US Personal Loans
Personal Loan APR vs Interest Rate: What Is the Difference and Why It Matters
One number prices the loan. The other prices the loan plus everything attached to it.
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- Interest rate
- Cost of the principal only
- APR
- Rate plus fees, annualised
- Typical gap
- 2%-8% where origination exists
- Legal role
- APR is the Truth in Lending disclosure
APR is the comparison number
Interest rate ignores the origination fee, so a 10% loan with a 6% fee beats nothing - its APR is around 15%. APR folds every mandatory charge into one figure.
Use APR across offers
Two loans at 11% are not equal if one charges 5% origination and the other charges none. APR ranks them correctly and the interest rate does not.
Watch what APR excludes
Late fees, optional insurance and prepayment penalties sit outside the APR. A low APR with a punitive late fee is still a trap for a borrower who pays late.
Check the term before the APR
APR is annualised. A 12-month loan at 18% APR can cost less in dollars than a 60-month loan at 12%. Compare total repayment for the same term.
FAQ
Is APR always higher?▾
Yes, where fees exist - that is the point of it.
Which number do lenders quote in ads?▾
The interest rate, because it looks lower.
Where do I find the real APR?▾
The Truth in Lending box on the offer.
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