APR explained

APR is the yearly cost of borrowing with most fees included. It exists so you can compare loans that are priced in different ways.

Interest rate versus APR

The interest rate is what the lender charges on the balance you owe. The annual percentage rate (APR) starts from the interest rate and adds in upfront finance charges, such as an origination fee, then expresses the whole thing as a yearly rate.

If a loan has no fees, its APR equals its interest rate. If it has fees, the APR is higher. In the United States, lenders are required by the Truth in Lending Act to tell you the APR before you commit.

A worked example

You want $10,000 over 36 months and have two offers.

Loan A has the lower interest rate and the lower payment, so it looks cheaper. But the fee is taken out of the money you receive: you get $9,500 and repay as if you had borrowed $10,000. Measured against the cash you actually get, Loan A costs about 13.56% a year, and Loan B costs 12%. APR shows Loan B is the better deal.

There is a second catch. If you need the full $10,000 in hand, with Loan A you would have to borrow about $10,526 to cover the fee, which raises the payment too.

What APR does not tell you

• The total you will repay. A low APR over a long term can still cost more in dollars than a higher APR over a short term. Always look at total cost as well.
• Charges that depend on your behaviour. Late fees and returned-payment fees are not part of APR.
• What happens if you repay early. An origination fee is paid upfront and is not refunded, so paying a loan off early makes a fee-heavy loan more expensive per year than its APR suggests.
• Future changes. On a variable-rate loan, the APR quoted is based on today's rate.

Why lenders show a range

An advertised range such as "8.99% to 35.99% APR" covers everyone the lender approves. Your own APR depends mainly on your credit history, your income compared with your debts, the amount, and the term. Prequalifying with a lender shows you an estimate of your own rate using a soft credit inquiry, which does not affect your credit score.

What counts as a high APR?

Rates move with the wider economy, so there is no fixed number. One useful marker: 36% APR is widely treated by consumer advocates and many US states as the upper limit for an affordable small loan. Loan Compare does not list US loans at or above 36% APR, or loans that must be repaid in full within 60 days.

This guide is general information, not financial advice. Last reviewed October 2026.