February 28, 2022 — Rates hike for qualified borrowers – Forbes Advisor
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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 February 21 to February 25, the average fixed interest rate on a three-year personal loan was 10.80% for borrowers with a credit score of 720 or higher who prequalified in the personal loan market of Credible.com. That’s up 0.35% from the previous week, according to Credible.com. The average five-year personal loan rate fell last week from 12.62% to 13.10%.
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
Compare personal loan rates
You can start the comparison process by prequalifying for a loan. Consider looking for lenders that offer online prequalification, which can make the process much more convenient. Pre-qualification can provide you with a more accurate view of the rate you will receive from a particular lender, since they will pre-qualify you by performing a soft credit check (which does not impact 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.
However, prequalification does not guarantee approval. Once you’ve found an offer you like, you’ll still need to submit a formal application and provide additional documentation to the lender. When you apply, a lender will usually perform a rigorous credit check, which will assess your credit score between one and five points.
Related: 5 personal loan requirements to know before applying
Estimate your personal loan repayments
You can estimate your monthly payment and the amount of interest you will pay once you know the interest rate, term and amount of your personal loan.
For example, suppose you have a personal loan for $5,000 with a fixed interest rate of 10.80% and a term of 36 months. The Forbes Advisor personal loan calculator says your monthly payment would be around $163 and you’d pay around $876 in interest over the life of the loan. Overall, you owe $5,876, 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
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 down your 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.