August 8, 2022—Rates Rise – Forbes Advisor
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Last week, personal loan rates went up. Yet, it is still possible for highly qualified borrowers to get a reasonable interest rate on a personal loan. If you are interested in financing a major purchase or project, now is a good time to shop around for a loan.
From August 1 through August 6, the average fixed rate on a three-year personal loan was 12.98% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s Personal Loan Marketplace . The rate was 11.20% the previous week, according to Credible.com. The average five-year personal loan rate rose 1.27% last week to 15.24% from 13.97%.
However, the actual rate you receive depends on your creditworthiness and what’s available from your preferred lender. Well-qualified borrowers may be able to find rates well below average.
Related: Best Personal Loans
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. While 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.
Lenders typically provide you with a list of options after you prequalify, which includes loan rates, terms, and limits. You can find the best loan for your situation by prequalifying with several lenders and comparing loan offers.
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
How to calculate your personal loan payments
To see if this fits your budget, it’s important to estimate how much you’ll pay on a monthly basis and how much you’ll pay in interest over the life of the loan. One of the easiest ways to do this is to use a personal loan calculator. You will need the rate, term and amount 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 15.24%. You’d pay about $120 a month and about $2,175 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. Overall, you would pay $7,175 in total, which includes both principal and interest.
Personal loan rate 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.
How to benefit from more favorable interest rates
The interest rate you receive on a personal loan is based on a number of factors. This includes 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 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.