According to Experian, 11% of American consumers have a personal loan. That’s 38.4 million personal loan accounts, averaging $16,259 each. And personal loan debt is growing fast: there was an 11% increase year over year in loan accounts. Before you apply for a personal loan, it’s important to know what a competitive, average, and below average personal loan interest rate is so you can ensure you get a fair rate.
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Average Personal Loan Interest Rate in 2019
The average annual percentage rate for personal loans in Q2 of 2019 was 9.41%, according to Experian’s data. Your interest rate will vary depending on the lender, your credit score, the loan term, and the loan balance. Most lenders advertise rates between 6% and 36%, but those rates are generally only available if you have fair, good, or excellent credit.
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Average Personal Loan Interest Rate Based on Credit Score
Your credit score, in addition to factors like the loan terms, will dictate what might be a good rate for you. Typically, the higher your credit score, the lower your rate will be. That’s because a high credit score demonstrates that you’re less risk for the lender.
According to a LendingTree study, the average APR interest rates on personal loans for people with different credit scores can range from 7% to as high as 136%. Averages break down as follows:
- Excellent credit (720+): 7.25%
- Good credit (660–719): 08%–11.12%
- Fair credit (580–659): 58.28%–56%
- Poor credit (560–579): 107.13%
- Bad credit (less than 560): 136.50%
As you can see, there’s a big jump in interest rates between having poor credit and having fair credit. While your credit score isn’t the only factor that affects your average personal loan interest rate, it can have a big impact on the total you pay in interest over the life of a loan.
If you’re looking at a personal loan with an interest rate at or below the rates listed above, you may be getting a decent deal. Don’t depend on averages though. It’s always a good idea to compare rates from several lenders to find the best deal for you.
Other Factors That Impact Personal Loan Interest Rates
In addition to your credit score, other factors can drive your interest rate up or down. By understanding what these factors are, you may be able to select different loan terms to reduce your rates.
- Loan length. The longer your terms, the higher the risk you may eventually default. That means lenders might charge more in interest. If you can afford the monthly payments, consider reducing the repayment length to score a lower interest rate and save money on the overall loan.
- Total borrowed. In some cases, larger amounts may lead to higher interest rates. Compare the rates of different sized loans and borrow only what you need.
- Your financial situation. How much you earn and whether you have stable employment helps show whether you are likely to be able to pay the loan back. A positive financial situation can sometimes lead to reduced interest rates.
Improve Your Credit for a Lower Personal Loan Interest Rate
One of the best ways to reduce the cost of a personal loan—and ensure you qualify for the loan that you really want—is to improve your credit. Follow this quick guide for bumping your credit score in the right direction.
- Begin by learning more about credit scores and how they are calculated.
- Armed with that information, create a plan to improve your score. Start by getting your free credit report to understand what’s in your report and whether or not it’s accurate.
- Dispute mistakes and errors for a potentially fast bump in your score via credit repair. You can take a DIY approach or work with established professionals such as Lexington Law to get this done.
- Once you address any mistakes on your report, it’s time to look at your overall credit history and find places you can do better. Use your free credit report card, which breaks down how you’re doing with each major factor in your credit score.
- Start and continue building your credit with smart moves, including paying all your bills on time, becoming an authorized user on someone else’s account or reducing your credit utilization ratio.
Find Your Best Personal Loan Interest Rate
Whether you’re planning to apply for loans once you boost your credit some or you’re ready to sign on the dotted line today, take some time to find offers with the best possible rate for you. The Credit.com Personal Loans tool lets you enter some basic information and browse a variety of offers. Choose one that meets your financial needs and saves you as much as possible with a lower rate.