What Is a Good APR for a Loan and How to Compare Rates

A good APR for a loan can vary significantly depending on the type of loan and the lender. For example, personal loans often have APRs between 6% and 36%.

When comparing rates, it's essential to consider the loan term and the amount borrowed. A longer loan term may have a lower APR, but you'll pay more in interest over time.

A credit card with an APR of 18% is considered relatively high, while a mortgage with an APR of 4% is a more favorable rate. It's also worth noting that some lenders may offer 0% introductory APRs, but these rates usually expire after a certain period.

A good APR for a loan can vary significantly depending on your credit score. Individuals with excellent credit scores can get an average APR of around 17%.

Maintaining good credit scores is key to getting a lower APR. This can help lenders see you as a better candidate for loans with lower APRs and additional benefits. Paying your bills on time and avoiding getting too close to your credit limit can help improve your credit scores.

The credit utilization ratio is a measure based on how close to maxing out your credit cards you are. Experts recommend keeping this ratio below 30%. For example, if you have a credit card with a $5,000 limit, try not to go above $1,500.

A longer credit history can also improve your credit scores. This means the longer you've been using credit responsibly, the better your credit scores will be.

Applying for too much credit at once can negatively impact your credit scores. This is because it may suggest to lenders that your financial situation has changed for the worse.

Here's a rough guide to APRs based on credit scores:

Keep in mind that these are just general guidelines, and your APR will depend on your individual financial situation.

There are several types of loans, each with its own characteristics and purposes.

Secured loans, such as mortgages and car loans, require collateral and typically have lower interest rates.

Unsecured loans, like credit cards and personal loans, do not require collateral and often have higher interest rates.

Installment loans, which include student loans and mortgages, involve regular payments over a set period.

A traditional personal loan is unsecured, which means you don’t need to provide any collateral. You can use the funds for just about anything, including bills, repairs, vacations, weddings, or tuition.

The average interest rate for a 36-month unsecured personal loan from banks and credit unions is around 10-11% APR. Credit unions consistently have a slightly lower average, with a maximum APR of 18% due to federal and state regulations.

Some popular banks offer personal loan interest rates as low as 4.99% - 20.99%, with Barclays being the major bank with the lowest interest rate. Other notable banks with low personal loan rates include PNC and American Express.

A good interest rate for an unsecured personal loan is between 7.49% and 9%. You can find similarly low rates to some smaller banks across the country that offer personal loans.

Here are some key features of traditional personal loans:

Payday Loans are a type of loan that can be tempting when you're short on cash, but be aware that payday loan rates of 391% to 600% make it a very expensive option.

Discover more: Payday Loan United States

The average payday loan amount is $375, and the finance charge can be as high as $15 per $100 borrowed. This charge equals an APR of a whopping 391%.

You can usually borrow between $50 and $1,000, but be careful not to get caught in a cycle of debt. If you roll over the loan into the next pay period, you'll have to pay a new, higher finance charge.

Here's an example of how quickly the loan amount can add up: if you borrow $375 with a $15 finance charge, your loan total becomes $431.25. If you roll that loan over, you now pay the $15 finance charge on $431.25, resulting in a new loan total of $495.94.

Typically, you'll need to pay the loan back on the day of your next paycheck via a pre-written check or automatic deduction. If the funds aren't present in your account when the lender seeks repayments, your bank may charge you a penalty.

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Secured Loans offer a reliable option for those who need a loan with a lower interest rate. You can expect rates as low as 2.49% to as high as 8.49% on a secured personal loan.

The terms of a secured loan can be quite long, with some options available up to 84 months. This can provide a more manageable payment schedule for those who need a larger loan.

The minimum amount you can borrow on a secured personal loan is $500, while the maximum is $5,000. This makes it a great option for smaller financial needs.

Here's a quick rundown of the details:

Fixed APRs generally don't change over the life of the loan, but as the Consumer Financial Protection Bureau notes, that doesn't mean the interest rate will never change.

The issuer must notify you before any changes occur, giving you time to adjust your budget accordingly.

Variable APRs, on the other hand, are tied to an index interest rate, such as the prime rate. If the prime rate increases, so does the variable APR.

This means the loan may have a lower APR at first, but the rate can increase over time.

Here's a brief comparison of fixed and variable APRs:

The average 24-month personal loan APR from banks has been steadily decreasing over the past few decades.

The Federal Reserve data shows that the average interest rate for two-year personal loans from banks peaked in 1981 at 19.21% and hit its lowest point in 2021, at 9.09%.

In 2023, the average 24-month personal loan APR from banks is 12.35%, a significant drop from its peak.

Here's a breakdown of the average 24-month personal loan APR from banks over the years:

This data shows that the average 24-month personal loan APR from banks has been trending downward over the years, making it a more attractive option for borrowers.

Promotional rates can be a great way to save money on interest, but it's essential to understand the different types and how they work.

