Topics:Personal Loans 101
If you are considering applying for a personal loan, there are many factors you will want to take into consideration. As is the case with any loan or installment plan, prospective borrowers need to take into account the amount financed, the term and the rates associated with the loan.
All loan types and forms of credit are different in average rates and terms. With personal loans, which a borrower may use for practically anything they desire, interest rates and APR are higher than you'll find with mortgage loans or auto loans, but sill lower than credit card interest rates and APR.
So what can you expect the APR to be on a typical personal loan?
First, let's define APR and explore briefly how it is similar and different from the interest rate. APR, or annual percentage rate, is the interest rate (the amount a lender charges in addition to the principal that the borrower pays with the loan) plus additional fees and costs the lender charges for the loan. APR is a rate the lender charges on a loan (in percentage form) for the cost of funds over the course of a year.
Because the APR is largely dependent on the interest rate, it's difficult to say what it will be for your personal loans. Rates are assigned based on market conditions and on a person's credit. A low credit score will cause the rate to rise, whereas a good credit score will lower the rate in your favor.
Lenders will always charge extra fees and costs on personal loans, which, as explained will make the APR higher than the interest rate. Again, while acknowledging the variations, an average APR with personal loans is around 12.000 percent. If you have good or excellent credit, your APR might dip below 10 percent; however, if your credit is in the low 600s or below, the APR could rise in the credit card-like 20 percent range.
Different financial institutions have different APRs, so it's important to shop around for the lender and personal loan that is right for you and your personal situation. One bit of good news is that the APR on your personal loan will almost certainly be fixed, so you won't have to worry about the APR unexpectedly rising.
Have a personal loan question? Find answers on our Personal Loans FAQ page.
January 28th, 2021
Sign up below to receive a monthly newsletter containing relevant news, resources and expert tips on Personal Loans and other products and services.