Personal loans offer fast, lump-sum financing that you repay in fixed monthly installments over a set period of time. If you are considering borrowing a personal loan for pay off high interest credit card debt or finance a home improvement project, there’s never been a better time to lock in on favorable terms.
The average interest rate on a two-year personal loan fell to an all-time low of 9.09% in the fourth quarter of 2021, according to the Federal Reserve. The previous record was set in the third quarter of 2020, when personal loan rates averaged 9.26%.
Personal loan interest rates are based on several factors, Iincluding the borrower’s credit history and loan term and amount. Just because the average rate is at an all-time high doesn’t mean all applicants will necessarily qualify for these competitive rates. Fortunately, there are several ways to improve your chances of getting a good interest rate on a personal loan.
Keep reading to learn more about how personal loan interest rates are determined, as well as how you can lock in a low rate on a personal loan. You can also visit Credible for compare rates from multiple personal lenders for free without affecting your credit score.
How to get a low interest rate on a personal loan
Personal lenders determine an applicant’s eligibility and interest rate based on a number of factors, including creditworthiness and debt-to-income ratio. Borrowers with good credit will be eligible for the best personal loan rateswhile those with bad credit may see unfavorable repayment terms – if they can qualify at all.
If you are considering borrowing a personal loan, you should strive to have a very good or excellent credit rating, which is defined as the FICO scoring model like 740 or higher. The higher your credit score, the more likely you are to get the lowest possible interest rate on a personal loan.
Personal loan applicants should also aim to have a debt to income ratio (DTI) of 40% or less, according to Credible. You can calculate your DTI ratio by dividing the monthly debt payments you owe by your gross monthly income.
Since personal lenders have their own eligibility criteria, it is important to shop around with several online lenders. Most lenders allow you get pre-qualified to see your estimated interest rate with a gentle credit inquiry, which will not affect your credit score.
You can compare personal loan interest rates between multiple lenders immediately on Credible’s online marketplace. This way, you can find the best deal possible for your financial situation.
Can you borrow a personal loan with bad credit?
Applicants with good credit will qualify for the best personal loan deals, but it may be possible to qualify for a personal loan if you have bad credit. Here are a few things to keep in mind:
- Your total costs will likely be higher. Some financial institutions and credit unions respond to borrowers with fair credit, although they are usually to offer reduce maximum loan amounts and apply higher interest rates. This results in a personal loan with higher monthly payments and more expensive to repay.
- Secured personal loans can improve your eligibility. Personal loans are traditionally unsecured loans, which means they do not require you to provide collateral. But it may be easier to qualify for a secured personal loan by an asset you own, such as your car. Keep in mind that the lender may seize your collateral if you fail to repay the loan.
- A co-signer can make you a better candidate. Having a co-signer with a strong credit profile, such as a trusted friend or relative, can help benefit from a lower interest rate only if you apply yourself. Since a co-signer is also responsible for repaying the loan, be sure to make timely payments to avoid damaging both of your credit ratings.
You can browse current personal loan interest rates in the table below, and visit Credible to see which offers are right for you. To learn more about personal loans, get in touch with a competent loan officer at Credible.
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