Key takeaways
- The interest rate is the annual cost of borrowing, expressed as a percentage. It generally excludes loan fees or other charges.
- The APR is the interest rate plus loan fees, providing a combined total of the annual borrowing cost.
- The finance charge combines the interest rate and loan fees over the life of the loan. Unlike the interest rate and APR, this charge is captured in dollars.
When you compare personal loan offers, the interest rate and the annual percentage rate (APR) provide a general idea of the cost of borrowing. The interest rate is the annual cost of borrowing, shown as a percentage, typically excluding loan fees and other charges. The APR, however, combines any charged loan fees with the interest rate, providing a consolidated view of the annual borrowing cost. In some cases, the finance charge is also provided. The finance charge shows the combined value of the interest rate and loan fees over the life of the loan, as expressed in dollars.
Every lender is different, and the fees in these numbers can vary. It is best to check with the lender directly for the details of a specific offer. Here is a closer look at what each number tells you and how to use all three when you compare loan offers.
What Is an Interest Rate?
The interest rate is the price a lender charges for the money you borrow. This cost is added to your principal, which is the amount you receive. The interest rate is written as a yearly percentage, and it does not include any loan fees or other charges. Personal loan interest rates can be fixed, which means they stay the same, or adjustable, which means they can change. It may help to ask which kind an offer carries. Because the interest rate excludes loan fees, two loans with the same interest rate can cost different amounts in the aggregate once fees are added.
What Is an APR?
APR stands for annual percentage rate. Unlike the interest rate which covers only the cost of the money you borrow, the APR also combines certain fees charged by the lender, such as origination charges. Basically, the APR adds the interest rate and those loan fees charged by the lender into one yearly percentage. That is why a loan’s APR is usually higher than its interest rate. Generally, lenders are required to share the APR with you so you can use it to compare one offer with another.
What Is a Finance Charge?
The interest rate and APR are percentages. The finance charge answers a different question: how many dollars will this loan cost? Federal rules define the finance charge as “the cost of consumer credit as a dollar amount.” In plain terms, the finance charge generally covers the interest plus certain loan fees that you would pay throughout the life of the loan, if you keep the loan for the full term. For many people, this dollar amount offers an easier assessment of what it costs to borrow the loan.
How the Three Numbers Describe the Same Loan
The table below shows how each number affects a fictional $5,000 loan approval in a different way.
| The number | What it tells you | In this example* |
| Amount financed | The amount you borrow | $5,000.00 |
| Interest rate | The yearly cost of borrowing, before fees | 27.98% |
| APR | The yearly cost of borrowing, including certain fees | 30.99% |
| Monthly payment | What you pay each month | $182.91 for 48 months |
| Total of payments | What you repay over the full term | $8,779.68 |
| Finance charge | The cost of the loan as a dollar amount | $3,779.68 |
*This information is provided for illustrative purposes only.
Notice that the APR is higher than the interest rate. That is because the APR includes charges beyond interest. The finance charge is the gap between the amount financed and the total of payments. These figures illustrate how each number answers a different question. Be sure to read the lender’s disclosure which will typically provide the APR, interest rate, amount financed, and finance charge for the specific loan.
Monthly Payment vs. Total Repayment
Many people look at the monthly payment first. But the cost of a loan is not determined by that number alone. Term length matters a great deal. If you spread the same loan over more months and each payment gets smaller, you may end up paying more interest overall. For example, if two offers share the same interest rate, but the first lasts 36 months and the second lasts 60 months, the longer one will usually cost less each month, but more overall. It helps to read both numbers together. The monthly payment tells you if the loan fits your budget today. The total repayment shows you how much the loan costs by the time you make your last payment.
Why APR Is Usually Better Than the Interest Rate Alone for Comparing Loans
An interest rate by itself leaves loan fees out of the comparison. The APR combines the interest rate and any loan fees charged by the lender. That makes the APR a more reliable number for weighing one offer against another. Two loans can advertise the same interest rate but carry different APRs. In that case, the offer with the lower APR generally costs less. It is wise to compare APR with APR. If you set one loan’s APR against another loan’s plain interest rate, you are mixing two different measures, and the more expensive offer can look like the cheaper one.
A Note About Loan Fees
Every lender is a little different. The loan fees in an APR or a finance charge typically vary. The guide above explains what each number means in general. For the details of a specific loan, read the disclosures the lender provides, and ask what fees, if any, come with the loan before you sign the agreement.
Exploring Your Options with Mariner Finance
If you’re considering a personal loan, Mariner Finance could help. Check your loan offers online, contact us at 1-877-310-2373, or visit a branch location to explore what’s available.* Be sure to ask about our 15-day satisfaction guarantee.**
The information provided in this article does not constitute financial advice and is provided for educational purposes only without any express or implied warranty of any kind. This article is not intended as legal, tax, investment, or any other advice, and Mariner Finance does not offer credit repair services. Consider talking with an appropriate qualified professional for specific advice. Blog posts are for informational purposes only.
*Mariner Finance, LLC (“Mariner”) and/or WebBank, as applicable, (collectively “Lender,” “we,” or “us,” as applicable) offers personal loans from $1,000 to $25,000, with minimum and maximum amounts dependent on the underwriting of the loan and subject to applicant’s satisfaction of eligibility requirements and approval by Lender, and an applicant’s state of residence for Mariner-originated loans. Terms and conditions apply.
Online loans between $1,500 and $14,000, originated by WebBank, except online loans in CA and MD originated by Mariner Finance, LLC. Loans greater than $14,000 or less than $1,500 may be originated by Mariner through Mariner’s branch network. For GA residents, online and in-branch loan amounts only available for greater than $3,000. Any stated APR represents the cost of credit as an estimated yearly rate, and each applicant’s specific interest rates and fees are determined as permitted under federal or state law (as applicable) based upon loan amount, term, the applicant’s ability to meet specific credit criteria including, but not limited to, credit history at the time of application, income, debt payment obligations, and other factors such as availability of collateral, and state of residency for Mariner-originated loans. Not all applicants will qualify for the lowest rates or larger loan amounts, which may require a first lien on a motor vehicle not more than ten years old titled in the applicant’s name with valid insurance. Any loan by phone and/or online closing process requires a compatible mobile or computer device on which you can access your email and electronic documents. Not all loan types are eligible for loan by phone or online loan closing. APR ranges from 15.99% to 35.99%. Loan terms range from 12 to 72 months. As an example, with an amount financed of $5,000.00 the borrower receives $5,000.00 at an APR of 30.99% and an interest rate of 27.98%, which includes a finance charge of $3,779.68. Under these terms, the borrower would make 48 monthly payments of $182.91, for a total of payments of $8,779.68. The amount financed may not be the net proceeds paid if charges other than interest are included in the loan.
**Mariner Finance’s 15-Day Satisfaction Guarantee provides that if, for any reason, you inform us that you are dissatisfied with your loan and you repay it in full within 15 days of the date of the loan in the form of certified funds, all finance charges will be waived with no penalties. A cancellation of your Mariner Finance loan will not impact, affect, and/or cancel the terms of any purchase of a vehicle or other item(s) with the proceeds of your loan. Additionally, your return to the dealer or seller of any vehicle or other item(s) purchased with your loan proceeds will not constitute a cancellation of your Mariner Finance loan.
