What is a Good Interest Rate for a Personal Loan?

What is a good personal loan interest rate?

If you have excellent credit, a good personal loan rate is usually below 8%. If your credit score is on the low end, you'll pay more. Personal loans for fair credit can have interest rates as high as 36%.

You can find personal loans at different rates at a bank, credit union, or online lender. Some lenders offer loans at rates that are lower than 6% -- however, these low-interest personal loans are generally reserved for borrowers with high credit scores.

If you have good to average credit, look for a personal loan rate that is close to or below average. 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.

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.

So, what is a good interest rate for a personal loan? It depends on your credit.

What affects your personal loan interest rate?

Your own personal situation when you apply for a loan, as well as the details of the loan you're applying for, will all affect the interest rates you're offered. Some of the key factors that can impact your loan rate include:

Your credit score. As mentioned above, people with higher credit scores should qualify for loans at better rates. If you have a credit score of 750, a personal loan with a 36% interest rate would be a very high rate -- but if your score is 580, this would likely be a very competitive rate based on your credit history.
Your income and employment. If you don't have proof of solid employment and a high enough income to convince a lender you can pay back the money you're borrowing, you'll only be offered loans at very high rates -- if at all.
Whether the loan is a fixed or variable rate loan. The personal loan interest rate on variable rate loans usually starts lower than that of a fixed rate loan -- but it can go up over time. If you're looking at two different loans with the same rates but one is fixed and the other is variable, the fixed rate loan is almost always the better deal because you'll have the certainty of knowing payments won't change.
Whether it's a secured or unsecured loan. If you take out a secured personal loan, you use an asset, such as your home or car, as collateral. Most personal loans are unsecured, which means you do not need to put up any collateral.
Your repayment timeline. If you borrow money over a longer period of time, there's more risk to the lender, so interest rates are naturally higher. A loan with a short repayment timeline should have a lower rate than one with a long loan repayment period -- otherwise, it's not a very good rate.
The amount you're borrowing. Bigger loans sometimes present more risk to lenders, so rates could be higher.

As you can see, one reason there's so much variation in what's considered a good personal loan interest rate is that borrowers have different financial profiles and personal loans have different repayment terms.

How can you determine if you're being offered a good personal loan interest rate?

Comparing the personal loan interest rate you're being offered with the average loan rate will give you an idea of where you stand. 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.

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, especially if one rate seems to be too good to be true.

When comparing loan rates to see if a personal loan is offering a good rate or not, be sure you're comparing like with like. For example, one loan might charge an origination fee or have a different loan term. The loans you're comparing should have the same repayment period, and should either all be fixed rate or all be variable rate loans.

What to do if you're not offered a good personal loan interest rate

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 it is, you either need to correct the problem by improving your credit or earning more income -- or you need to get a cosigner to vouch for you. You can get a much better rate if the cosigner has better credentials and is willing to commit to paying back the loan if you don't.

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 you can find a more competitive offer. You can also consider borrowing for a shorter period of time or borrowing a bit less money so you present less of a risk.

Always compare personal loan rates

What is a good interest rate for a personal loan? It's the lowest rate you can get. 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 you need to for your personal loan.

About the Author

Dana George

Dana has been writing about personal finance for more than 20 years, specializing in loans, debt management, investments, and business. Her work has appeared on San Jose Mercury News, The Detroit News, Oakland Tribune, and Dun & Bradstreet. After moving around the globe, she's thrilled to be living in her hometown of Kansas City.