Banks that provide personal loans charge two sets of interest rates: monthly add-on rates and effective annual interest rates.
Add-on rate is the interest that the lender charges every month on the amount you plan to borrow.
Effective interest rates show the actual cost of borrowing money. It includes the administrative or service fees that the bank charges for processing your loan application. This is why the effective interest rate—the one you’ll need to pay—is typically higher than the add-on rate.