July 11, 2022—Rates Drop for Well-Qualified Borrowers – Forbes Advisor
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Personal loan rates fell last week. This means that if you’re looking to finance a home improvement project, a vehicle, or unexpected bills, you can still get a reasonable rate, as long as you’re a qualified candidate.
From July 4 to July 8, the average fixed interest rate on a three-year personal loan was 11.19% for borrowers with a credit score of 720 or higher who prequalified in the personal loan market of Credible.com. That’s down 0.00% from the previous week, according to Credible.com. The average rate for a five-year personal loan remained stable last week, falling from 13.58% to 13.58%.
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
How to 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. Although 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.
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
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 have a personal loan for $5,000 with a fixed interest rate of 11.19% and a term of 36 months. The Forbes Advisor personal loan calculator says your monthly payment would be around $164 and you’d pay around $909 in interest over the life of the loan. Overall, you owe $5,909, which includes both principal and interest.
Average Personal Loan Interest Rates 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.
How to benefit from more favorable interest 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 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.