The interest rate is the headline cost of borrowing money: the percentage a lender charges on the outstanding principal each year. It's the number lenders advertise, but it's not the full cost — that's what APR is for.
How interest is charged
On an amortizing installment loan (personal loan, mortgage, auto loan) interest accrues each month on the remaining principal. Early payments are mostly interest; later payments are mostly principal. On revolving credit (credit cards) interest is typically charged on the average daily balance when you carry a balance past the grace period.
What drives the rate you're offered
Lenders price your rate from your credit score, debt-to-income ratio, income stability, loan amount, loan term, and the type of loan (secured vs unsecured). Macro benchmarks — the federal funds rate, Treasury yields, SOFR — set the floor that every lender prices against.
Interest rate vs APR
If you compare offers using the interest rate alone, you can be misled by a low-rate offer with high origination fees. Always compare APR for apples-to-apples cost.
Frequently asked questions
Why is my interest rate higher than the advertised rate?
Advertised rates are typically the floor — reserved for borrowers with the strongest credit, lowest DTI, and shortest terms. Most approved borrowers price somewhere in the middle of the range.
Can I negotiate my interest rate?
Personal-loan rates are usually take-it-or-leave-it once an offer is generated, but you can lower your rate by shopping multiple lenders, adding a cosigner, choosing a shorter term, or securing the loan with collateral.