Borrower APR

What is the APR?

Annual Percentage Rate (APR) is the cost of credit as a yearly rate. The APR is a disclosure mandated by the Truth in Lending Act of 1968. It is designed to accurately disclose the true cost of credit and provide a standard basis of comparison for the costs of credit.

Here’s an example:

When you decide between buying a quart of milk for $1.79 or a half-gallon for $3.50, you need to know how to convert between quarts and gallons in order to do the math. Even if the half-gallon turns out to be a better bargain, you might decide to buy the quart because you only have $2.

 

Making decisions about the cost of credit poses even more complicated comparative hurdles. A number of factors—such as term, type of interest rate (see below), etc.—can affect the cost of credit and make it hard to compare multiple loans. The APR makes comparison shopping easier. It’s a common unit of measurement for loans.

 

Of course, just like with the milk example above, there are times when you might still choose to take on a more expensive loan if the immediate monthly payments are lower.

Why is the APR higher than the interest rate?

The APR figures in not just your interest rate, but also some fees associated with your loan over its lifetime. At Prosper, this means the closing fee charged when you first borrow the money. This closing fee is paid out of the loan proceeds when the loan originates. Because of this, the amount financed is always less than the amount requested. However, you still need to pay back the full amount.

Here’s an example:

A Prosper borrower with a B rating receives $2,425 in cash for a requested $2,500 loan. The difference of $75 is the closing fee that Prosper collects on the loan. However, the borrower is still responsible for paying back the full $2,500 over the term of the loan.*

* For example, a three-year $10,000 personal loan would have an interest rate of 11.74% and a 5.00% origination fee for an annual percentage rate (APR) of 15.34% APR. You would receive $9,500 and make 36 scheduled monthly payments of $330.90. A five-year $10,000 personal loan would have an interest rate of 11.99% and a 5.00% origination fee with a 14.27% APR. You would receive $9,500 and make 60 scheduled monthly payments of $222.39. Origination fees vary between 1% and 5%. Personal loan APRs through Prosper range from 6.99% to 35.99%, with the lowest rates for the most creditworthy borrowers. Eligibility for personal loans up to $50,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All personal loans made by WebBank.

 

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