When seeking a personal loan, it’s crucial to compare different lenders’ annual percentage rates (APRs). The APR includes both interest and fees. A ‘good’ APR is typically at or below the national average. Your APR can vary based on your creditworthiness. Key Takeaways: The APR on a personal loan combines its interest rate and any fees. It’s the best way to compare loans from different lenders. Factors affecting APR include prevailing interest rates, loan amount and length, secured or unsecured status, and personal credit history. Shopping around with multiple lenders helps find the best rate.
Understanding the APR on a Personal Loan: The annual percentage rate (APR) is the cost (expressed as a percentage) to take out a personal loan from a lender, including interest and additional fees. For instance, if there are origination or application fees, they’re rolled into the APR. If no additional fees, the APR is the same as the interest rate. Using the APR is a more accurate way to compare personal loans.
Factors that can affect the APR on a loan include prevailing interest rates, loan term, amount borrowed, fixed or variable interest rate, and secured or unsecured status. Your creditworthiness also impacts the rates offered. Lenders check credit reports and scores and calculate debt-to-income ratio (DTI). If applying with a cosigner or co-borrower, their creditworthiness is considered. Many lenders offer different APRs for secured and unsecured loans. Generally, the more risk a lender perceives, the higher the APR. For example, a low credit score and high DTI result in a less attractive rate. In fact, getting a loan may be difficult except from a lender specializing in poor credit loans. As an example, this table shows average APRs on personal loans quoted through MoneyLion in August 2024 based on credit score range.
Personal Loan APRs by Credit Score
Credit Range Average APR
Excellent 22.33%
Good 26.93%
Fair 30.58%
Poor 30.60%
Source: MoneyLion
Tip: You can estimate monthly payments for a personal loan using apexfinancialpath’s personal loan calculator.
How to Get a Low APR on a Personal Loan: Getting a personal loan with a low APR can save hundreds or even thousands of dollars in interest costs and fees.
What is a good APR for a personal loan? One way to boost chances of qualifying for a low APR is to improve credit score if needed. Start by checking credit reports to see factors affecting score and work on improving them. Also, check for errors and dispute them promptly. By law, you’re entitled to a free credit report from each of the three major credit bureaus at least once a year. The official website is AnnualCreditReport.com. Other actions include making consistent on-time payments, avoiding new loan applications unless necessary, and lowering credit utilization ratio. Other ways to get a lower APR: Put up collateral. Secured personal loans usually have lower APRs as they reduce lender’s risk. Collateral acts as a promise to pay back loan. Consider a co-signer.
Applying with someone with good credit can improve chances if your credit isn’t good. Ensure co-signer understands obligations. Opt for a shorter term. Some lenders offer lower APRs for shorter terms. Shop around. Getting quotes from multiple lenders helps find the lowest rate. Some may offer inducements like no origination fees. What’s the difference between interest rate and APR? Lender might advertise both. Interest rate is just that, while APR includes interest rate and fees for a more accurate reflection of what you’ll pay. What’s the difference between APY and APR? APR is what lenders charge to borrow money over a one-year period. APY is the interest rate earned from an investment in one year. What is considered a good interest rate on a personal loan? A good rate is at or below the national average. Qualified rate depends on factors like credit history. Why do different lenders charge different personal loan rates? Lenders charge based on market. Rates may vary depending on borrower types. Some focus on borrowers with little or poor credit history and charge higher rates. However, rates can vary even for identical borrowers, so it’s important to shop around.
When considering personal loans, it’s crucial to understand what constitutes a good Annual Percentage Rate (APR). APRs for personal loans are subject to change based on economic conditions. The federal funds rate, determined by the Federal Reserve, significantly influences these rates. It can fluctuate as frequently as eight times a year, coinciding with the meetings of the Federal Open Market Committee.
Predicting the direction of these rate changes is often speculative at best, with financial professionals offering varying forecasts.
The key takeaway is that securing the best personal loan for your needs might involve comparing different lenders. APRs can vary significantly even among borrowers with similar credit profiles. Before applying for a loan, it’s advisable to review your credit reports and credit score. If necessary, take steps to enhance your creditworthiness to potentially secure more favorable loan terms.