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Economic Justice Fund

Demystifying the Difference Between APR and Interest Rates for Personal Loans

When it comes to financial decisions, there are a few terms more important to understand than “interest rates” and “APR” (Annual Percentage Rate). Whether you’re applying for a loan, credit card, or even opening a savings account, these terms can significantly impact your financial well-being.

If you’re considering a personal loan from multiple lenders, you’ll likely encounter the terms APR and interest rate. While they both relate to the cost of borrowing, they serve different purposes and can significantly affect the total amount you’ll repay. In this blog post, we’ll clarify the distinction between APR and interest rates for personal loans, helping you make informed financial decisions.

Interest Rates for Personal Loans: The Core Cost of Borrowing

What Is the Interest Rate for a Personal Loan?

The interest rate for a personal loan represents the cost of borrowing the principal amount. It’s expressed as a percentage and determines the additional amount you’ll pay on top of the borrowed sum over the loan’s term. Generally, personal loan interest rates can be either fixed or variable.

  • Fixed Interest Rate: A fixed interest rate remains constant throughout the loan’s duration. This means your monthly payments remain consistent, making it easier to budget. The Economic Justice Fund only makes loans with fixed interest rates for the life of the loan, so your rate and monthly payment never change.
  • Variable Interest Rate: With a variable interest rate, your payments can fluctuate based on changes in an underlying benchmark, like the prime rate or the federal funds rate. While this may lead to lower initial costs, it introduces potential payment variability.

APR (Annual Percentage Rate) for Personal Loans: The Complete Borrowing Picture

What Is APR for a Personal Loan?

APR, or Annual Percentage Rate, is a more comprehensive measure of the true cost of borrowing for personal loans. It includes not only the interest rate but also any additional fees and charges associated with the loan. The goal of APR is to provide borrowers with a holistic view of the total cost of the loan.

Key Components of Personal Loan APR:

  • Interest Rate: Like the interest rate alone, the APR incorporates the cost of borrowing the principal amount.
  • Origination Fees: Personal loans may come with upfront fees, often called origination fees, that are included in the APR. The Economic Justice Fund does not charge any origination fees.
  • Other Costs: In some cases, personal loans may include closing costs and application fees, which can impact the APR. The Economic Justice Fund does not charge any fees-you pay no application fees, no origination fees, no servicing fees, and no prepayment fees. There are no hidden fees!

Why Is APR Important for Personal Loans?

APR is crucial for borrowers because it offers a comprehensive understanding of the total cost of a personal loan. This enables borrowers to make more informed decisions when comparing loan offers from different lenders. By considering both the interest rate and any additional fees or costs, you can better assess the true affordability of a personal loan.


+Example chart shows calculations based on a 60-month Economic Justice Fund loan with a fixed interest rate of 9%. The lowest rates are reserved for the most qualified borrowers. The High-Interest Rate Loan in the chart is only a representative example.

To learn more about loan options from the Economic Justice Fund, please visit

Conclusion: Making Informed Borrowing Choices

When you’re in the market for a personal loan, understanding the difference between APR and interest rates is essential. The interest rate represents the core cost of borrowing, while APR provides a more complete picture by including additional fees and charges. By comparing APRs from different lenders, you can make more informed borrowing decisions and select a personal loan that aligns with your financial goals and budget.

Whether you’re seeking to consolidate debt, cover unexpected expenses, pay off credit cards, or have emergency expenses, having a clear understanding of both the interest rate and APR will empower you to make sound financial choices, ultimately leading to greater financial well-being.

To apply for a loan from the Economic Justice Fund, please visit