With interest rates steadily climbing since after the recession of 2007, it’s important to be aware of what is a good interest rate when you’re planning on financing, whether it’s for a car, a home or your education. Take a closer look at what’s happening with interest rates in 2019 below and how you can make sure you’re getting the best rate possible for your situation.
Knowing What Is a Good Interest Rate
Being able to tell what is a good interest rate depends on the type of loan you’re thinking about getting. Here are some of the average, high and low interest rates for the most popular types of loans.
According to Federal Reserve data, the average rate on all credit cards as of May 2019 was 15.13%, while the average rate charged to cardholders with a balance was 17.14%. But credit card rates can vary widely. According to U.S. News & World Report, average APRs for rewards-style credit cards ranged from 16.8% to 25.24%, as of August 1, 2019.
Lower rates than these are available, but you’ll need great credit to get them. Lowering your interest rates by just a couple of points can be helpful when you’re trying to make a dent in debt. If your current credit card rate seems high, consider transferring the balance to one of your existing cards with a lower rate or a new one with an introductory 0% APR offer. Just watch out for balance transfer fees that can total 2–4% of the transferred amount.
According to the Federal Reserve, the average 48-month new car loan rate was 5.35% as of May 2019. The National Association of Federal Credit Unions puts the average 5-year new auto loan rate from banks at 4.86% versus 3.69% through credit unions, as of August 2019. For a 5-year used car loan from a bank, the highest interest rate was 12.75% and the lowest was 2.69%.
Is 4.75% a good interest rate?
For an auto loan, 4.75% is probably a good interest rate. That’s under the current 5-year new auto loan average rate for banks. But if you have excellent credit, you may be able to get even lower if you shop around.
Caroll Lachnit, features editor and consumer advice expert for Edmunds.com, recommends consumers shop for financing before they shop for their car. Otherwise, you could fall victim to the yo-yo financing trap where you “think that you’ve done the deal but then you find out (the dealer) couldn’t do the deal.” So, what is a good interest rate for a car? As of August 2019, anything under 5% is going to be a good auto loan rate, and anything under 4% would be excellent.
If your current rate is higher than this and you have decent credit, you may be able to refinance to a lower rate. Just make sure that by doing so you reduce the interest rate without increasing the remaining term on the loan. Don’t refinance for any longer than the time left on your loan.
Unlike other types of debt, you can’t shop around to find out what is a good interest rate for federal student loans. That’s because these rates are set under the federal Direct Loan program. As of July 2019, the interest rate for direct subsidized and unsubsidized loans at the undergraduate level was 4.53%. Graduate-level unsubsidized loans have an interest rate of 6.08%, and direct PLUS loans have an interest rate of 7.08%.
Is 4.5% a good interest rate?
For undergraduate students, 4.5% is a good interest rate for a federal student loan. However, it may be hard to come by unless federal rates go down. “For new loans, there is only one way to reduce the rate and that’s to sign up for auto debit,” says Mark Kantrowitz, publisher of Finaid.org. In other words, you may be able to get a small reduction in your interest rate if you agree to have your payments automatically deducted from your bank account.
The good news is that your credit score won’t be a factor in determining the rate you pay for a federal student loan. However, “PLUS loans require that you don’t have an adverse credit history (no current delinquency of 90 or more days and other negative items in the last five years),” Kantrowitz explains.
What is a high interest rate for a private loan?
Many students have to look to outside funding to afford college, and private student loan interest rates can vary widely depending on the term and amount. According to the National Association of Federal Credit Unions, bank interest rates for a three-year unsecured loan range from 2.9% to 18.86%, with an average of 9.74%, which means anything over 10% is likely to be considered high.
For these loans, borrowers are clustered into tiers based on credit scores, says Kantrowitz. But you can’t find out the credit score ranges for those tiers in advance because that’s considered competitive data. “You have to apply and get a credit check before they will tell you how much they will charge,” he warns, adding that “the best rates go to about 5% of borrowers, while two-thirds get the worst rates.”
The best strategy is to max out federal loans first and shop around when it comes to private loans. And make sure to apply in a short period of time. “When lenders access your score, it creates an inquiry on your credit report, which can hurt your credit score. But certain types of inquiries are grouped together, so you can have any number of inquiries of a certain type, and they will only count as one, and student loans tend to fall into that category,” says Barry Paperno, former community director for Credit.com. “So, it’s a good idea to do your student loan shopping in a short period of time—ideally within a 14-day period but definitely within a 45-day period.”
The National Association of Federal Credit Unions lists the average 30-year fixed mortgage rate at 3.937% through credit unions and 4.072% fixed through banks as of August 2019. Mortgage rates will vary depending on lender and loan terms, with average bank interest rates ranging from 2.5% to 8.75% for a 15-year fixed mortgage, for example.
Mortgage rates can be very confusing because so many factors come into play. “First, mortgage rates vary every single day. They fluctuate based upon many factors inside the United States and worldwide,” says Joseph Kelly, president of ArcLoan.com. “Secondly, mortgage rates vary based upon ‘cost.’ On any given day, there are a variety of interest rates available where the borrower may get a lower rate by paying additional cost or higher rates, which can even include a lender credit to the borrower.”
If you’re taking out a 30-year mortgage for $200,000 with $4,000 in closing costs, you might be able to choose between a rate of say 3.5% with closing costs or 3.875% with no closing costs. Kelly explains, “In the case of the 3.5%, the lender is giving the borrower a ‘credit’ for the closing costs. Is it worth paying approximately $4,000 to save an additional $69 per month in this example? That depends on how long you expect to be in the property and what you expect interest rates do in the next few years.”
It’s not always an easy decision. If you’re shopping for a new mortgage loan or to refinance your current loan, be sure to ask about closing costs as well as the interest rate and work with a reputable lender who can explain the differences and walk you through the process.
How to Get the Best Interest Rate
Getting the best interest rate on a loan often comes down to your personal credit history and how much time you have to shop around. Here are four tips to help you get a good interest rate.
1. Check Your Credit
Simply put, your credit score matters for most interest rates. Lenders develop tiers based on credit scores, and those with great scores typically snag the best deals on auto loans, mortgages, credit cards and private student loans. FICO scores above 760 usually get borrowers the best rates, but every lender sets its own standards. You can sign up to get your free credit score and reports at Credit.com.
2. Watch Out for Fees
While a low rate may be appealing, the savings can easily get eaten up with fees—especially if the difference between two lenders’ rates is less than 1%. James Royal, former vice president and director of marketing for Informa Research Services, Inc., recommends considering the fees just as much as the interest rate.
3. Go for a Fixed Rate
When you can, get a fixed-rate loan rather than one with a variable rate that can change in the future. Interest rates are still trending higher, which makes locking in a low rate now a smart strategy. However, this may not be possible for every loan type. Credit cards, for example, usually offer only variable interest rates.
4. Comparison Shop
For most loans, what is a good interest rate is relative, which is why it’s important to shop around for rates online and with local brick-and-mortar stores. “Do your homework online,” says Royal. “Then talk to your financial institution. A lot of banks are trying to offer incentives in order to change consumer behavior, such as having your mortgage at the same place where you have your checking account,” he explains.
And always make sure to check with your local credit unions in addition to big-name banks. Credit unions are often able to offer better rates or more flexible loan terms and approvals than larger financial institutions.