If you’ve decided to get a personal loan, you’re probably wondering what personal loan interest rates are. The answer to this will largely depend on the type of loan that you’re getting. There are various forms of personal loans, and each of them have different personal loan rates attached to them.
The annoying thing about finance is that you don’t get to see the exact interest rate you’re offered until after you apply for the loan. This is a problem because each time you apply for a loan, it gets recorded on your credit report. If you end up applying for too many loans, it can have a seriously negative impact on your credit report. For this reason, you have to do your own research about personal loan rates – it’s too risky just to apply to see what rate you are offered.
This guide will provide you with all the information you need to determine the best way to approach personal loan interest rates. If you find the subject confusing, this will be a great way to educate yourself on the topic. Make sure to read through all the information provided to ensure that you have as much expertise as possible!
Why Are Interest Rates Important?
If you’ve been researching loans, you’ve probably found it hard to escape the subject of interest rates. They’re an extremely important component of any form of finance, so you need to make sure you understand why they’re so crucial to any loan that you end up receiving.
Interest rates look small on paper — they may only differ by a few percentages. But this is actually an extremely large amount when you consider how much it can add up. For example, just a few percentage points of difference in interest rates for a mortgage can end up resulting in hundreds of thousands of dollars extra being paid.
People often default on their mortgages or loans because of a change in interest rates. It’s extremely important that you understand the potential repercussions.
Interest rates are set by the federal government to help determine how much investment occurs in the economy. If the economy is going well, interest rates are increased to encourage people to save money. If the economy is going poorly, interest rates are decreased so that people can afford to borrow money and invest. Regardless, as a borrower, you are exposed to market forces that will determine how the government sets their interest rates. You need to be aware of how quickly things can change.
Type of Interest Rates
Something you may not know is that there are two primary types of interest rates. The two different types play a huge role in the way that your loan is structured, so it’s very important to have a firm grasp on the concepts behind them.
This is the most common form of interest rate when you apply for a personal loan. Because personal loans are typically quite short-term, lenders are able to guarantee the same interest rate across the life of the loan. A fixed interest rate is simply an interest rate that doesn’t change. It’s the best form of interest rate for people who want to know exactly how much their payments will be throughout the life of their loan.
Variable interest rates on the other hand are much different. They change throughout the course of the loan as the lending environment changes. In some ways, this can be good for borrowers. If national interest rates drop, you will end up with a significant advantage. On the other hand, if they raise, you might end up finding out you can’t afford your loan. This is why this form of personal loan rate is considered the riskiest.
In some instances, you can actually have a mix of the two interest rates. For example, your lender might offer you a fixed interest period for the first year of the loan, after which it may switch to a variable rate. Again, this is risker than just having a regular fixed interest rate.
What Determines My Interest Rates?
The question you most likely want the answer to is: what determines your interest rates? As a borrower, it’s useful to know the different components of how your interest rate is decided. We will explore all the different components in more detail below.
As mentioned earlier in this guide, the lending environment is one thing that determines your interest rates. The government dictates interest rates to help determine the levels of saving and investment in the economy. This is one component that you will not be able to impact. Currently, we are seeing extremely low interest rates, which is good for those who want to borrow money, and bad for those who want to save.
The other big factor that will determine your interest rate is the credit score that you have. The better your credit score is, the more likely you will be able to get a good interest rate. Lenders consider your credit score the most important component of indicating how good of a borrower you will be. That’s why it’s important to make sure that you have as good of a credit score as possible.
There will be substantial difference in the personal loan rates you are offered, depending on your credit score. That’s why we always suggest that our readers know what their score is prior to applying for any personal loans.
Type of Loan
There are two primary types of loan that are available to those who want to get personal loans: secured and unsecured. Secured loans are loans that are attached to value of an asset, such as a house or a car. Unsecured loans are loans that aren’t attached to any asset. This means that if you default on a secured loan, you will end up getting your assets seized. On the other hand, if you default on an unsecured loan, the only damage you will see will be to your credit score.
Obviously, unsecured loans are much riskier for the lender, hence why they have much higher interest rates. Secured loans are best for those who want to have the lowest interest rates possible. If you’re worried about your ability to handle a high interest rate, you might want to secure the loan.
