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Personal Loans
What is APR on a personal loan? How it works and how to compare offers
Updated Feb 23, 2026
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Key takeaways:
A personal loan APR, or annual percentage rate, shows how much the loan costs annually in fees and interest.
A low APR is a more affordable loan, while a higher APR is more expensive.
It’s best to compare APRs when comparing different loan offers, rather than just the interest or monthly payment alone.
Sometimes, all it takes is a little knowledge to make a big difference. Not only can being informed help you make better decisions, but you’ll be more confident you’re doing the right thing.
The annual percentage rate, or APR, on a personal loan tells you the annual cost to borrow the money—interest and loan fees included. That’s all it is.
The APR is measured across the span of a year. Since all fees are included, looking at the APR makes it easy to compare loans with different interest rates, term lengths, and fees.
Understanding the APR could help you save money on your loan and rest assured you got the best offer for you. We'll help you learn all you need to know about how APRs work and how best to compare them. Let's go.
What is APR on a personal loan?
The APR for a personal loan describes the annual cost of borrowing that money. A loan’s APR includes both interest and other loan fees, so you can compare each loan with other options more easily.
After all, different loans have different costs. Bigger loans are often a higher total cost than smaller loans with the same interest rate, since you’re borrowing more money. Longer-term loans are also generally more expensive, because more total payments equals more interest fees—those fees add up.
And of course, some loans simply come with more loan fees than others. Origination fees can vary widely from one lender to another.
By examining a loan’s APR, you can look past those factors for an apples-to-apples comparison. APR is the annual percentage rate, or annual cost of the loan. It shrinks all those factors down and tells you exactly how much a loan costs overall, if you paid each one over the course of a year. That’s a handy way to compare things.
What APR includes
The interest rate on a loan is how much a lender charges you to borrow the money. Every personal loan payment includes a portion that goes to the principal and a portion that goes to interest fees.
Most personal loans also come with loan fees, like origination fees or application fees. Loan fees typically range from 1% to 10%, though they could be higher or lower. You pay loan fees in addition to the interest fees.
The APR on a personal loan shows the cost of borrowing the money when you take both costs—interest and loan fees—into account.
For example, say one loan has a higher interest rate but lower origination fee than another loan. Which one is actually more affordable? The APR lets you compare the real annual cost of each loan at a glance.
How APR works on a personal loan
The APR on a personal loan usually consists of the interest fees plus an origination fee. An origination fee is usually a one-time charge taken out of your loan proceeds, while you pay interest monthly out of each loan payment.
If you’re shopping for a loan, it’s better to focus on a personal loan’s APR rather than just looking at the interest rate (or the loan fees) alone. This lets you easily compare personal loans with different interest rates and fee structures.
Most lenders will let you prequalify for a personal loan. This process uses a soft credit check (that won't impact your credit scores) to give you an estimate of how much you could borrow and what your APR might be. Compare APRs to quickly choose the right loan offer.
APR vs. interest rate
Still not quite sure of the difference? Let's break it down:
The interest rate on a personal loan measures one part of the cost: interest.
The APR on a personal loan measures the total cost: interest plus loan fees.
Let's look at an example. Say you want a $5,000, three-year personal loan and you’re comparison-shopping. You find two quotes you like: one has a lower interest rate, while the other has a lower origination fee. Which should you choose?
Loan | Interest Rate | Origination Fee | Total Cost of Loan |
A | 18% | 2% | $1,607 |
B | 16% | 8% | $1,728 |
If you were shopping by the interest rate alone, the lower-rate loan seems like an easy call. But when you take the origination fee into account, your overall loan cost is actually lower for the loan with the higher interest rate. Paying a bit more interest saves you just over $120 in this case.
This is reflected in the APR. Loan A has the higher interest rate, but an APR of 19.5%. Loan B, on the other hand, has an interest rate of 16%, but the APR is actually around 22%. Comparing APR lets you see the full picture, not just a portion of it.
What is a good APR for a personal loan?
