Many people use personal loans to consolidate credit card debt because the rates tend to be lower. Average personal loan interest rates are around 11.5%, according t𝓰o data from the Federal Reserve, cඣompared to an average credit card interest rate of 20%. That’s a big difference and could result in significant savings.
Of course, you can use personal loans for much more than just consolidating debt. The rate you’ll get will vary depending on your credit score,✤ and even current market conditions.
Here’s what you need to know about today’s average personal loan interest rateꦰs, and how to get the low✅est rate possible:
- Average personal loan interest rates
- Average rates by credit score
- How to get the lowest interest rates
- Other factors to consider when comparing loans
Average personal loan interest rates
Average personal loan interest rates range from about 6% to 36%. The banks, credit unions, and online lenders that offer personal loans set the rates, which are influenced by overall economic conditions. Rates are also determined by the lender you chooꦰse, your location, credit score, debt-to-income ratio, loan amount, and loan term.
Higher interest rates make a loan more expensive, which is why it’s so important to find the lowest rate you can when shopping for a personal loan. For example, if you borrow $10,000 with 9% interest for two years, you would pay about $964 in interest. If your rate was 18% instead, you would pay $1,982 in interest — 🀅almost twice as much. Try a personal loan calculator to see how different rates affect your🎃 monthly payment and overall loan cost.
Average rates by credit score
Lenders offer their lowest personal loan interest rates to borrowers with good or exceptional credit scores. It shows the lender that you can be trusted to make your monthly payments on time. Wh♉en you know the average personal loan interest rate for your credit score, you can work on finding competitive loan offer🐻s.
If your credit score is on the lower end, watch out for predatory lending practices. Some le꧋nders will try to lure borrowers in with🃏 low advertised interest rates, then offer loans with astronomically high rates instead.
| Credit score | Average interest rate |
|---|---|
| Below 640 | 15.91% |
| 661-780 | 15.56% |
| 661-780 | 10.93% |
| 781-850 | 6.59% |
How to get the lowest interest rates
💫You can pay less interest in several ways. Try some of the following strategies to save money on your personal loan:
- Check your credit score and dispute any errors: Your first mission is to request a copy of your credit report (you can get it at AnnualCreditReport.com). Review it carefully. If you see any errors, report them immediately because they could be dragging down your credit score.
- Choose a shorter loan term: If you can swing the payments, shorten your loan term. Lenders tend to offer lower interest rates when you choose a short loan term, such as 1 or 2 years.
- Borrow only what you need: Interest rates tend to be higher for larger loans, so try to borrow the minimum amount you need. Plus, you won’t waste money paying interest on funds you didn’t need to borrow, and it could also make it easier to get approved.
- Apply with a cosigner: As with student loans, applying with a cosigner can boost your approval chances and potentially score you a lower interest rate. A qualified cosigner reduces the bank’s risk in lending to you, so it can afford to offer a lower interest rate. However, not all lenders allow cosigners, so look for those who do.
- Apply at a credit union or bank where you have an account: Leverage your relationship. When you’re an existing bank customer or credit union member, you often get access to better terms. Make sure to emphasize that you’re already a customer.
Most importantly, shop around an✨d compare loan offers to make sure you’re getting the best interest rate available for your situatꦏion.
Other factors to consider when comparing loans
When comparing lo💛ans, there are other factors beyond the interest rate to weigh.
- Repayment terms: Most personal loan terms are typically between 1 and 5 years. All things being equal, you’ll pay less with a shorter loan term than with a longer one.
- Fees: Some lenders charge various fees in addition to interest, such as origination fees. Origination fees usually add between 1% and 10% to the cost of your loan.
- Loan use: Keep in mind that not all lenders permit all loan uses. Check to make sure the loan you’re interested in allows the funds to be used for your intended purpose.
- Loan amount: Not every lender offers a wide range of loan amounts. You may need to broaden your search if you need a very small or substantial loan.
- Loan type: Most personal loans are unsecured loans. Secured loans, which require you to put down collateral, may have lower interest rates, but you risk losing the collateral if you fail to make payments.
- Time to funding: Lastly, consider how fast you need the money. While some lenders can fund your loan as fast as the same day, others may take several days or more to disburse the funds.
When you need extra funds, a personal loan can be just t𝔍he ticket — as long as you’re not overpaying on interest. However, it can’t ꦫbe overstated, it’s crucial to compare multiple loan offers, so you can see at a glance what your options are and make an informed decision.