December 6, 2021—Rate Cut – Forbes Advisor
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Personal loan rates fell last week, giving qualified borrowers the chance to earn a decent interest rate and finance a project, purchase or even unexpected bills.
From November 29 to December 3, the average fixed interest rate on a three-year personal loan was 11.36% for borrowers with a credit score of 720 or higher who prequalified in the personal loan market of Credible.com. That’s down 0.33% from the previous week, according to Credible.com. The average five-year personal loan rate fell last week from 15.13% to 14.04%.
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 2021
How to 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 give you a more accurate idea of the rate you will receive from a particular lender, as they will pre-screen you by performing a soft credit check (which does not impact your credit score).
Based on this information, the lender will give you an overview of the terms you may qualify for, including loan rates, terms and limits. You can prequalify with multiple lenders and compare terms to find the best loan for your specific situation.
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
How to calculate your personal loan payments
Once you have an idea of your personal loan interest rate, you can calculate your monthly payments. You will need to enter the interest rate, amount and term of your loan. This will help you determine how much you will owe monthly and how much interest you will pay over the life 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 14.04%. You’d pay about $116 a month and about $1,987 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. Overall, you would pay $6,987 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.
Get the best 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 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.