Money guide · Credit scores and debt payoff
Personal loan APR and fees: compare actual proceeds
Compare personal loans using APR, origination fees, money received, repayment term, and total scheduled payments.
How it works
An installment loan generally uses scheduled payments over a stated term. An origination fee can be paid separately, added to the balance, or deducted from proceeds depending on the offer. The interest rate and APR can differ when applicable financing charges are included. Ask for the itemized disclosure and how fees affect money available to you.
A worked example
Suppose a $10,000 loan deducts a 5% origination fee from proceeds. You receive $9,500 while owing the contractual loan balance. If your purpose requires $10,000 cash, that offer does not supply the full amount. Separately, an illustrative $320 payment for 36 months totals $11,520; compare that total with actual proceeds and any charges outside the schedule.
What to compare
Use equal cash received and equal payoff horizons when comparing offers. Record the APR, rate type, payment, number of payments, fees, and any prepayment rules. Verify whether the payment fits after essential spending and existing obligations. If using proceeds for debt consolidation, confirm the amount is enough to pay the targeted creditors.
A common mistake to avoid
Do not compare a larger loan’s payment with a smaller loan’s payment and attribute the entire difference to its rate. Avoid assuming approval establishes affordability. Optional add-ons can change cost and proceeds, so ask which are included. Refinancing a loan later also requires its own fee and term comparison.
Why can APR exceed the interest rate?
APR can incorporate applicable financing charges as well as interest. Read the disclosure to see the charges and assumptions for the specific loan.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or measure changes in buying power using your own assumptions.