What is apr on a personal loan

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What does APR stand for?

APR stands for Annual Percentage Rate.

APR is a way that lenders show the interest and additional charges you will pay on what you're borrowing.

What does representative APR mean?

A representative APR is an advertised rate that is presented in a standard way. It allows you to compare and contrast borrowing costs between different lenders. 

When a representative APR is promoted, it means that over half of people who've taken out a loan of a particular size from a lender have been given this rate.

Things to keep in mind about representative APRs: 

  • They change depending on the loan amount 
  • Just because a lender has a low or high representative APR, it doesn't mean they'll offer you the best rate
  • The rate you're offered won't necessarily be the same as the representative APR

Why didn't I get the rate I was expecting?

You won't necessarily get the advertised APR. All applications are assessed on an individual basis, so the APR you get is determined by your own circumstances and credit history. This is your personal APR.

More than half of all successful applicants will receive the representative APR. If you did not receive the representative APR, there could be several reasons. For example, you may have applied for a larger or smaller amount of lending than the representative APR covers, or your individual circumstances mean you are not eligible for this rate.

Representative and personal APR - what's the difference?

Representative APR

When you see a representative APR, it means that over half of people who've taken out a loan of a particular size from that lender have been given this rate.

All lenders advertise their loan rates in this way to help people compare across lenders. The representative APR will change depending on the loan amount.

To be representative it must be the rate offered to at least 51% of people, but it's not guaranteed and anyone applying for a personal loan could pay more than the representative APR advertised.

Personal APR

A personal APR is a rate that has been calculated for you based on individual factors, like how much you want to borrow, your financial situation and your credit history.

Your personal APR may be different to the representative APR we advertise, and different lenders may offer you different APRs. 

If you already bank with us, you can find out your indicative personal APR by using our Quick Quote tool. It'll tell you how likely you are to be approved, give you a personalised rate and show you what your monthly repayments could be. And all without affecting your credit rating. 

Tools to help you

Loan calculator

With no impact on your credit rating, you can use our calculator to work out the representative APR and estimate your monthly payments, depending on how much you want to borrow.

Quick Quote tool

We can tell you if you're likely to be approved and show you your indicative personal APR, borrowing threshold and monthly payments. All with no impact on your credit rating.

Borrowing needs tool

A loan might not be right for you. Depending on your borrowing needs, an overdraft or credit card might be a better option. This tool will help you assess your borrowing options.

Something else we can help you with?

When applying for a personal loan, many borrowers focus on finding the lowest interest rate possible. While interest rate is definitely important, there’s another rate you should also be aware of: the annual percentage rate, or APR.

Both APR and interest rate provide insight into how much you’ll pay over the life of your loan, so it’s important to understand both. Here’s what to know about the difference between APR vs. interest rates.

What is apr on a personal loan

What is “interest rate”?

Interest rate refers to the amount of interest a lender charges in exchange for giving you a loan. It’s usually expressed as an annual percentage of the outstanding principal – for example, a $5,000 loan with a 5% interest rate.

Lenders base your interest rate on a number of factors including your credit score and your debt-to-income ratio (DTI), which measures your monthly payment obligations vs. how much income you earn. Typically, the higher your credit score and the lower your DTI, the lower your interest rate will be.

Interest rate does not take into account any other fees that may be involved with your personal loan.

What is “APR”?

APR is your loan’s annual percentage rate, and it gives you the total cost of borrowing for a year. In addition to interest rate, your lender may charge fees such as an origination fee for processing your application—APR takes both fees and interest rate into account. All lenders must disclose a loan’s APR according to the Truth in Lending Act.

What is apr on a personal loan

Pro tip: if your personal loan has no fees, the interest rate will be the same as the APR.

What is the difference between interest rate and APR for personal loans?

The difference is visible when you factor in fees. Say you’re taking out a $10,000 personal loan with a 15% interest rate and a $500 origination fee. Because of the fee, you’ll receive $9,500 in your account when you close the loan, not the full $10,000. However, your interest charges are still based on the initial loan balance of $10,000. That results in an APR of 18.67%, assuming a 3-year loan term.

We’ll break it down for you. In the illustration below, the personal loan offers below have the same interest rate, but lower origination fees for personal loan #1 results in a lower APR—and the borrower saves $400.

Personal Loan Offer #1 Personal Loan Offer #2
Loan Amount $10,000 $10,000
Loan Term 3 years 3 years
Interest Rate 15% 15%
Origination Fee 1%, or $100 5%, or $500
APR 15.71% 18.67%
Total Interest and Fees Paid Over the Life of the Loan $2,579.52 $2,979.52

Does this mean a no-fee personal loan is always the best choice?

Not all lenders charge an origination fee, however, zero fees don’t always equal lower costs because no-fee loans may come with higher interest rates.

In the illustration below, the first loan offer comes with no fee but a 35% interest rate, while the second offer includes an origination fee but a 15% interest rate. The result is that the second loan saves the borrower $3,305.45—even with a $500 origination fee.

Personal Loan Offer #1 Personal Loan Offer #2
Loan Amount $10,000 $10,000
Loan Term 3 years 3 years
Interest Rate 35% 15%
Origination Fee 0% 5%, or $500
APR 35% 18.67%
Total Interest and Fees Paid Over the Life of the Loan $6,284.97 $2,979.52

It pays to understand interest rate vs. APR

When you’re shopping for a personal loan, always read loan documents, ask questions about additional fees and do the math. Interest rate is one way to determine your loan’s cost and monthly payment, while APR can give you valuable insight into how much you’ll be paying in fees plus interest over the term of your loan. Understanding the numbers can help you save you hundreds or thousands over the term of your loan.

View Upgrade’s Credit Health Insights for more helpful information and understand how improving your credit score can lower the cost of a loan.

What is a good APR rate for a loan?

Look for an APR under 36%, which consumer advocates agree is the cap for loan affordability, and make sure the monthly payments fit comfortably in your budget. Compare loan options to find the lowest rate.

How is APR calculated on a personal loan?

Here's how:.
Calculate the monthly interest rate. Divide the annual interest rate by the loan term in months. Using the loan details above, divide 15 (the interest rate) by 12 (the loan term in months) to get 1.25%..
Calculate the monthly interest payment. Multiply the result from step 1 by the loan balance..

Is APR 24% good?

A 24.99% APR is reasonable but not ideal for credit cards. The average APR on a credit card is 20.16%. A 24.99% APR is decent for personal loans. It's far from the lowest rate you can get, though.

Is APR the same as interest rate for personal loan?

The annual percentage rate (APR) on a personal loan combines the interest rate with any fees associated with the loan. If there are no fees, the APR is the same as the interest rate, but lenders almost always add upfront charges known as origination fees to the cost of a personal loan.