Interest Rates for Personal Loans Have Fallen. Is Now a Good Time to Borrow?
- This year is the first time personal loan interest rates have dropped below 9% since the Fed began keeping track 50 years ago.
- Used wisely, a personal loan can help you get out of debt faster and save money.
- The best personal loans are offered to those with the highest credit scores.
If you've been considering a personal loan, now might be the time to see what lenders have to offer.
Personal loan rates dropped to 8.73% during the second quarter of 2022 (April through June). That represents the first time personal loan rates have landed below 9% since the Federal Reserve began gathering data 50 years ago. Now that interest rates are relatively low, is it the right time for you to borrow money? Here, we examine what lower rates can mean for you.
Is now the time for you to borrow?
Whether or not now is a good time to borrow depends on what you plan to do with the money. One of the unique things about personal loans is that most can be used in any way you wish. Want to run away to a tropical island for a while, buy a classic car, or remodel your house? A personal loan can make it possible.
With interest rates setting record lows, now may be the right time to borrow a personal loan to meet your financial goals. Here's what you need to know about personal loan rates today.
If any of these situations sound familiar, it can make sense to apply for a personal loan:
You have high-interest debt
This week's average interest rate on credit cards is over 18%, and some personal loan rates run as high as 36%. If you find yourself with high-interest debt, a new personal loan can help you consolidate them and make one payment at a lower interest rate.
Not only does consolidating debt cut down on the amount of time it takes to pay bills off, but it's also likely to save you a good chunk of money.
You're juggling debt
If you're spending too much time each month getting all your bills paid or if bills sometimes fall through the cracks and you end up with late payment fees, using a personal loan to pay off debt can make life a little easier. The wise move is to sign up for autopay to ensure your loan payment is never late. Plus, some lenders offer a discount to borrowers who sign up for autopay.
There's a financial obligation hanging over your head
Some debts hang in the air like a dark cloud. For example, if you owe money to a friend or family member, you may want to consider borrowing enough to pay it off.
You're starting over
Starting over requires money (sometimes more than we expect to spend). If your life has taken a surprising turn, a personal loan may provide the funds you need to get settled and start anew.
Isn't 8.73% still high, though?
Given that mortgage interest rates dipped below 3% during the pandemic, 8.73% does seem high in comparison. Here's the difference, though: A mortgage loan is secured by collateral. That means if you miss payments, the lender can repossess your home, sell it, and recoup its losses.
The risk of loaning someone money to buy a house is lower than the risk of loan making a personal loan. That's because the majority of personal loans do not require collateral. If you fail to make payments, the lender has no way of recouping its money.
The lender is the one taking all the risks. Viewed through that lens, an interest rate below 9% is pretty impressive.
Who's eligible for the best rates?
It's important to note that the lowest interest rates go to borrowers with the highest credit scores. If you're not quite there, there's no shame in taking the time to raise your credit score.
Personal loans are not suitable for everyone, and if you decide against borrowing money, raising your credit score will benefit you in countless other ways.
Our picks for the best personal loans
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.
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