When you are considering getting a personal loan, whether it is a secured personal loan or an unsecured personal loan, the annual percentage rate, or APR, is one of the most important aspects of the loan to consider while you are shopping for the right agreement. The Annual Percentage Rate, or APR, is the amount of interest charged to your loan balance. Basically, the APR is essentially a fee, which is paid as the cost of doing business as a borrower. Lenders, like most businesses, are in business to make a profit.
The APR is what a lender charges in exchange for taking a risk on your financial and personal needs. Essentially, if lending money is not free for the lender, then it makes sense that borrowing the money will not necessarily be free for you either.
Annual Percentage Rates can come in two different types. The two types of APRs are categorized as either fixed APR or variable APR.
There are basic differences between a fixed APR and a variable APR. The main difference between the two types of rates is this: A variable APR fluctuates based on changes to the market index or prime rate, while a fixed APR stays at the same rate for the entire life of the loan.
For personal loans that are available for people today, fixed APRs are the most common type of personal loan. Variable APRs are regulated by the government and financial agencies to prevent lenders from increasing rates to unaffordable and unethical levels.
APRs, or annual percentage rates, are set by the lender you are borrowing from based on numerous factors. However, the most impactful factor that is considered when a lender is deciding what your APR will be is your credit score. Lenders charge higher APRs when you have bad credit and present more of a risk. When you have good to excellent credit, however, most lenders tend to reward you with lower finance charges.
To get the best personal loan interest rates, you need to make sure your credit history and FICO score are in excellent shape. The best personal loan rates available are given to people whose FICO scores are 720 and higher.
The average APR charged to personal loans in 2022 ranges between 4 and 36 percent but that statistic includes borrowers with a wide range of FICO scores.
Another way to get a low APR is to offer adequate collateral, a down payment (if applicable) and a long employment history working at the same job.