The longer your loan is, the higher the interest rate might be. This may seem odd, but it’s because lenders understand that your financial situation can change over time. There’s a much higher chance that something happens to your ability to pay back the loan if you have a long-term loan. If you want to increase your chances of having a low interest rate, you’re best to make sure you get as short of a loan as possible.
Remember, the shorter the duration of your loan is, the higher the payments will be. This will also mean that you pay off the loan using less interest, as you won’t be accumulating interest over a prolonged period of time.
Reducing Your Interest Rate: Getting the Best Personal Loan Rates
Believe it or not, you can have a significant impact on the interest rate you are offered. The best way to do this is to assess the way that you’re approaching your loan. We will explore the different ways that you can prepare yourself to get the best personal loan rates on the market. Make sure to consider all the steps provided below before you start the application process.
The first thing that you should do is shop around. You need to be looking at which lenders provide the best personal loan rates. As mentioned previously, you won’t be able to find the exact rate on offer until you apply, so you should make sure to ask the lender for a range. Most lenders will advertise their ranges quite openly, but if they don’t, you can call up their customer service team.
Try and make a list of the lenders with the best rates, and then look for other attributes that distinguish them. Affordability is a good starting point.
Consider Shortening Your Loan
You should consider shortening the loan that you currently have on offer. You want to make sure that you give your lender as many reasons as possible to provide you with a good rate. As mentioned previously, loan length is one of the major factors contributing to the interest rates that you will be offered by lenders. It’s important to make sure that you take this component seriously.
At the same time, you shouldn’t shorten your loan to the point of where you will struggle to make payments. Make sure to remember that you need to be certain you can meet payments.
Secure the Loan
Again, secure loans are much more likely to be offered low interest rates. You should make sure to consider securing the loan if you don’t believe you will be able to afford high interest rates. Securing the loan comes with its own risks, and many online lenders don’t offer secured loans, but if you do find a lender that provides them, they tend to be much more affordable.
Repair Your Credit Score
You can contact a credit repair company to help you improve your credit score. Many credit repair companies have exhibited success helping people improve their credit scores in a matter of months. It’s a great way to make sure that you have a good score entering the application phase. Keep in mind that many people have mistakes on their credit reports that can be fixed. Make sure to work with a credit repair company that only makes you pay for results. You don’t want to pay for a subscription service that doesn’t function properly.
Pay Off Your Credit Card
If you have some money to pay off your credit card balances, this can be another way to improve your score prior to your application. This will greatly reduce the interest rate that you are offered by lenders. Your credit score only uses the last stated balance to determine your score, so you can quickly improve it if you pay a significant portion of your balance off.
Get Someone to Co-Sign Your Loan
Getting a co-signer is another way to make sure that you don’t have to pay as much interest. Co-signers are people who guarantee your loan to help you get approved for financing. If your co-signer has a good credit score, they may help you get a lower interest rate. But remember, if you default on the loan, your co-signer will be responsible for paying it.
Watch Out for Fees
While interest rates are typically the highest costs associated with loans, you still need to look out for other fees and charges. You don’t want to fall prey to a catchy interest rate and then find out that fees make it almost more expensive than competitors. Ask your lender for a full breakdown of the cost of the loan. There should be a total price – this is the best way to assess which loan is the best deal.
After reading this article, you should have a firm understanding of how important personal loan rates are. You don’t want to underestimate how much money you can save by ensuring you get the lowest rate possible. Take the entire process seriously – you’ll find that it’s very rewarding.
If you’re having trouble finding out where to start, we suggest you look out for our recommended lenders. We provide non-biased suggestions to our readers to help you get on the right path. We want you to be able to work with lenders that you can trust. Some of these lenders have great personal loan interest rates.
Remember, choose a lender before you begin applying. Applying for multiple loans at once will result in you most likely being rejected. You don’t want to prolong the amount of time it takes you to get approved for a loan.
Personal Loan Interest Rates and General Questions
Is there anything more important to understand when taking out a loan than the amount of money you need to pay back? Probably not. The answer to the following questions will give you general information about personal loan interest rates.
