These are the personal loan rates that you can expect to see in 2020. ( iStock )
A personal loan is a type of installment loan that’s usually used either to finance a big purchase like a home renovation or to consolidate debt into a single monthly payment.
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Typically, qualifying for a personal loan — and receiving the best personal loan rates — depends largely on the strength of your credit score, income history, and debt-to-income ratio. However, these rates can also vary, depending on the lender.
Read on to learn what you can expect when searching for the best rates.
What’s the average personal loan interest rate?
Personal loan rates, especially for personal loans that are unsecured, can vary widely. Typically, these loans can range anywhere from just below 5 percent to 36 percent, according to Credible. Though, recent data from Experian suggests that the average annual percentage rate (APR) that borrowers are given is closer to 9.41 percent.
That said, the lender you go through for your loan can also have an effect on the average interest rate you’re offered. While Credible found that the rates charged by a brick-and-mortar bank typically range from 5.99 percent to 24.99 percent, the rates from online lenders tend to run a little lower than that.
CAN YOU GET A PERSONAL LOAN WITHOUT A CREDIT CHECK?
The difference likely stems from the fact that online lenders usually don’t have the same overhead costs as banks, so they are able to pass those savings along to the consumer in the form of a lower interest rate.
Most personal loan lenders will let you borrow between $1,000 and $100,000. In addition, you can usually receive the funds within a few business days.
How do I qualify for a low personal loan rate?
Again, the interest rate you qualify for on personal loans will vary, but there are certain things you can do to improve your chances of finding the best rate. They are as follows:
The first thing you can do is shop around for the best rate. Since every lender has a different fee structure, the rates you’ll be offered by each one will be different. You can use an online tool like Credible to explore your personal loan options and compare rates and lenders.
Improving your score
To qualify for a lower personal loan rate, you can take steps to improve your credit score. If you aren’t already, commit to making all of your debt payments on time and to paying as far above the minimum payment as possible. If you follow these tips, you should begin to see an improvement in your score.
Finding a co-signer
If you don’t have enough time to wait for your score to improve and you want to secure a lower rate, your best bet might be to find a co-signer who has great credit. Having a co-signer makes you less of a risk in the eyes of the lender because, if you default on your payments, your co-signer will be responsible for making them.
HOW TO FIND A COSIGNER FOR A LOAN
Will checking my rates affect my credit score?
Some lenders will let you check your rates using a soft inquiry, which won’t have an effect on your credit score. However, when you submit a loan application, the lender will actually pull your credit, which can temporarily harm your score.
Visit Credible to get a better sense of what personal loan rates are available to you or use their personal loan calculator to figure out a monthly payment that works in your budget.
If you’re going to be applying with multiple lenders, it’s important that you submit all of your applications within the same 14-day timeframe. Most credit scoring models will count multiple inquiries for the same purpose as one event as long as they are made within that timeframe.
What affects personal loan rates?
Ultimately, the rate you’ll receive on your personal loan will be impacted by your financial history. On the application you fill out when you officially apply for the loan, you’ll be asked to provide your Social Security number.
HOW PERSONAL LOANS AFFECT CREDIT SCORES
The lender will use that information to do a credit check, which will give them most of the information that they need to approve you for the loan. However, you may also need to provide some information that shows your current income, as well.
Once your lender has all that information in hand, they will look at two things:
Your credit history: The higher your credit score is, the less of a risk you are in the eyes of the lender. In addition, if you have a history of making payments on time, you’re more likely to receive a better rate.
Your debt-to-income ratio: Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income. This ratio will dictate how much money you’ll be approved to borrow, but having a lower ratio may also help to secure you a lower rate.
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