May 23, 2022 – Rates Rise – Forbes Advisor
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Personal loan rates increased last week. However, if you are looking for a personal loan to finance a project, the purchase of a vehicle, unexpected bills or to improve your cash flow, it is possible to obtain a decent rate.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace, the average interest rate on a three-year personal loan was 11.09% from May 16 to May 20. According to Credible.com, that’s a 0.24% increase from the previous week. The average five-year personal loan rate fell 0.62% last week to 12.56% from 13.18%.
The most qualified borrowers generally benefit from the best rates. In fact, qualified borrowers can benefit from a rate that is significantly lower than the average. The rate you receive depends on many factors, including your creditworthiness and the loans available from your chosen lender.
Related: Best Personal Loans
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 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.
After your prequalification, the lender can provide you with an overview of your loan options. This snapshot typically includes loan rates, terms, and limits. To find the best loan for your situation, consider prequalifying with several lenders and comparing terms.
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 requirements to know before applying
How to benefit from more favorable interest rates
Two quick ways to help you qualify for better rates is to pay down your existing debt to help lower your DTI and improve your credit score. The interest rate you receive on a personal loan is based on a number of factors. This includes your overall creditworthiness, credit score, income, and debt-to-income ratio (DTI).
Although qualification requirements differ from lender to lender, a minimum credit score of 720 will generally get you the best deal. If your score falls below this marker and you’re looking for the lowest possible rate, you can take steps to improve your score. Try strategies such as reducing your credit utilization rate, removing errors from your credit report, and paying your bills early or on time.
Calculate your personal loan payments
To see if this fits your budget, it’s important to estimate how much you’ll pay on a monthly basis and how much you’ll pay in interest over the life of the loan. One of the easiest ways to do this is to use a personal loan calculator. You will need the rate, term and amount 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 12.56%. You’d pay about $113 a month and about $1,759 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. Overall, you would pay $6,759 in total, which includes both principal and interest.