What is a personal loan rate of interest?
When taking out a personal loan, you have to pay it back. However, you have to pay interest on it too. That interest is paid at a rate that is expressed as the percentage of the borrowed sum.
What is a good interest rate on a personal loan?
A good interest rate on a personal loan is the interest rate that’s around or below the average interest rate for your credit score.
How to calculate a personal loan rate of interest?
You do not calculate the personal loan rate of interest. The lender calculates it based on the factors familiar to them.
How do interest rates work on personal loans?
An institution that offers to lend you money does so expecting to profit. When taking out a personal loan, the interest rate works similarly to any other type of loan — it’s nothing more than the percentage of the loan you will have to pay on top of the loan.
What is the best rate for a personal loan?
The best rate for a personal loan is usually the lowest rate you can find that applies to your circumstances such as access to lenders, or credit score.
How to lower personal loan interest rates?
The best way to lower a personal loan interest rate is by improving your credit score. You might also adjust the repayment period and the amount of money you’re borrowing to lower the interest rate.
What is a fixed rate personal loan?
A fixed rate personal loan is a loan in which the interest rate stays the same during the repayment period.
What is a typical interest rate on a personal loan?
When taking out a personal loan, the typical rate for a borrower with a good credit score will be different than the rate for a borrower with a bad credit score. If you have a good credit score, you can expect an interest rate in low double figures.
What is the interest rate on an unsecured personal loan?
Taking out a personal loan without backing it with some kind of security will probably make the interest rate go higher. Most personal loans are unsecured.
What is a low interest rate for a personal loan?
Because personal loan interest rates vary based on your credit score, what’s considered ‘low’ also varies. In general, single-digit interest rates are considered low.
What does comparison rate mean for personal loans?
A comparison rate is a rate that includes the interest rates as well as some of the loan fees. It is sometimes used to express a more realistic price of the loan. You should, however, always check how the comparison rate is calculated.
How to reduce a personal loan interest rate?
Shopping around for the lender with the best offer for your circumstances is always advised. You can also try to find a co-signer if the lender allows it, and you can try to repair your credit score a bit.
Will personal loan rates go down?
It’s up to the lender to set their loan rates. The best thing for you to do if you want to see interest rates for your loan rates go down is to improve your credit score before taking out the loan.
What is the interest rate on a personal bank loan?
Personal bank loan interest rates are different from one bank to the other. Keep in mind, though, that local banks might be able to offer you better interest rates on some loans than national banks.
How to get a personal loan with a low-interest rate?
The first thing you need to do is get your credit score as high as possible. Then, shop around local financial institutions, banks and credit unions included, for the lowest interest rate. Don’t be afraid to haggle.
Why are personal loan rates so high?
Most personal loan rates are unsecured, which puts additional risk on the lender. To compensate, the lender will set the appropriate rate. And your credit score might be low if the loan rates are in the twenties or higher.
What is an annual percentage rate for a personal loan?
An annual percentage rate for a personal loan is the loan’s interest rate plus all the other charges that happen in a year’s period.
How to borrow fixed rate personal loans?
Chances are that if you walk into a bank and ask for a personal loan, you will be offered a fixed rate loan. Most personal loans have a fixed rate. Be sure to check.
Why is my personal loan interest rate so high?
The main reason why your personal loan interest rate is so high is because your credit score is low.
What happens to your credit rating when you take out a personal loan?
Taking out a personal loan will affect your credit rating. The very fact that someone will be checking your credit rating will affect it. But if you’re not late with any payments, a personal loan can improve your credit score.
How soon will personal loan rates be going up?
It’s hard to predict how the average personal loan interest rate will behave in the future. You can, however, hike up your personal rates quickly if your credit score drops.
Can you negotiate a personal loan interest rate?
You might be able to negotiate the interest rate on a personal loan. It might not be possible when borrowing from large national banks, but credit unions and local banks could be more flexible with the rates.
What is a variable rate personal loan?
A variable rate personal loan is a loan in which the interest rate fluctuates during the repayment period.
What is the 5-year personal loan rate?
