The personal loan rate definition refers to the percentage of the principal loan amount charged for borrowing funds, known as the interest rate.
If you are interested in applying for a loan, it’s critical to understand loan interest basics, such as fixed vs. variable rates. A fixed interest rate does not change throughout the repayment period, while a variable rate does. The right interest rate on a loan can help you acquire an affordable repayment plan with low monthly payments.
The interest rate on a loan is entirely different from the APR. The APR (annual percentage rate) is the total yearly interest amount plus additional fees. Understanding how the APR works can help you better understand what a good rate is so you can find the best personal loan for your needs.
What is Considered a Good Interest Rate?
The difference between good vs. bad rates is the borrower’s perspective. The best loan rates are typically low, but individuals with low credit scores may not get as low a rate as borrowers with excellent credit. Lender benchmarks vary greatly, so it’s critical to make lender comparisons to get the best rate for your credit score.
Individuals with good credit scores are more likely to qualify for the best loan rates on the market. The average market rates for excellent credit scores (720 and above) typically range from 6% to 12%. In contrast, the average interest rate for loans ranges between 14% to 36% for low credit borrowers.
Your desired loan amount and monthly budget can help you determine whether a rate is good or bad. If a lender offers a rate that results in affordable monthly payments, then that rate may be good for your financial situation.
Average Personal Loan Interest Rates by Credit Score
Most lenders offer credit-based loan rates due to the risk of default. For this reason, the average interest rates differ greatly between prime vs. subprime borrowers. A borrower with a high FICO Score demonstrates financial stability, while a low-credit borrower may have a history of late payments. For this reason, credit score ranges directly impact the type of rate a borrower can get on a personal loan.
Here is a helpful chart that categorizes average interest rates by credit score:
| Credit Score Range | Average Personal Loan Rate |
| 720 and above | 10-12% |
| 690-719 | 13-15% |
| 630-689 | 17-19% |
| 590-629 | 23-25% |
| Below 590 | 28-32% |
Factors That Affect Personal Loan Interest Rates
Personal loan rates are affected by various factors, such as your creditworthiness, desired loan terms, and the economy.
How does your credit score impact your loan terms?
When you apply for a personal loan, the lender will require income verification and credit reports from the credit bureaus to determine your creditworthiness. If a borrower has bad credit, then their rate will be higher to offset the risk to the lender. A high rate will also raise monthly payments.
How does a loan term affect interest rates?
Suppose you get a high rate on a personal loan due to a bad credit score. You may still be able to obtain affordable monthly payments by opting for an extended loan term. A longer repayment schedule will lower your monthly payments, but
How does the economy affect interest rates?
Most interest rate factors have to do with the borrower, but one that cannot be adjusted is the economy. The economic state of the country directly affects interest rates. Generally, rates are lower during a recession to incentivize spending and borrowing. However, the government may raise rates to reduce spending and combat inflation.
- In this section, identify the key determinants of interest rates. Include credit score, loan term, income, and economic factors.
- LSI keywords/entities to use: Credit bureaus, income verification, loan terms/loan term effect, Interest rate factors, credit score impact,
How to Qualify for the Best Personal Loan Interest Rate
Improving your credit score can help you qualify for low-interest loans. Higher scores lower your risk level, which may improve loan terms and give you leverage for loan rate negotiations. Many lenders are willing to lower a rate offer to conduct business with someone who has good or excellent credit.
If you don’t currently have good credit, you may still obtain a good rate by opting for a secured loan. The difference between secured vs. unsecured loans is the use of collateral. Collateral lowers the lending risk, which may help you get better loan terms with bad credit. But keep in mind that secured loans are risky. You can lose a valuable asset, such as a car or house, if you default.
To avoid using collateral on a personal loan, you can use comparison platforms to find the best loan offer for your FICO Score. And once you obtain a loan, you can use credit repair tools to manage your account and boost your credit. Many borrowers sign up for debt management plans (DMPs) and mobile budgeting apps to improve their financial management.
Use CreditNinja’s Personal Loan Calculator To Calculate Your Monthly Interest
Before committing to a loan, it’s essential to assess affordability. A loan calculator can help you determine your monthly payments based on the loan amount, APR, and repayment term.
CreditNinja provides a free simple loan calculator online to help you better understand how much a loan will cost based on the type of payment plan you get. All you need to do is input the loan amount, APR, loan term, and type of payment schedule. Comparing multiple lenders this way can help you find the best rate and loan offer for your financial needs.
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