APR vs. interest rate
APR and interest rates can be easy to confuse. The interest rate is the cost of borrowing the principal amount. Both are represented as a percentage. However, personal loan APR includes both interest and fees. For this reason, APR is a better representation of how much you’ll pay on a yearly basis.
It’s important to note that neither APR nor interest rate account for compound interest.
How is your personal loan APR determined?
Many factors help lenders determine your APR. Current market rates play a role, as well as any fees associated with the loan. Longer loan terms also tend to increase the APR — lenders charge higher rates for these because they pose more risk.
As the borrower, your credit score and DTI will also be factors. DTI, or debt-to-income ratio, compares your current monthly debts to your gross monthly income. High credit scores and low DTI will likely result in a lower APR, while a low credit score and high DTI can mean a higher APR.
Reviewing a personal loan APR
If you’re considering a personal loan, reviewing the APR associated with a loan offer can help you better understand the total cost of borrowing. One way to estimate potential loan terms is through a lender’s pre-qualification process.
After you submit your information, the lender may perform a soft credit check, which typically does not affect your credit score. If you pre-qualify, you may be able to see details such as the potential loan amount, APR, fees and estimated monthly payment. Keep in mind that pre-qualification does not guarantee approval. Reviewing the APR along with the loan’s fees and monthly payment can help you determine whether the loan fits your budget and financial goals.
Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
