APR, explained without the jargon

Two lenders send you an offer on the same day. One quotes 22% interest. The other quotes 26%. The first one is cheaper, obviously.

Not necessarily. It depends on what each of them folded into the number, and that is the whole reason APR exists.

What the APR actually measures

The interest rate is what you pay on the money you borrowed. The annual percentage rate is the interest plus most of the fees, expressed as a yearly cost. Because it captures charges the headline rate leaves out, it is the only figure that lets you put two offers side by side and get an honest answer.

The gap between the two numbers is usually the origination fee. A lender that charges 5% up front and quotes you 22% interest is not cheaper than one charging no fee at 26%. On a one year loan it is considerably more expensive.

The arithmetic, worked through

Say you borrow $1,000 for twelve months.

Lender A quotes 22% interest with a 5% origination fee. The fee is $50, financed into the balance, so you are really repaying $1,050. Your monthly payment lands around $98, and you hand over roughly $1,176 in total.

Lender B quotes 26% interest with no fee. You repay $1,000 plus interest, at about $95 a month, for roughly $1,146 in total.

The lender with the higher interest rate costs you thirty dollars less. Neither of them lied to you. You just compared the wrong number.

Where APR still misleads

APR is better than the interest rate, but it is not a complete picture, and two things trip people up.

The first is term length. A longer loan almost always has a lower monthly payment and a higher total cost, because you are paying interest for more months. A 60 month loan at 12% costs far more in absolute dollars than a 24 month loan at 18%. If you compare on APR alone you will pick the wrong one.

The second is that some charges sit outside the calculation entirely. Late fees and returned payment fees are not in your APR, because they depend on what you do rather than on the loan itself. They are real money and they are in your agreement.

The number to actually look at

Ask for the total amount payable. Principal, interest, fees, everything, added up.

It is the least flattering figure on the page, which is why it is rarely the one in the advert. It is also the only one that answers the question you are really asking, which is how much this costs you in the end.

If a lender will not show it to you plainly before you sign, that is your answer about the lender.

What this looks like on our rates page

Our rates and fees page publishes a representative example at four different loan sizes, with the fee, the monthly payment, the number of payments, and the total repayment all in the same table. Nothing is hidden in a footnote.

Lenders in our network work within an APR band of 5.99% to 35.99%. Where you land in that band depends on their assessment of your file. A damaged credit history puts you nearer the top of it, and knowing that up front is more useful than being surprised by it later.