When you need a personal loan, it can be stressful trying to guess what APR you’ll get — and by extension, how much you’ll pay for your loan over time.
Your APR, or annual percentage rate, helps determine how much money you’ll pay over the life of your loan and what your monthly payment will be. It’s important to try to get the lowest rate possible.
However, interest rates vary between lenders. Some lenders offer rates starting as low as 3.99%. Others charge rates as high as 35.99% — an amount that can potentially add hundreds or even thousands of dollars to the cost of your loan.
Making things even murkier, most personal loan providers advertise a wide range of potential APRs. So you could find yourself drawn to one lender because of their extra low minimum rates only to find the rate you’re actually offered is much higher.
The average personal loan rate
You can get a sense of the rates you could qualify for by looking at the average APR for borrowers with a similar credit score.
According to a study published by LendingTree, the parent company of Student Loan Hero, the average personal loan rate for a three-year, $10,328 personal loan hovered between 18.51% and 27.30% in May 2018. However, borrowers with excellent credit can often secure much lower rates. Here’s a comprehensive breakdown on average loan offers:
|Loan Term Offers for the Average 3-Year Personal Loan ($10,328), May 2018|
Your credit score isn’t the only factor affecting your interest rate. Some online lenders with unconventional underwriting methods look at a wider range of data points than just your credit score. As a result, the rate an online lender offers you may look considerably different than the rate you see from a more traditional lender.
“Every lender is a little different in how they evaluate you, so you might be able to get better rates at different lenders” said David Green, chief product officer for Earnest.
How your personal loan rate is determined
There’s no such thing as a universal underwriting method and so how your rate is calculated will vary, depending on the lender and which type of loan you’re seeking.
However, in general, you’ll find that traditional lenders place a lot of weight on conventional credit metrics. For example, Discover looks at the information you disclose on your application, such as your household income, what credit bureaus have to say about you and which kind of loan terms you’ve selected, says Dan Matysik, vice president of Personal Loans at Discover.
“If someone is looking for a loan with the lowest interest rate possible, they may want to start by checking their FICO credit score,” said Matysik. “Ninety percent of top lenders, including Discover, incorporate a FICO credit score.”
Other lenders ask for more personal details in addition to your FICO score, such as your level of education and college major, and what’s in your checking or savings account. “We underwrite for the individual,” said Jungwon Byun, head of growth at Upstart. “We’re trying to use different data – even data that traditional lenders don’t use – so we can give you the lowest rates we can.”
Factors that may affect your APR, depending on the lender, include:
- Your credit score: What appears on your credit report – or, conversely, what doesn’t appear – can have a big impact on the APR you’re offered. It could also make or break your application, so tending to your credit score and making sure it’s in the best shape possible is crucial.
- Income: Lenders will also want to know whether you earn enough money to support your monthly payments. In particular, they will want to compare how much debt you already have compared to your annual income.
- Your education and job history: If you work with an online lender, they may ask for more detailed information about the highest degree you’ve obtained, your college major, your work history and other personal details.
- Your saving and spending habits: Some online lenders also ask for more comprehensive information about your savings and spending habits. They may even request access to your bank account so they can get a sense of how well you manage money.
- Loan terms: When you apply for a personal loan, you’ll typically indicate whether you want a shorter-term loan, such as a 12-month installment loan, or a longer-term loan that lasts for several years. That can have a big impact on your interest rate. In general, you’ll find that the shorter the loan, the better the interest rate.
- The prime rate: If you apply for a variable rate personal loan, your APR will be determined, in part, by this benchmark rate published by the Wall Street Journal. When the prime rate changes, lenders typically follow suit by resetting APRs on new and existing variable rate loans. Fixed-rate loans, by contrast, usually carry the same APR throughout the life of the loan.
- How you plan to pay for your loan: Some lenders will give you a discount on your APR if you sign up for automated payments.
6 ways to get a lower personal loan rate
Some factors that affect your personal loan rate may be out of your control. For example, if you’re fairly new to using credit, you may have a harder time securing an ideal rate. However, there are steps you can take to boost your chances of receiving an affordable APR. For example:
Cultivate a higher credit score: Pay all your bills on time. Keep your balances low. Periodically ask for credit limit increases in order to boost your debt-to-income ratio. Apply for different types of credit, such as revolving credit and installment loans. Keep your oldest credit accounts open so that you have a longer credit history. It takes time, but tending to your credit hygiene can go a long way toward lowering your interest rates.
Stay trustworthy: Lenders aren’t going to offer you the most competitive rates if you have a history of stiffing other companies. It’s not just important to avoid having delinquencies placed on your credit reports. As lenders increasingly show interest in alternative, noncredit-related data, you’ll also want to avoid falling behind on other payments, such as phone bills and utilities.
Secure a bigger income: Asking for a raise, taking on a side gig or lining up a higher paying job can also boost your chances of earning a lower interest rate.
Increase your savings: If you’re interested in working with an alternative lender, then it’s a good idea to increase your savings and investments as much as possible so that you can confidently provide this information to lenders. For example, if your employer offers to match your 401(k) contribution, take them up on the offer and contribute as much as you can.
Manage your money wisely: You’ll also want to be able to prove to lenders who ask for more detailed financial information that you can limit your spending and save at least some of your income once your bills are out of the way. According to Earnest’s David Green, the more money you have in reserve compared to your income, the more likely you are to earn the best rates.
Ask a loved one for help: Alison Norris, CFP and advice strategist at SoFi, recommends looking into whether a loved one with a higher credit score would be willing to cosign the loan. “That might allow you to leverage two incomes and two financial profiles into one,” said Norris.
You can’t choose your personal loan rate, but you can improve your chances of getting the best possible APR by carefully tending to your finances and comparing your options.
Be realistic about the rates you’ll probably get. But don’t give up if you’re offered a disappointing APR. Just because one lender offers you an above-average interest rate doesn’t mean every lender will.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|