September 6, 2022—Rates Drop – Forbes Advisor
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Personal loan rates fell last week. If you want to finance a vehicle or home improvement project, or if you temporarily need to improve your cash flow, you can get a fair rate, as long as you are able to meet the qualifying requirements.
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 11.86% from August 29 through September 3. According to Credible.com, it’s 10.04. % decrease compared to the previous week. The average five-year personal loan rate fell 4.56% last week to 15.54% from 20.10%.
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
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.
Compare personal loan rates
Once you actively start looking for a loan, it’s a good idea to get prequalified. Pre-qualification can give you a more accurate idea of the rate you will receive from a particular lender, as they will pre-qualify you by performing a soft credit check (which does not impact your credit score).
After your prequalification, 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 benefit from more favorable interest rates
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. 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).
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
You can estimate your monthly payment and the amount of interest you will pay once you know the interest rate, term and amount of your personal loan.
For example, suppose you have a personal loan for $5,000 with a fixed interest rate of 11.86% and a term of 36 months. The Forbes Advisor Personal Loan Calculator indicates that your monthly payment would be around $166 and you would pay around $967 in interest over the life of the loan. Overall, you owe $5,967, which includes both principal and interest.