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When you take out a personal loan, you have to pay interest. As a result, it's in your best interest to get the best personal loan interest rate possible. At this point, you might be wondering "What is a good interest rate for a personal loan?" Or at least, "What is the average personal loan rate?"
Generally, the rate you'll receive will vary depending on your credit score, income, amount borrowed, and loan repayment term. Still, there are some industry averages you can use to compare personal loans.
Here's how to find out whether the loan interest rate you're offered is a good interest rate.
Experian put the average personal loan annual percentage rate (APR) at 9.41% in 2019, while the New York Federal Reserve puts the average personal loan interest rate at 9.34% for the third quarter of 2020 on a 24-month loan.
But your financial history influences the rate you're approved for, so might get approved for loans above or below the average interest rate. How do you know if the interest rate you're offered is good for you?
A good personal loan interest rate depends on your credit score:
For a guide to finding the right loan for your credit score, check out our page on credit scores and personal loans.
You can use the loan calculator below to see how different interest rates affect your monthly payment.
When looking for a good interest rate for a debt consolidation loan, an additional question to ask is "Is this a lower rate than the rate on my credit cards?" In general, personal loan interest rates are lower than credit card interest rates -- but it's always good to double-check any specific loans you're considering.
Your own personal situation when you apply for a loan, the details of the loan you're applying for, and the lender you've chosen will all affect the interest rates you're offered. Some of the key factors that can impact your loan rate include:
As you can see, one reason there's so much variation in what's considered a good personal loan interest rate. Every borrower is different -- and your favorite lender might offer a more or less favorable loan term than competitors. That's why it's always a good idea to compare multiple personal loan lenders.
Comparing the personal loan interest rate you're being offered with the average loan rate is the first step to get an idea of where you stand.
But since rates can vary wildly depending on your credit profile, the best thing to do is to compare rates from at least three lenders. Ideally, look at a mix of different kinds of lenders to get the full picture. Check with your local credit union or bank in addition to an online lender or two (or three). By doing this comparison, you can see whether the rates are all similar or if any stand out as particularly high or particularly low. Just be sure to check all the costs and fees associated with each loan, like the origination fee or prepayment penalty.
When comparing loan rates to see if a personal loan is offering a good rate or not, compare the APRs to get the whole picture. The APR tells you the full cost of a loan, including the interest rate and fees. Also, be careful to compare loans with the same term (compare 5-year loans to other 5-year loans) and interest rate type (compare fixed-rate loans to other fixed-rate loans).
Some lenders offer loans at rates lower than 6%. If you're looking for a loan with a lower interest rate, you can find some of the top-rated low-interest loans on our list of the best low-interest personal loans.
If you're only being offered personal loans at very high rates -- above the national average rates -- you need to consider why.
Your priority should be to find out if there's something in your borrower profile that is a red flag for lenders, such as a low credit score or insufficient income. If that's the problem, you either need to improve your credit or earn more income -- or get a cosigner to vouch for you. If you have bad credit, for example, you can get a much better rate if the cosigner has a high credit score.
You can also get a lower rate by putting up collateral, like a bank account or vehicle. A loan with collateral is called a secured loan (a loan without collateral is called an unsecured loan). Secured loans often have lower interest rates, but be careful: the lender can take your collateral if you miss a monthly payment.
If you're a well-qualified borrower and aren't being offered a loan at a good rate, you may simply need to shop around to see if another personal loan lender can offer a competitive rate. You can also consider borrowing for a shorter period of time or borrowing a bit less money so you present less of a risk.
RELATED: What is a good interest rate for a savings account? Also, check out The Ascent's article on why interest rates are so low on savings accounts.
What is a good interest rate for a personal loan? It's the lowest rate you can get with your credit score and financial situation. The lower the rate you pay to borrow, the more you can save on your loan. If you're a reasonably well-qualified borrower, always be sure to compare rates from different lenders and look for rates at or below the average. That way you won't pay more than necessary to for your personal loan.
Here are some other questions we've answered:
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
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