Loans

Insurance

Credit Cards

Savings

Learn

Home Credit Score About Fiona FAQ & Support Contact Us
Fiona Logo
Loans
Personal Loans Student Loan Refinance Auto Refinance Mortgages Mortgage Refinance
Credit Cards
Savings
Credit Score
Learn

>

Articles

What's the Difference Between APR and Interest Rate on a Personal Loan?

What's the Difference Between APR and Interest Rate on a Personal Loan?
Fiona Staff4/28/2021 · 3 min read

There are many reasons why a personal loan is an attractive financing option for American consumers. So much so, that it’s the fastest growing consumer lending product in the US, particularly with younger generations

One aspect that attracts a lot of consumers is that personal loans (for the most part) come with fixed interest rates. That means the interest applied to your repayment never changes, allowing you to make even monthly installments over the life of the loan. 

You may notice, however, when comparing personal loan offers that the rate is listed as a “fixed APR,” which stands for annual percentage rate. Is that the same as the interest rate? Kind of... but not quite. 

Want to compare personalized loan offers by APR? With Fiona, you can filter your options in multiple ways, to find the right offer for you. 

COMPARE RATES

The distinction between the two is pretty simple, but it’s important to understand how interest rate and APR differ on a personal loan, compared to a credit card where they are virtually the same thing. 

How is APR Calculated on a Personal Loan? 

With a personal loan, APR and interest rate are not a 1-for-1 comparison. That’s because the APR doesn’t only consider the interest rate, it also factors in associated loan costs (i.e., upfront charges like an origination fee). As a result, the APR is typically a slightly higher percentage number than the interest rate. 

However, the loan’s monthly payment is only impacted by the interest rate, not the upfront fees tacked onto the APR. For this reason, the best way to view APR is as a comparison tool for the “total cost of borrowing” on a personal loan. The lower the APR, the less you will be paying the lender on top of the principal amount owed.

How to Get the Best APR

Now that you know the difference between interest rate and APR, and how they work together, it’s important to obtain the lowest rates possible when shopping for a personal loan. While fees may range from lender to lender, an applicant can impact the APR they’re ultimately approved for by having strong credit (e.g., their history and credit score) and a low debt-to-income ratio.

For a consumer that doesn’t have the strongest credit, they can still obtain a personal loan, only with a higher APR and potentially a cap on the amount they can borrow. As such, it’s important to pay your bills in full and on time, maintain a low credit utilization ratio, and limit overall debt, as doing all of the above can boost your score to a more desirable range for lenders.

Bottom Line

When looking at personal loan offers, comparing by APR is the best way to determine the total cost of the loan on top of the principal amount owed to the lender. With Fiona, users can compare APRs from multiple top providers, fast and easy, all in one convenient spot. 


Weekly Tip

When comparing personal loan offers, the APR is usually what sticks out the most. While some view APR as interest (like you would on a credit card), the percentage works a little differently with a personal loan. That’s because it considers all costs and fees associated with the loan, on top of the interest rate, for a better overall picture of your repayment. 

You might also be interested in

More Topics
Unsecured Loans Illustration
Personal Loans

Disclaimer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. While Even Financial finds these sources to be accurate, it does not endorse or guarantee any third-party content.