January 24, 2022—Rates Drop for Well-Qualified Borrowers – Forbes Advisor
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Last week, personal loan rates slipped. Qualified borrowers can still earn a decent interest rate, giving them the flexibility to finance a project, purchase, or unexpected bills.
From Jan. 17-21, the average fixed rate on a three-year personal loan was 10.88% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace. The rate was 11.47% the previous week, according to Credible.com. The average five-year personal loan rate rose 0.54% last week to 13.48% from 12.94%.
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 January 2022
How to get the best 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 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.
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 have a personal loan with a loan amount of $5,000, a fixed interest rate of 10.88%, and a term of 36 months. The Forbes Advisor Personal Loan Calculator indicates that your monthly payment would be around $163 and you would pay around $883 in interest over the life of the loan. Overall, you owe $5,883, which includes both principal and interest.
Personal loan rate 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.