Personal loan rates rose last week. But you can still snag a reasonable rate, whether you’re looking to finance a home remodeling project, vehicle, unexpected bills or temporarily need to improve your cash flow.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace, the average interest rate on a three-year personal loan was 11.25% from September 27 to October 1. According to Credible.com, that’s a 0.55% increase from the previous week. The average rate on a five-year personal loan rose 0.51% last week to 14.86% from 14.35%.
Remember, well-qualified borrowers may receive rates significantly lower than average. The rate you’ll actually receive depends on numerous factors, like your creditworthiness and the loan you choose.
Related: Best Personal Loans July 2021
How to Receive More Favorable Interest Rates
Personal loan interest rates are based on a number of factors, including your overall creditworthiness, credit score, income and debt-to-income (DTI) ratio. Two quick ways to help you receive more favorable rates include paying down existing debt to help lower your DTI and improving your credit score.
Rod Griffin, senior director of consumer education and advocacy at Experian, recommends “checking your credit report and scores three to six months before you apply for a personal loan,” as this will give you enough time to make any necessary improvements.
While qualification requirements differ across lenders, a minimum credit score of 720 will typically yield you the best terms. If your score falls below this marker, and you’re on a quest for the lowest rate possible, you can take action to improve your score. Try strategies like lowering your credit utilization ratio, removing errors from your credit report and paying your bills early or on time.
Estimate Your Personal Loan Payments
To see if it fits into your budget, it’s important to estimate how much you’ll pay on a monthly basis—and how much you’ll pay in interest over the life of the loan. One of the easiest ways to do this is with a personal loan calculator. You’ll need your loan rate, term and amount.
For example, let’s say you get a $5,000 personal loan with a term of five years at a fixed interest rate of 14.86%. You’d pay roughly $119 monthly and roughly $2,115 in interest over the life of the loan, according to the Forbes Advisor personal loan calculator. Overall, you’d pay $7,115 in total, which includes both principal and interest.
Personal Loan Rates by Credit Score
The rates below are average estimated personal loan interest rates according to VantageScore risk tiers, according to Experian. Though the rates below can serve as a general guideline, note that interest rates are ultimately set and determined by lenders.
