Personal loans can be a great way to consolidate debt or achieve other financial goals. (iStock)
Consumers can use a personal loan for just about anything, making them an appealing form of credit, especially for consolidating higher-interest debts.
Interest rates are influenced by several different factors, including current market conditions, the lender, and the borrower’s creditworthiness. Getting an idea of the average personal loan interest rate can help you determine whether one is worth considering.
Credible can help you find personal loans or debt consolidation loans from top lenders with interest rates starting at 3.99%. Check out their offerings today on loan amounts from $600 to $100,000.
What are interest rates on personal loans right now?
According to a recent report by Credible, the average interest rate for personal loans is:
- 3-year loans: 11.52%
- 5-year loans: 14.43%
For the shorter-term loans, that number is up from 11.26% a year ago, while the five-year loan rate is down from 14.90% over that same period.
On average, personal loan interest rates are lower than credit card interest rates, where the average sits at 16.43%, according to the Federal Reserve. Also, these loans have a set repayment term instead of just giving you a minimum monthly payment, giving you more structure.
That said, you can also use a loan for other purposes, such as covering emergency expenses, funding home renovations, starting a business, and more. If you’re considering a personal loan, visit Credible to compare interest rates and lenders and find a repayment term that works for you.
How to get the best personal loan
Regardless of your reason for borrowing with a personal loan, it’s important to do your research to find the best and cheapest option for you.
Here are five things you can do to improve your chances of finding the right fit:
- Check your credit score and report
- Shop around for personal loan rates
- Use a personal loan calculator
- Look for no-fee personal loans
- Consider a variable interest rate
1. Check your credit score and report
It’s possible to get a personal loan even with bad credit, but you’ll get the best terms with a good or excellent credit score.
Check your credit score for free through Experian or Discover Credit Scorecard, and also get a copy of your credit reports through AnnualCreditReport.com. If your credit score isn’t where you want it to be, use your report to identify areas where you can make improvements.
However, if you're confident in your credit score, then consider using Credible to view your prequalified rates within two minutes. It's free to use and there are no hidden fees.
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2. Shop around for personal loan rates
It’s rarely a good idea to take the first offer you see, even if it’s from a bank or credit union you regularly work with.
Each personal loan lender has a different set of rates and eligibility criteria, so take some time to shop around and compare rates from multiple lenders, as well as the repayment term and loan amounts, to make sure you find the best one.
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3. Use a personal loan calculator
Interest rates are important, but you’ll also want to make sure you can afford the payment. While you may get a lower interest rate on a shorter-term, for instance, the monthly payment may be too high for your budget. Use Credible’s personal loan calculator to compare monthly payments and total interest charges over the life of the loan.
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4. Look for no-fee personal loans
Some personal loan lenders charge an upfront origination fee, which increases the cost of your loan. If your credit is less than stellar, your options with no origination fee may be limited or nonexistent, but if your credit is in decent shape, include that in your criteria for finding the right loan.
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5. Consider a variable interest rate
A fixed-rate personal loan will carry the same interest rate for the life of the loan. With a variable rate, on the other hand, your rate can fluctuate over time based on market conditions. Because the borrower takes on more risk with a variable rate, you’ll typically get a lower interest rate to start, making a variable interest rate appealing on shorter-term loans.
As with any financial decision, it’s also important to consider whether you actually need to borrow money with a personal loan. Consider your situation and financial goals and how a personal loan can help you achieve them. If a personal loan will add more debt instead of consolidating existing debt, consider how the monthly payments will impact your financial health.
Should you get a personal loan?
Personal loans are among the most affordable types of unsecured debt, and they can be an excellent way to pay for large expenses that would be more expensive on a high-rate credit card, or even to consolidate your credit card debt.
But interest rates can vary based on a variety of factors, so it’s important to take your time to compare several options before you apply for one. Credible is an online marketplace that allows you to compare personal loan interest rates from several online lenders in one place to find the lowest rate available.
Before you apply, also consider whether a personal loan is a right fit in your situation, or if you should consider other options, or even wait until your credit is better before you submit an application.
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