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Last week, personal loan rates fell. This means that if you are looking for a personal loan, whether to finance a project or a major purchase, you can benefit from a relatively low interest rate, as long as you are a qualified borrower.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace, the average interest rate on a three-year personal loan was 10.42% from January 31 through February 4. According to Credible.com, that’s a rate of 0.60. % decrease compared to the previous week. The average five-year personal loan rate fell 0.86% last week to 12.62% from 13.48%.
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 a variety of factors, including your creditworthiness and the loans available from your chosen lender.
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. 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.
After you prequalify, the lender can provide you with an overview of your loan options. This snapshot typically includes loan rates, terms, and limits. To find the best loan for your situation, consider prequalifying with several lenders and comparing terms.
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
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 12.62%. You’d pay about $113 a month and about $1,768 in interest over the life of the loan, according to Forbes Advisor’s Personal Loan Calculator. Overall, you would pay $6,768 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 get the best rates
Your credit is an important factor in the rates you receive. According to Rod Griffin, senior director of education and consumer advocacy at Experian, “checking your credit report and scores three to six months before applying for a personal loan” is a good idea. This gives you enough time to make the necessary corrections.
A credit score of 720 or better will generally get you the best deal. If you’re not quite in this credit score range, consider taking steps to improve your credit score. Pay off your existing debts to reduce your credit utilization ratio, remove errors from your credit report and pay your bills in advance or on time.