Personal loans are a popular financing tool because they offer fast, lump-sum financing that you repay in predictable monthly installments at a fixed interest rate. Since this is an unsecured loan, lenders can deposit the funds directly into your bank account the next business day after the loan is approved.
If you’re considering borrowing a short-term personal loan to consolidate credit card debt, pay for an unexpected expense, or finance home renovations, now is a good time to lock in favorable terms.
Interest rates on three-year personal loans fell to unexpected lows last month, according to data from Credible. While rates have risen slightly over the past week, three-year personal loan rates hit a record low of 10.23% during the week of March 14.
Historically, the current three-year personal loan rate of 10.43% is significantly lower than the average rate for the same period last year — 11.76%. And across all repayment terms, personal loan rates are much lower so far in 2022 compared to the first few months of 2021.
Keep reading to learn more about personal loan interest rates, including how to find the best loan deal for your financial situation. You can visit Credible to compare rates from multiple personal lenders for free without affecting your credit score.
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How to get a low personal loan rate
Although personal loan rates are currently low for short-term loans, this does not necessarily guarantee that all borrowers will qualify for a good rate. Below are some steps you can take to get the lowest possible rate for your financial situation.
- Work on building a better credit score
Since personal loans do not require collateral, lenders determine an applicant’s eligibility and interest rate based on their creditworthiness. Borrowers with excellent credit and a low debt-to-income ratio (DTI) will qualify for the lowest rates available, while those with bad credit will likely see high interest rates – if they qualify .
According to January data from Credible, personal loan applicants with a good credit score of 720 or higher saw significantly more competitive rate offers than fair credit borrowers. This is true for both shorter and longer loan terms.
If you have a credit score below 720, you might consider working on your credit history before applying for a personal loan. Improving your credit can be as simple as reducing your credit usage or disputing errors on your credit report. You can sign up for Experian’s free credit monitoring services on Credible to identify areas for improvement.
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- Choose a short repayment period
Short-term personal loans usually come with more favorable interest rates than longer-term loans. If you can afford a higher monthly payment, choosing a shorter loan term can get you a lower interest rate and save you money in interest charges over time.
You can see the impact of different loan terms on your estimated monthly payment and total interest charges using Credible’s Personal Loan Calculator.
SURVEY: 93% OF LOAN BORROWERS REGRET MAKING THEIR LOANS
- Compare the offers of several personal lenders
Most lenders allow you to be prequalified to see your estimated personal loan rate with a soft credit inquiry, which will not affect your credit score. This gives you the opportunity to research the lowest possible interest rate for your financial situation before completing a formal application for a personal loan.
When comparing offers, you should read the entire loan agreement to get a better idea of the total cost of borrowing. The Annual Percentage Rate (APR) includes the interest rate as well as personal loan origination fees and prepayment penalties. Some lenders may give you a rate reduction for signing up for autopay, while others don’t offer autopay discounts.
You can prequalify with multiple online lenders at once in Credible’s personal loan marketplace. This way, you can be assured of getting a competitive interest rate when you borrow a loan.
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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.