Personal loans can be a valuable resource for improving your financial situation, especially when unexpected expenses come up.
However, in order to reap the maximum benefits from taking out such a loan, it’s important to get the best personal loan interest rates.
But how do you know what the best personal loan rates even are? And how can you make sure you qualify for the lowest personal loan interest rates available?
Here are five questions you should ask before signing on the dotted line for a personal loan.
1. What is a personal loan?
A personal loan is a type of unsecured debt. That means you don’t have an item that’s considered collateral to back up the loan.
Personal loans are similar to credit cards but different from mortgages or auto loans. Those types of loans are secured by the item you’re buying. A home or car can be repossessed by your lender if you don’t make your loan payments.
Personal loans are considered a riskier type of loan by lenders because they’re not backed by collateral. This means they may have a higher interest rate compared to secured loans.
Lenders may also have higher standards for making personal loans, so you may need a relatively high credit score in order to qualify for the best rates available.
2. What can personal loans be used for?
The beauty of a personal loan is that you can use the money for whatever you’d like.
However, responsible uses of personal loans pretty much entail using them to pay off higher-interest debt. Predictable monthly payments and fixed personal loan interest rates can also be a benefit for those looking to pay off other debts using personal loans.
Generally speaking, it’s best to save up for big purchases and make them in cash. Or, create an emergency fund so that you’re prepared to deal with the unexpected.
But if those strategies are impossible for one reason or another, then personal loans are preferable to payday loans, which are usually expensive and often predatory.
3. How are personal loan interest rates determined?
Generally speaking, a good credit score and proof of income will help you qualify for the best personal loan interest rates.
Most reputable lenders won’t issue a personal loan if your credit score is below the 640-660 range. Or if they do issue one, the interest rate will most likely be too high for the loan to be financially advantageous for you.
If your credit score and income are low, then putting up collateral to secure the loan may improve the interest rate you’re offered. Or, you may want to consider getting a cosigner for the loan. However, both of those approaches have their own risks.
Lender type may also affect the personal loan interest rates offered.
Credit unions, which are member-owned, may offer lower rates than big banks. Online banks, which don’t have to pay the costs associated with physical locations, may also offer lower rates.
Peer-to-peer lenders may take your entire situation (as opposed to just your credit score) into account, As a result, they may offer lower rates to some applicants than traditional lenders will.
4. What’s the average personal loan interest rate?
Personal loan interest rates don’t just depend on the type of lender and the creditworthiness of the borrower. They also depend on the Federal Reserve’s overnight interbank rate.
Although this rate has been at or near zero for several years, the Fed recently raised the rate slightly. And they are likely to continue doing so in a slow and measured way.
While shouldn’t rush into a personal loan before you’re ready, it may be better to get one now rather than wait later and risk higher personal loan interest rates.
Those with average credit can expect rates in the 7.50% APR range from lenders like Peerform, Vouch, and Avant. Less creditworthy borrowers can expect personal loan interest rates as high as 35.99% APR.
5. How do I find the best personal loan interest rates?
The best way to find the best rate is to apply with multiple lenders and see what rates you’re offered.You can compare personal loan rates in the Student Loan Hero Marketplace. You’ll get a pretty clear idea of your range and will be able to identify the better deals.
If possible, try to avoid personal loan applications that require what is known as a “hard credit pull.” Those can lower your credit score slightly every time they occur.
And if some lenders you’re considering require hard credit pulls, time your applications so that they all occur within the same 45-day period. This will make it clear to credit bureaus that you’re rate shopping so that all inquiries count as a single “pull.”
Make sure you’re applying for loans with the same repayment term length as well as the amount. Otherwise, you’ll get different personal loan interest rates for loans with various characteristics.
Some lenders charge certain fees and others don’t so make sure to take those into consideration. Also, do you homework and read reviews on lenders you’re considering to make sure the company you’re applying with is reputable.
The more data points you have, the likelier you are to obtain the best deal possible for you. It’s not an overnight process, but it can improve your situation immensely if you get the lowest rate you can.
Interested in a personal loan?Here are the top personal loan lenders of 2017!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
Citizens Bank Disclosures
Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of July 1, 2017, the one-month LIBOR rate is 1.22%. Variable interest rates range from 6.01% - 15.96% (6.01% - 15.96% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% - 16.24% (5.99% - 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
|5.67% - 29.99%||$1,000 - $50,000||Visit Upstart|
|5.17% - 14.24%1||$5,000 - $100,000||Visit SoFi|
|8.00% - 25.00%||$5,000 - $35,000||Visit Payoff|
|5.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$5,000 - $50,000||Visit LendingClub|
|5.25% - 12.00%||$2,000 - $50,000||Visit Earnest|
Student Loan Hero Advertiser Disclosure
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.