A good personal loan APR varies depending on a range of factors: the economy, how much you borrow, your credit profile, your current interest rates—and more. There’s no one single good personal loan APR.
Here’s a better way to frame things. If you’re in the market for a personal loan, it’s wise to shop around with different lenders and get a rate quote. Try getting at least three options so you can see a range of what's out there for you.
Your actual rate quotes might vary from the lowest rates listed on the lender’s website. If you don’t like what you find, it’s worth taking steps to improve your creditworthiness. You can also think about adding a co-signer to your loan, if someone in your life with better credit is willing to serve as a backup for your loan.
How to compare loan APRs
The great thing about APR is that it really is the apples-to-apples way to compare loans. You can use it to compare:
Loans from different lenders
Varying term lengths
Smaller or larger loan amounts
Higher or lower interest rates
Different types of loans
For example, what if you're looking to consolidate credit card debt. You might consider using either a personal loan and a home equity loan for consolidation. While they're very different loan products, you can still use APR to compare the total cost of each loan.
So, you could get a quote from a lender that offers both loans. If they charge 10% APR for a home equity loan and 16% APR for a personal loan, you know right away that the home equity loan would be much cheaper.
Common APR misunderstandings
Let’s dispel a few myths about the APR on a personal loan:
Myth: The interest and APR on a loan are the same thing.
Fact: The interest rate and APR on a loan will only be the same number if there are zero loan fees.Myth: A loan’s interest rate and the APR both tell you how much it costs.
Fact: Only the APR tells you how much a loan costs. The interest rate, on its own, doesn’t include any loan fees the lender charges like the origination fee.Myth: You can’t compare APRs across different loan types.
Fact: You can—and should—compare APRs from different types of loans. This is useful if you’re deciding between a personal loan and a home equity line of credit (HELOC), for example.Myth: A loan with a lower APR is more affordable.
Fact: Only your budget can tell you what’s affordable, not the APR. After all, a low-APR loan could still have a higher monthly payment than you can afford.
What’s next?
Once you understand the APR on a personal loan and how to use it, it’s like unlocking a superpower. Rather than getting distracted by things that only tell one part of the story, like just the interest rate or just the fees, you’ll get one easy way to compare the cost of every option at once.
Now you're ready to get out there and shop for loans with confidence. Ready to get started? Check your rates through Achieve Personal Loans with no impact to your credit.
Author Information
Written by
Lindsay is a writer for Achieve. She's passionate about helping people learn how to manage their money better so that they can live the life they want. She enjoys outdoor adventures, reading, and learning new languages and hobbies.
Reviewed by
Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.
Frequently asked questions
An interest rate, also called a simple rate, is the amount your lender will charge you on the balance that you owe until you pay off your loan. The APR, on the other hand, is the total cost of borrowing, including your interest rate and other costs, such as lender fees.
On credit cards, the APR is the same as the interest rate. On mortgages and personal loans, it’s normal for the APR to be higher than the simple rate, because APR includes other costs and fees.
A “good” APR depends on many personal and market factors.
Consider what range of rates is currently available and what rate you might qualify for. If you can’t qualify for the lowest rate, is there any action you can take to improve your offers? Lenders will usually tell you what credit score is needed to get a lower interest rate. If your credit score is close to the cutoff, you might be able to take strategic steps to raise your score and qualify for a better rate.
Another important consideration is the cost of your current debt. If you’re looking to refinance credit card debt with a 29.99% APR to a loan with a 15.99% APR, it’s fair to consider the lower rate to be a “good” APR.
There are several advantages of a personal loan over credit card debt. It allows you a fixed payment plan that makes it easier to budget. It often has a lower interest rate which can save you money. If you stick to the payment schedule and don’t run up new debt, you can pay off your debt faster.
No, you cannot pay your credit card bill directly with a personal loan. Personal loans are typically used to cover large purchases or consolidate credit card debt but they cannot be used to pay off credit cards directly. If you need to pay off credit card debt, you can either pay it off with money from your own bank account, or through a money order.
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