How to compare personal loans: APR, fees and terms

Key points

Compare APR, not the interest rate alone. APR includes required fees such as origination fees.
A longer term lowers the monthly payment but usually raises the total you pay.
Prequalifying with several lenders usually uses a soft credit check and does not affect your score.

A personal loan gives you a lump sum that you repay in fixed monthly installments over a set term, often two to seven years. Most are unsecured, so the rate you are offered depends heavily on your credit and income.

The numbers to compare

APR: the yearly cost of the loan including required fees. It is the best single number for comparing offers.
Origination fee: often deducted from the loan before you receive it. If you need a set amount in hand, borrow enough to cover the fee.
Term: the number of months to repay.
Monthly payment: make sure it fits your budget with room to spare.
Total repayment: monthly payment times number of payments. This shows what the loan really costs.
Prepayment penalty: a fee for paying the loan off early. Many lenders do not charge one.

Shorter vs. longer term

Stretching a loan over more years lowers each payment but means paying interest for longer. Before choosing the lowest payment, compare the total repayment amount on each term. If you can afford a higher payment, a shorter term usually costs less overall.

Prequalify before you apply

Many lenders let you check your likely rate with a soft credit inquiry, which does not affect your credit score. Prequalify with a few lenders, including your bank or credit union, then submit a full application to the one with the best offer. The full application usually triggers a hard inquiry.

Comparing personal loan offers?

See personal loan options

Where to borrow

Credit unions often offer competitive rates to members, and federal credit unions have a cap on most loan rates.
Banks may offer rate discounts to existing customers.
Online lenders are often fast and offer easy prequalification.

Warning signs

A lender that guarantees approval without checking your credit or income.
Requests to pay a fee up front, by gift card or wire, before you get the loan.
A lender that is not registered or licensed in your state. Your state's financial regulator can confirm.
Pressure to borrow more than you asked for.

The bottom line

Prequalify with a few lenders, compare APR and total repayment rather than the monthly payment alone, and read the fee section of the loan agreement before you sign. If you are borrowing to consolidate debt, see our debt relief options guide for alternatives.