The average interest rate for a 24-month personal loan was 9.41% in February 2022, according to data collected by the Federal Reserve. Personal loans are an excellent way to get quick access to cash when you need it. Whether you want to consolidate your debt, cover unexpected expenses, or make a large purchase, a personal loan can be a great solution.
However, like any loan, you will have to pay interest on the borrowed amount, and the interest rate you receive will depend on several factors.
What is a Personal Loan Interest Rate?
A personal loan interest rate is the percentage of the borrowed amount you will pay back to the lender in addition to the original amount borrowed. Interest rates are typically expressed as an annual percentage rate (APR), representing the total cost of borrowing money for a year.
The interest rate you receive on a personal loan will depend on several factors, including your credit score, income, and the loan term.
Average personal loan interest rates by credit score
Understanding average interest rates for personal loans is an important first step in borrowing responsibly. Your credit score greatly impacts the rate you will have to pay, so it’s important to know where you stand.
The chart below outlines the average interest rates you may expect to pay based on your credit score. Remember that these are only averages – explore multiple lenders and compare their offered rates to ensure that you get the best deal available.
Credit score
Average loan interest rate
720 – 850
10.73% – 12.50%
690 – 719
13.50% – 15.50%
630 – 689
17.80% – 19.90%
300 – 629
28.80% – 19.90%
Factors that affect your personal loan rate
Several factors can affect the interest rate you receive on a personal loan, such as:
- Credit score: Your credit score is one of the most critical factors that lenders consider when determining your interest rate. Generally, the higher your credit score, the lower your interest rate.
- Income: Lenders may also consider your income when determining your interest rate. A higher income may help you qualify for a lower interest rate.
- Loan term: The length of your loan term can also affect your interest rate. Generally, longer loan terms come with higher interest rates.
- Loan amount: The amount you borrow can also affect your interest rate. Sometimes, borrowing a larger amount may result in a lower interest rate.
- Lenders: Different lenders may have different interest rates, so shopping around and comparing rates from multiple lenders is essential.
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What is considered a good interest rate on a personal loan?
When it comes to personal loans, figuring out what constitutes a good interest rate can be tricky. It ultimately depends on a number of factors, such as your credit score and loan term. Generally speaking, if you can secure an interest rate below the average personal loan rate available, you’ve secured yourself a deal.
How to get a good personal loan rate
Securing a good personal loan rate is a critical step in ensuring you can afford the loan you need. If you want to qualify for the best possible loan rate based on your income, credit score, and other factors, there are several steps you can take. Here’s what you should do:
Improve your credit score
When you apply for a personal loan, your credit history will significantly determine the interest rate you receive. To increase your chances of getting a low rate, pay all of your bills on time, pay down debt, and dispute any errors on your credit reports.
Compare lenders
Depending on the lender, applicants may receive different rates from different lenders. For the best rate, apply to several lenders and compare their offers.
Check for fees
Your loan’s interest rate is not the only expense to consider. Be sure to check for other fees, such as origination fees, which can add up to 6% of your loan amount. Look for a lender’s annual percentage rate (APR), which includes interest plus fees, to get a better sense of the total cost of the loan. Some lenders may provide an estimated APR during the prequalification process.
Overview Getting the Best Personal Loan Rate
The key to finding the best personal loan for your financial needs is to be proactive and informed. This means understanding the factors that affect interest rates, such as credit score and debt-to-income ratio and taking steps to improve your financial health. By doing so, you can increase your chances of securing a loan with a lower interest rate. Additionally, shopping around and comparing loan options is crucial to ensure you get the best deal.
My USA Finance offers a platform to help you compare loans and find the best one for your situation. By utilizing these resources, you can make an informed decision and get the financial support you need.
