What’s a good interest rate on a personal loan? This is a very important question that you need to ask before taking out a personal loan. Without a doubt, when you apply for this type of loan, you will pay interest. But don’t you think that it is better to find a good interest rate that will work well for you? The answer is yes, so you should at least find out what the average personal loan rate is.
Generally, your credit score, amount borrowed, loan repayment term, and income determine the amount of interest you get on a loan. Nevertheless, there are a few industry averages that you can use to compare personal loans. If you are interested in finding out whether the loan interest rate you get is good, start reading deeper, because that is how you will find more information.
What’s a Good Interest Rate on a Personal Loan?
In 2019, the average personal loan annual percentage rate was 9.41%, according to Experian. On the other hand, based on reports from the New York Federal Reserve, the average personal loan interest rate was 8.34%. The average personal loan interest rate ranges from 6% to 36%. But if you have a good or excellent credit score, you can find an average loan interest rate as low as 13.5%.
Currently, the best personal loan rates are between 7.49% and 29.99%.
In the meantime, your financial history greatly affects the rates you are approved for. This means that you may get approved for a loan below or above the average interest rate. So, the question now is: how do you find out if the interest rate you are given is a great deal for you? Well, you are about to find out:
| Credit Score | Average Loan Interest Rate |
| 300 – 629 | 28.50% – 32.00% |
| 630 – 689 | 17.80% – 19.90% |
| 690 – 719 | 13.50% – 15.50% |
| 720 – 850 | 10.73% – 12.50% |
So, all you need to do is check what range your credit score falls under and see the average loan interest rate that works best for you.
What Affects Your Personal Loan Interest Rate?
To repeat, various factors are responsible for the amount of interest you get on a personal loan. This is why it is advisable to compare before choosing. Now that you know this, here are some factors impacting the rates on personal loans:
• The Lender
First of all, we have the lender. This factor plays a very important role in determining a personal loan’s interest rate. Besides, every lender has their own criteria and set of interest rates for regulating the rate you are qualified for.
• Credit Score
No matter your credit score, there are different personal loans available. Moreover, higher credit scores come with lower interest rates.
• Loan Amount
Your loan amount is another factor that affects your interest rate on a personal loan. So, the higher the loan amount, the higher the interest rates.
• Debt-to-Income Ratio (DTI)
During the application process, when lenders are checking your minimum income requirement, they request your gross monthly income to find out if you can afford to pay back the new loan.
• Credit Report
Although your credit score is usually requested during the personal loan application process, it does not give the lender the full details. Instead, they review your credit report to check for high credit card balances, missed payments, current credit inquiries, and other sensitive credit behavior.
• Collateral
Personal loans are sometimes secured or unsecured. But if you go for a secured personal loan, it means that you will need to provide collateral. So, if you fail to pay back the loan, the lender will hold onto the collateral.
• Repayment Term
Normally, a longer loan repayment term comes with a higher interest rate, and vice versa. Therefore, if the loan rate goes up after it has been approved and given to you, it will take a long time to use the increase to your advantage.
How to Find a Good Interest Rate
If you would like a better idea of where you stand when you are given an average loan rate, the first and most important step is to compare. By doing this, you will be able to find a good interest rate for the loan you are taking out.
However, the rates differ vastly depending on various factors, like your credit profile, so a lot of people find it difficult to find a favorable loan rate. But not anymore. One of the tips I would love to share with you is to compare the rates of about three different lenders. When you check the mix of various lenders, you will have no issue finding the full picture.
You can also check banks and local credit unions against 2 or 3 online lenders. This will help you find out if the rates you are getting have some similarities or differences that are low or high. Additionally, look at all the fees and costs related to every loan. For instance, there is a prepayment penalty and an origination fee.
Apart from this, if you are trying to see if a personal loan is giving a good rate or not when comparing, check the APRs. This factor will show you the total cost of the loan, including the fees and interest rates. On the other hand, carefully compare loans with the same interest rate type and term.
