The average personal loan interest rate is 9.58%, the Fed reports, but you may qualify for a lower rate
Personal loans are commonly used to consolidate debt, finance home renovations, and make major purchases because they tend to have lower rates than credit cards. But personal loan interest rates vary widely depending on a number of factors, including the length and amount of the loan, as well as the borrower’s credit score and debt-to-income ratio (DTI).
The average interest rate on a two-year personal loan was 9.58% in May 2021, according to the Federal Reserve. That’s a slight increase from 9.46% in the first quarter of 2021, but the trend is still down year-on-year.
If you are looking for a personal loan, it is important to compare several lenders in order to obtain the lowest possible interest rate for your financial situation. You can compare personal loan interest rates on Credible without affecting your credit score.
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How to Get Low Interest Personal Loans
Personal loans are lump-sum loans repaid in monthly installments over a specified period. They have fixed interest rates which means you will have a clear picture of your repayment plan. Since interest rates vary widely, it’s important to do your research when taking out a personal loan. Here’s how you can get a low-interest personal loan:
- Check your credit score. The personal loan interest rates you will be offered will greatly depend on your credit history, and the best rates will be reserved for borrowers with high credit scores. A different lender may have a specific minimum credit score requirement.
- Build your credit, if necessary. If your FICO score is below 670, it is considered fair or poor. You should consider building a higher credit score before applying for a competitive rate.
- Get prequalified with multiple lenders. Personal loan prequalification allows you to verify eligibility and estimated interest rates without affecting your credit.
- Compare your offers. Generally, you’ll want to choose the personal loan with the lowest annual percentage rate (APR), which includes the interest rate as well as any fees.
- Apply for a formal loan. The lender will perform a credit check to confirm your financial and personal information, and may request pay stubs and other forms to verify your identity.
These steps may seem tedious, but the process is simple when you use Credible’s online loan marketplace to search for a good interest rate. You can fill out one form to get prequalified with multiple lenders without affecting your credit score, so you can compare the lowest rates with no strings attached. Check out some popular personal lenders and their typical APRs in the rate chart below.
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Why it’s essential to get a good rate on a personal loan
Personal loan rates affect the total cost of taking out a loan, as well as your monthly payment. Simply put, a lower interest rate means a cheaper loan and even lower monthly payments. See how the repayment terms of a $10,000 loan over two years are affected by different interest rates in the analysis below:
- 12% interest rate: Monthly payment of $471 and total interest of $1,298
- 10% interest rate: Monthly payment of $461 and total interest of $1,075
- Interest rate of 8%: Monthly payment of $452 and total interest of $855
The interest rates used in the example above are hypothetical, and you may qualify for a personal loan interest rate as low as 2.49% APR on Credible if you have excellent credit. Check your potential rates on Credible and use a personal loan calculator to estimate your monthly payment and interest paid. You can compare personal loan offers in just two minutes, all without impacting your credit score.
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