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Personal loan rates are gradually increasing. But you can still get a reasonable rate, whether you’re looking to finance a home improvement project, a vehicle, unexpected bills, or just temporarily need to improve your cash flow.
From August 15-20, the average fixed interest rate on a three-year personal loan was 17.78% for borrowers with a credit score of 720 or higher who prequalified in Credible’s personal loan marketplace .com. That’s up 7.13% from the previous week, according to Credible.com. The average five-year personal loan rate rose last week from 15.06% to 16.64%.
Remember that qualified borrowers can benefit from significantly lower than average rates. The rate you will receive depends on several factors, such as your creditworthiness and the loan you choose.
Related: Best Personal Loans
Compare personal loan rates
If you want to get the best rate, be sure to research lenders that offer a prequalification process for personal loans. While many lenders post their rates online, this only gives you a range of what they offer, not an exact rate based on the qualifications you meet. However, when you prequalify for a personal loan, a lender will perform a soft credit check to prescreen you, which has no impact on your credit score.
Lenders typically provide you with a list of options after you prequalify, which includes loan rates, terms, and limits. You can find the best loan for your situation by prequalifying with several lenders and comparing loan offers.
You are not guaranteed to be approved if you prequalify. Lenders always require you to submit a formal application and additional documents. After you submit your formal application, lenders typically perform a rigorous credit check, which can lower your credit score by one to five points.
Related: 5 personal loan conditions to know before applying
How to calculate your personal loan payments
Once you have an idea of your personal loan interest rate, you can calculate your monthly payments. You will need to enter the interest rate, amount and term of your loan. This will help you determine how much you will owe monthly and how much interest you will pay over the life of your loan.
For example, suppose you get a $5,000 personal loan with a term of five years at a fixed interest rate of 16.64%. You’d pay about $123 a month and about $2,398 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. Overall, you would pay $7,398 in total, which includes both principal and interest.
Average Personal Loan Interest Rates by Credit Score
Here are the estimated average interest rates for personal loans based on VantageScore risk levels, according to Experian. Please note that interest rates are determined and set by the lenders. The prices provided are estimates.
How to benefit from more favorable interest rates
Your credit is an important factor in the rates you receive. According to Rod Griffin, senior director of education and consumer advocacy at Experian, “checking your credit report and scores three to six months before applying for a personal loan” is a good idea. This gives you enough time to make the necessary corrections.
A credit score of 720 or better will generally get you the best deal. If you’re not quite in this credit score range, consider taking steps to improve your credit score. Pay off your existing debts to reduce your credit utilization ratio, remove errors from your credit report and pay your bills in advance or on time.