June 13, 2022—Rates Drop – Forbes Advisor
Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
Last week, personal loan rates fell. If you want to finance a vehicle or home improvement project, or if you temporarily need to improve your cash flow, you can get a fair rate, as long as you are able to meet the qualifying requirements.
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 10.84% from June 6 through June 10. According to Credible.com, that’s 0.56% down from the previous week. The average five-year personal loan rate fell 0.20% last week to 13.33% from 13.53%.
Keep in mind that the rate you will receive depends on several factors, including your creditworthiness and the loans available from the lender you have chosen. The most creditworthy borrowers can benefit from rates that are significantly lower than the average.
Related: Best Personal Loans
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. Although 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.
Based on this information, the lender will give you an overview of the terms you may qualify for, including loan rates, terms and limits. You can prequalify with multiple lenders and compare terms to find the best loan for your specific situation.
Prequalification does not imply loan approval. You will still need to submit a formal application and additional documents to get the loan you want. Typically, lenders do a thorough credit check when you formally apply for a loan. Credit checks can lower your score by one to five points.
Related: 5 personal loan requirements to know before applying
Estimate your personal loan repayments
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 13.33%. You’d pay about $115 a month and about $1,877 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. Overall, you would pay $6,877 in total, which includes both principal and interest.
Average Personal Loan Interest Rates by Credit Score
The rates below are estimated average interest rates for personal loans based on VantageScore risk levels, according to Experian. Although the rates below can serve as a general guideline, note that interest rates are ultimately set and determined by the lenders.
Get the best rates
Personal loan interest rates are based on a number of factors, including your overall creditworthiness, credit score, income, and debt-to-income ratio (DTI). Two quick ways to help you qualify for better rates is to pay off existing debt to help lower your DTI and improve your credit score.
Rod Griffin, senior director of education and consumer advocacy at Experian, recommends “checking your credit report and scores three to six months before applying for a personal loan” as this will give you plenty of time to bring the necessary improvements.
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.