A personal loan also comes with an interest rate like every other loan. The term APR comes with the interest rate reflecting the total due amount. So, what’s a good APR for a personal loan? Anything below 12% APR is considered a good APR for a personal loan. To provide an exact figure, 11.25% is a good APR.
Here, we discuss the whole matter in detail to provide you with a clear understanding.
What is APR
The Annual Percentage Rate (APR) is a number. It tells you how much it costs to borrow for a year. It includes everything, like the interest you pay and any fees. Remember, you need to see it as a percentage of your total borrowed amount. Besides, can you get a next-day personal loan?
How Is APR Calculated?
Banks rely on an APR calculation method to determine the interest borrowers must repay. Whether it is done every day or every month depends on the specific credit card. To calculate the APR for a loan, you need to have information about:
- The borrowed amount from the lender.
- The count of days in a year for your loan term.
- Payable interest rate for the loan.
- Payable fees for the loan.
Notably, some accounts might have more than one APR. When taking the loan, the lender usually informs you how they work out these APRs. So, make sure you review the information and terms of the loan before applying for it. However, here is the mathematical formula for APR calculation:
APR = {(Interest + Fees / Total borrowed amount) / Number of days in loan term} x 365 x 100.
Moreover, learn what happens if you fail to repay a personal loan.
Finding a Good APR for Your Personal Loan
Take two cases to compare:
Case 01:
Total borrowed amount = $100,000
Total fees = $2,500
Payment per month = $1,434.71
Total Payment for the 10 years (120 months) = $172,165.14
Total interest = $72,165.14
Total payable end of the loan period = $174,665.14
In this case, the calculated APR is 12.63%
Case 02:
Total borrowed amount = $100,000
Total fees = $2,500
Payment per month = $1,377.50
Total Payment for the 10 years (120 months) = $165,300.01
Total interest = $65,300.01
Total payable end of the loan period = $167,800.01
In this case, the calculated APR is 11.62%
In consideration of both cases, the calculated APR for the second case is favorable for you as it made you pay less in total.
However, APR varies depending on the bank or financial institution’s policies. As per our expert observation, the most favorable APR is 11.25%. Also, you must learn the timeframe of a successful personal loan application.
How Can You Get a Lower APR
Below are some ways to get a reduced amount of APR. Besides, should you report your personal loan on tax filings?
- For paying the monthly installments, there is a due date given by the bank or financial institution. Never miss the due date. Do not go for any late payment. A late payment will increase the APR.
- Always try to reach a good and healthy credit score. A good credit score reduces the APR.
- Only take a personal loan if you are in need. Also, do not go for a bigger amount than you need.
- Collect your credit report before applying for a loan. Carefully check the report, as there can be mistakes. If you find any issue, ask the organization to fix that as soon as possible. If it is delayed, then explain to the bank or financial institution about the fault in the credit report.
Types of APR
There are two main types of APR: fixed and variable APR.
Fixed APR
A fixed APR is an interest rate that stays constant throughout the entire duration of the loan. The evaluation of the market condition determines it at the moment when the loan gets approval.
Variable APR
Variable APR is just the opposite of the fixed APR. This type of APR receives changes throughout the loan period. The change happens according to the changes in the market condition. Additionally, you need to know how long it takes for a personal loan to appear on your credit report.
Final Words
So, whats a good APR for a personal loan? We hope now you have a clear idea. APR varies depending on the terms and conditions offered by the bank or financial institution when you apply for the loan. Also, to get a better APR, it is essential to have a good credit score.