A personal loan annual percentage rate is the combined total of the interest rate plus the origination fee, calculated on a yearly basis and expressed as a percentage. If there are no fees, the APR equals the interest rate.
How does APR work on a personal loan?
When you’re shopping for personal loans, the APR provides an apples-to-apples cost comparison. The interest rate or monthly payment alone does not reflect the true cost of the loan.
Personal loans are fixed-rate installment loans, meaning your interest rate won't change over the loan term. Terms are typically two to seven years, and you pay the loan back in equal, monthly installments. Lenders assign an interest rate based on your credit score, credit history and debt-to-income ratio, among other factors.
Personal loans may come with an origination fee ranging from 1% to 10% of the loan amount. Lenders consider factors like credit score, loan amount and income when calculating the fee. When the interest rate and fee are combined, you get the APR.
Before formally applying for a personal loan, many lenders let you pre-qualify to check your estimated APR without affecting your credit score.
What’s the difference between APR and interest rate?
Let’s see how APR helps you choose a loan. Assume you want to borrow $5,000 and repay it over three years. You pre-qualify with two lenders and receive the following rates:
Lender 1 | Lender 2 | |
|---|---|---|
Interest rate | 10%. | 11%. |
Origination fee | $250 (5% fee). | $100 (2% fee). |
Monthly payment | $161. | $164. |
APR | 13.4%. | 12.4%. |
Total cost | $1,058. | $993. |
Initially, it’s hard to know which loan is cheaper. One lender offers a lower interest rate but charges a higher fee. The monthly payment is almost equal.
That’s when APR comes in: The first loan has an APR of 13.4% and the second loan has an APR of 12.4%. The loan from Lender 1 has a higher APR and higher total loan cost, making Lender 2 the less expensive option overall.
NerdWallet generally recommends picking the loan with the lowest APR for a given loan term because it’s the cheapest option.
In some cases, it can make sense to choose a loan with a higher APR — if the monthly payment is a better fit for your budget, for instance, or if the origination fee is lower. Some lenders deduct this fee upfront, so even if you get approved for a $5,000 loan, you may get less in hand.
Compare APRs for personal loans
Typically, personal loan APRs are from 6% to 36%. Use our personal loan calculator to see your estimated APR, monthly payment and total interest based on your loan amount, interest rate and desired loan term.
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What is a good APR for a personal loan?
Borrowers with good to excellent credit scores (690 and higher) will likely receive the lowest rates. Your credit score isn’t the only factor lenders review on an application, but it’s often an important one.
Here’s what personal loan interest rates look like, on average:
Borrower credit rating | Score range | Estimated APR |
Excellent | 720-850. | 11.35%. |
Good | 690-719. | 14.34%. |
Fair | 630-689. | 17.64%. |
Bad | 300-629. | 22.29%. |
Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified through NerdWallet from Aug. 1, 2024, through Aug. 31, 2024. Rates are estimates only and not specific to any lender. The lowest credit scores — usually below 500 — are unlikely to qualify. Information in this table applies only to lenders with maximum APRs below 36%.
Bad-credit loan APRs
If you have bad credit (a score of 629 or lower), you may still qualify for a personal loan. Some lenders work specifically with bad-credit applicants and consider other factors on your application, like your monthly free cash flow, education level or employment history. It's especially important to compare multiple lenders if you have bad credit.
» MORE: See bad-credit loan options
Bad-credit borrowers will likely receive an interest rate on the high end of a lender's range. Look for an APR below 36%, which consumer advocates agree is the highest rate an affordable loan can have, and make sure the monthly payments fit comfortably in your budget.
