May 9, 2022—Rates Rise – Forbes Advisor
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Last week, personal loan rates went up. However, if you are looking for a personal loan to finance a project, the purchase of a vehicle, unexpected bills or to improve your cash flow, it is possible to obtain a decent rate.
From May 2 to May 6, the average fixed interest rate on a three-year personal loan was 11.02% for borrowers with a credit score of 720 or higher who prequalified in the personal loan market. Credible.com. That’s up 0.33% from the previous week, according to Credible.com. The average five-year personal loan rate fell last week from 13.42% to 12.81%.
Keep in mind that the rate you will receive depends on several factors, including your creditworthiness and the loans available from the lender you have chosen. The most creditworthy borrowers can benefit from rates that are significantly lower than the average.
Related: Best Personal Loans
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.
Compare personal loan rates
Start by researching lenders who offer a prequalification process for personal loans. Lenders offer a range of rates online, not an exact rate based on your specific qualifications. Prequalification provides a more accurate view of the rate you will receive. During the prequalification process, lenders perform a soft credit check, 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.
You are not guaranteed to be approved if you prequalify. Lenders always require you to submit a formal application and additional documents. After you submit your formal application, lenders typically perform a rigorous credit check, which can lower your credit score by one to five points.
Related: 5 personal loan requirements to know before applying
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 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.
Estimate your personal loan repayments
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.
Let’s say you get a $5,000 personal loan for three years at a fixed rate of 11.02%. You’d pay about $164 a month and about $895 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. You would pay $5,895 in total over those three years, which includes both principal and interest.