The interest rate for a personal loan with a 5-year repayment period can still vary significantly on the amount of money you are borrowing and your credit score.
What is the best rate for an unsecured personal loan?
Since most personal loans are unsecured, the best rate for the unsecured personal loan is generally the best personal loan rate you can find on the market.
What determines personal interest rate loans?
The financial institution chooses what counts and how much when it comes to personal loan interest rates. Usually, your credit score is the thing with the biggest impact.
What's the maximum interest rate allowed by law on a personal loan?
The maximum legally allowed interest rate on a personal loan is regulated by state laws.
Which personal loan purpose has the lowest rate?
The purpose of a personal loan doesn’t have a big effect on interest rates.
How to figure out interest rate on a loan?
Most lenders will provide you information online about interest rates or APRs. For further information, you should get in touch with them — it might not be possible to figure out the rate on your own.
Where to Look for Personal Loans with Good Rates
As always when looking for a loan, it pays to snoop around for the best interest rates. This section helps you find out where to look for personal loans with good interest rates.
Who offers the best personal loan rates?
What’s the best personal rate is hard to determine because it can depend on many factors. If you are looking for affordable personal loans, it would be a good idea to start with local banks or banks where you already have an account.
Who has the lowest personal loan rates?
LightStream, a division of the SunTrust Bank, has the lowest personal loan rates verifiable online, at 3.34%.
Which bank has the best personal loan interest rate?
Usually, it’s the local bank in your area that has the best loan interest rate. Or it might be the local credit union.
What finance company gives the best rates for personal loans?
If you look around online, you’ll see that the SunTrust Bank offers the best rates for personal loans, if by the best you mean the cheapest.
Who has the best unsecured personal loan rates?
The loan providers who have the overall best loan rates have the best unsecured rates.
How to find the best personal loan rate?
You should always start a hunt for the best personal loan rates in your area. Local banks and credit unions will often offer good personal loan rates, especially if you already have a relationship with them.
Which credit unions offer the lowest rates for personal loans?
Local credit unions, as well as credit unions that work with current or former government employees offer the lowest personal loan interest rates.
Where to find a low rate personal loan?
Low rate personal loans are readily available to you if you have a good credit score. If you don’t, it’s the local credit unions or banks that offer the lowest personal loan rates.
Personal Loan Interest Rates Specifics
Interested in the numbers you’ll be seeing when applying for a personal loan? These answers give you the information and estimates that will help you make a better choice.
What is the interest rate on a personal loan?
The interest rate on a personal loan varies depending on the lender, the size of the loan, its tenure, your credit score, and other factors. In general, interest rates can range from 3% to as high as 36%.
What is the average interest rate on a personal loan?
The average interest rate on a personal loan can go from around 11% for people with a credit score over 720, to around 30% for people with a credit score under 640.
What is a fair interest rate on a personal loan?
Depending on your credit score, a fair interest rate can go from 10% to 30%. The rule of thumb is that the better your credit score, the lower the interest rate.
What is the going interest rate on a personal loan?
Depending on your credit score, the going interest rates can be anywhere from just over 3% to twelve times that.
What is the highest interest rate on a personal loan?
You’ll see the highest interest rates on a personal loan when your credit score is very low. The interest rate can go up to 36%, maybe even more.
What is a good APR for a personal loan?
A good APR is usually the lowest APR available to a person with your credit score. It can range from 10% to 25%, or maybe even more if your credit is bad.
What is the percentage rate on a personal loan?
The percentage rate on a personal loan can go as low as 3% for a borrower with a good credit score, or as high as 36% for borrowers with a bad credit score. Usually, the percentage rate is in between.
Is 8.99% a good personal loan interest rate?
8.99% would be considered a good interest rate for people with an excellent credit score. If your credit score is lower than excellent than 8.99% is a great personal loan interest rate.
What is a good rate for a $15,000 personal loan?
Depending on your credit score, a good rate on a $15K personal loan ranges from 13% to 27%.
Robert is our in-house expert on personal loans and finance. He got an MBA, specializing in Finance, before joining the workforce. After working for multiple Fortune 500 companies in the past decade, he brings a wealth of knowledge and experience to the table.