Understanding APR on Personal Loans
Learn what APR means for personal loans in the United States. Understand CFPB rules, state APR limits, and how to compare loan offers effectively.
APR (Annual Percentage Rate) is the single most important number when comparing personal loans in the United States. The Consumer Financial Protection Bureau (CFPB) requires all lenders to disclose APR so you can make apples-to-apples comparisons. This guide explains how APR works and what US borrowers need to know.
What is APR?
APR (Annual Percentage Rate) is the total yearly cost of borrowing, expressed as a percentage. It includes the interest rate plus any mandatory fees, giving you the true cost of a loan. For example, a loan with 20% interest plus origination fees might have an APR of 25%.
💡 Pro Tip: Always compare loans using APR, not just the advertised interest rate.
CFPB Disclosure Requirements
Under the Truth in Lending Act (TILA), enforced by the CFPB, all US lenders must clearly disclose the APR before you sign any loan agreement. This federal protection gives you the right to see the true cost of borrowing and compare offers from multiple lenders.
💡 Pro Tip: If a lender won't clearly state the APR upfront, walk away—it's required by federal law.
State APR Limits
While the federal government doesn't set a universal APR cap for personal loans, many US states have usury laws that cap interest rates. For example, some states cap consumer loan rates at 36% APR. Payday loans are separately regulated and often subject to stricter state rules.
💡 Pro Tip: Check your state's consumer finance laws to know the maximum legal rate in your area.
What's Included in APR Calculations
US lenders must include origination fees, underwriting fees, and other mandatory charges in the APR. Optional add-ons like credit insurance are typically excluded. This makes APR a reliable tool for comparison shopping.
💡 Pro Tip: Ask for a full fee schedule before signing. Some fees like prepayment penalties aren't in APR.
Comparing Loan Offers
When shopping for personal loans, use APR as your primary comparison metric. A loan advertising '18% interest' with high origination fees could have a higher APR than one advertising '22% interest' with no fees. Total cost matters more than the rate alone.
💡 Pro Tip: Use our loan calculator to compare the true cost of different offers.
Your Rights as a US Borrower
You have the right to a full APR disclosure before signing, a three-day right of rescission on certain secured loans, and the ability to file complaints with the CFPB at consumerfinance.gov if a lender violates disclosure requirements.
💡 Pro Tip: Keep copies of all loan documents and communications with lenders.
Additional Tips for Success
- Federal law (TILA) requires all lenders to disclose APR clearly before you sign
- Many states cap consumer loan APRs—know your state's limits
- Always get loan offers in writing before making decisions
- Compare at least 3 lenders using APR to find the best deal
- Pre-qualifying with a soft credit check lets you compare rates without affecting your score
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