There are two common types of promotional APRs: introductory APR and balance transfer APR.

An introductory APR is a lower, limited-time APR that may come with a new credit card. This can be a great opportunity to save money on interest, but be aware that different card issuers have different standards for what qualifies as an introductory APR.

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A balance transfer APR is a special APR that may apply to a balance transferred to a new or existing credit card. This promotional period can last anywhere from six to 21 months.

Make sure you review all the interest rates, as a separate APR can apply for new purchases, even while a balance transfer APR is in effect.

Here are the key things to know about promotional APRs:

Your credit score plays a significant role in determining the APR you'll qualify for on a personal loan. A higher credit score indicates a history of responsible financial behavior, such as making timely payments and managing debts effectively.

A good credit score can save you money in the long run. According to the data, a credit score of 780 or above can qualify you for an average APR of 13.64% on a 3-year loan and 17.19% on a 5-year loan.

Here's a breakdown of how different credit scores can impact your APR:

By maintaining a good credit score, you can increase your chances of securing a more favorable loan rate.

Your credit score plays a huge role in determining the interest rates you'll qualify for on personal loans. A high credit score indicates a history of responsible financial behavior, such as making timely payments and managing debts effectively.

Lenders use credit scores to assess your creditworthiness and the level of risk involved in lending to you. A higher credit score means you present less risk to lenders, making you eligible for lower interest rates on personal loans.

Here are the average personal loan interest rates by credit score, based on Credible data for three- and five-year personal loans:

As you can see, your credit score has a significant impact on the interest rates you'll qualify for. If you have a low credit score, you may be perceived as high-risk, resulting in a high interest rate or potential difficulty in obtaining loans.

Credit unions are a type of financial institution that can offer more favorable loan terms than banks. They have consistently had a slightly lower average APR for 36-month unsecured, fixed-rate personal loans.

According to data from the National Credit Union Administration, credit unions have had an average APR of 10.78% in 2023, compared to 11.37% for banks. This difference may be due to federal credit unions being capped at an APR of 18% by law, and state credit unions having similar caps set by their respective states.

Here's a breakdown of the average APR for credit unions and banks over the past decade:

Overall, credit unions have offered more competitive loan terms than banks in recent years.

Interest rate and APR are two different types of rates, with APR including fees, closing costs, or insurance that aren't part of the interest rate.

An interest rate is the percentage charged on the principal loan amount, but if there are no fees, the APR and interest rate may be the same.

Fees, closing costs, and insurance are all included in the APR, which can make it higher than the interest rate alone.

For another approach, see: Lendingclub Fees

APR can be calculated daily or monthly, depending on the loan or card, using a formula that takes into account the loan balance, interest rate, and any fees related to the loan.

To get a lower-APR loan, consider having a higher credit score, as it gives you a better chance of getting a lender's minimum APR. You can check your credit score for free on WalletHub and get personalized tips on how to improve.

Making more money reduces your risk as a borrower and makes you more likely to get lower rates. Smaller personal loans with shorter payoff periods typically have lower APRs than bigger loans with longer payoff periods.

Credit unions often have lower APRs than banks or online lenders, but online lenders tend to have the lowest minimum APRs for people with excellent credit. If you far exceed a lender's approval requirements, you'll be able to score a lower rate.

A different take: Online Loans with Monthly Payments Instant Approval

Discount points or mortgage points can be used to lower your interest rate on a mortgage. One discount point costs 1% of your loan amount and can reduce the interest rate by less than 1%.

To calculate APR, consider the following factors: the loan balance, how many days there are in the loan term for the year, the interest rate of the loan, and any fees related to the loan.

Here are some average APRs for personal loans based on credit score:

A four percentage point difference in interest rate can result in about $1,000 in additional interest over a three-year term, and almost $2,000 more with a higher rate over a five-year term.

A good APR for a loan can vary depending on the loan amount. For example, a loan of $2,000 with a 24-month repayment period might have an APR of 15.99%, while a loan of $10,000 with a 36-month repayment period might have an APR of 12.99%.

The APR for a loan of $5,000 with a 12-month repayment period is typically around 19.99%. This is because the shorter repayment period reduces the lender's risk, allowing them to offer a lower APR.

The APR on a $40,000 loan can range from 4.5% to 36% depending on the lender and your credit score.

A 4.5% APR on a $40,000 loan translates to a monthly payment of around $212.

At 6% APR, your monthly payment would be about $221.

A 12% APR on a $40,000 loan would increase your monthly payment to around $283.

The higher the APR, the more you'll pay in interest over the life of the loan.

Suggestion: Amortizing Loan Payment Formula

If you borrow $35,000 with an APR of 6%, you'll pay a total of $43,941.88 over 5 years.

The APR on a $35,000 loan can vary significantly depending on the lender and your credit score. For example, an APR of 12% would add up to $53,441.88 over the same period.

A 2% difference in APR can save you over $9,500 in interest over 5 years.