If you are considering borrowing a personal loan to consolidate debt, pay for a home improvement, or finance another large purchase, there has never been a better time to do so. That’s because interest rates have again fallen to a new record low.
The average two-year personal loan rate fell to 9.09% in the fourth quarter of 2021, according to the Federal Reserve. This is the lowest rate of personal loan rates since the Fed began collecting consumer credit data.
The previous record was set in the third quarter of 2020, when the average interest rates on personal loans were 9.26%. The flat rate has rebounded between 9.65% and 9.39% since then, before falling to the current rate of 9.09%.
Keep reading to learn more about personal loans, including how to secure a low rate now. You can compare personal loan rates across several lenders at once in Credible’s online financial marketplace.
Personal Loan Creation Fee: Is it Worth the Cost?
How are personal loan interest rates determined?
Personal loans allow consumers to borrow an amount of cash to be repaid in fixed monthly installments over a specified period of time, usually a few years. Funding is fast, which means the loan can be deposited into your checking account in as little as one business day. Personal loans are usually unsecured, which means they don’t require collateral, so you can use the money as you see fit.
Since personal loan lenders are unsecured, they determine the interest rate and eligibility based on creditworthiness. The interest rate you qualify for is determined by your credit score and debt-to-income (DTI) ratio, as well as other loan terms such as loan amount and term.
Borrowers with very good or excellent credit, as defined on FICO Form as 740 or higher, will qualify for the best personal loan rates available. Conversely, those with bad or fair credit will see higher interest rates on personal loans if they qualify for loan approval.
If you are considering borrowing a personal loan, it is important to check your credit score to see where you stand. Next, visit Credible to see free estimated personal loan offers without affecting your balance, so you can decide if this financial product is right for you.
What is a good annual percentage rate (APR) on a personal loan?
How to secure a low personal loan rate
Since interest rates on personal loans are based on the creditworthiness of the borrower, it is important to build good credit in order to qualify for the lowest rates available. Here are some tips to improve your credit score and get a low interest personal loan:
- Pay off credit card debt. One of the most important factors in your credit score is your credit utilization rate, which is the amount of credit card debt you carry compared to your total credit available. Reducing your credit usage will have an immediate positive effect on your credit score. This will also help lower your DTI, another factor affecting personal loan eligibility.
- Become an authorized user. It can be helpful to become an authorized user of someone else’s credit card to create a payment history on time. Just make sure that this person is a trusted financial partner, such as a spouse or parent.
- Compare rates across several lenders. Since interest rates on personal loans vary between lenders, it is important to shop around to make sure you get the lowest interest rate possible for your financial situation. Many personal loan lenders allow you to pre-qualify to see the estimated rate without affecting your credit score.
See your pre-qualified offers from many personal loan lenders in minutes by filling out a single form on Credible. Browse interest rates from online lenders in the table below, and visit Credible to begin the application process.
Secured loans: what you need to know
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