family for a personal loan- there won’t be any hidden charges and you can mutually decide on an interest rate. Make sure you pay them too, and on time.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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