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Rates on personal loans jumped up last week. Yet, it’s still possible for highly qualified borrowers to pick up a reasonable interest rate on a personal loan. If you’re interested in financing a major purchase or project, it’s a good time to shop for a loan.
From December 18 to December 23, the average fixed rate on a three-year personal loan was 15.54% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace. The rate was 15.41% the previous week, according to Credible.com. The average rate on a five-year personal loan rose 0.51% last week to 22.59% from 22.08%.
However, the actual rate you receive depends on your creditworthiness and what’s available through your preferred lender. Well-qualified borrowers may be able to find rates significantly lower than the average.
These rates are accurate as of December 18, 2023.
Related: Best Personal Loans
Comparing Personal Loan Rates
You can get started with the comparison process by prequalifying for a loan. Consider looking for lenders who offer prequalification online, which can make the process much more convenient. Prequalifying can provide you with a more precise idea of the rate you’ll receive from a particular lender, since they’ll prescreen you by performing a soft credit check (which doesn’t impact your credit score).
After you prequalify, the lender can provide you with a snapshot of your loan options. This snapshot generally includes loan rates, terms and limits. To find the best loan for your situation, consider prequalifying at multiple lenders and comparing the terms.
However, prequalification doesn’t guarantee approval. Once you find an offer you like, you will still need to submit a formal application and provide additional documentation to the lender. When you apply, a lender will typically run a hard credit check, which will ding your credit score between one and five points.
Related: 5 Personal Loan Requirements To Know Before Applying
Where Can I Get a Loan?
You can find a personal loan either online or in-person, depending on the institution. With varying lenders offering personal loans, you can find one that works best for you. Lenders offering personal loans include:
- Banks: Best for in-person banking and opening a personal loan with your current bank
- Online lenders: Best for flexible qualification requirements and an online-only banking experience
- Credit unions: Best for those who meet a nearby credit union’s eligibility requirements or current members
Getting the Best Rates
The interest rate your receive on a personal loan is based on a number of factors. This includes your overall creditworthiness, credit score, income and debt-to-income (DTI) ratio. Two quick ways to help you receive more favorable rates include paying down existing debt to help lower your DTI and improving your credit score.
Rod Griffin, senior director of consumer education and advocacy at Experian, recommends “checking your credit report and scores three to six months before you apply for a personal loan,” as this will give you enough time to make any necessary improvements.
While qualification requirements differ across lenders, a minimum credit score of 720 will typically yield you the best terms. If your score falls below this marker, and you’re on a quest for the lowest rate possible, you can take action to improve your score. Try strategies like lowering your credit utilization ratio, removing errors from your credit report and paying your bills early or on time.
