Personal loans are commonly used to consolidate debt, finance home renovations, and make major purchases as they tend to have lower rates than credit cards. But interest rates on personal loans vary greatly depending on a number of factors, including the length and amount of the loan, as well as the borrower’s credit rating and debt to income ratio (DTI)…
The average interest rate on a two-year individual loan in May 2021 was 9.58%, according to Federal Reserve System… This is slightly above 9.46% in the first quarter of 2021, but still has a downward trend year over year.
If you are looking to get a personal loan, it is important to choose several lenders so that you can get the lowest possible interest rate for your financial situation. You can compare interest rates on personal loans on Credible without affecting your credit score.
How to get an individual loan at low interest rates
Personal loans are lump sum loans that are repaid monthly over a specified period of time. They have fixed interest rates, which means you will have a clear idea of your payment plan. Since interest rates vary so much, it is important to do your research when getting a personal loan. Here’s how you can get a low interest personal loan:
- Check your credit score. The interest rates you offer for personal loans will largely depend on your credit history, and the best rates will be reserved for borrowers with high credit ratings. The other lender may have specific minimum credit score requirements.
- Increase your credit if necessary. If your FICO score is below 670 it is considered fair or bad… You should consider upgrading your credit rating before applying for a competitive rate.
- Pre-qualify through multiple lenders. Personal loan prequalification allows you to check loan eligibility and estimated interest rate without affecting your loan.
- Compare your suggestions. Typically, you want to choose a personal loan with the lowest annual interest rate (APR), which includes the interest rate as well as any fees.
- Apply for a loan. The lender will conduct a rigorous credit check to verify your financial and personal information, and may request payroll receipts and other forms to verify your identity.
These steps may sound daunting, but the process is simple if you use the online lending marketplace Credible to shop at a good interest rate. You can fill out a single form to prequalify through multiple lenders without affecting your credit rating, so you can compare the lowest rates without any strings attached. Check out some of the popular retail lenders and their typical annual income in the rate table below.
Why it is so important to get a good rate on an individual loan
Individual loan rates affect the total cost of obtaining a loan, as well as the size of the monthly payment. Simply put, a lower interest rate means a cheaper loan and even lower monthly loan payments. See how different interest rates affect the repayment terms of a two-year $ 10,000 loan in the analysis below:
- 12% interest rate: $ 471 monthly payment and $ 1298 total interest
- 10% interest rate: $ 461 monthly payment and $ 1,075 total interest
- Interest rate 8%: $ 452 per month and $ 855 total interest.
The interest rates used in the above example are hypothetical and you can qualify for a personal loan interest rate of 2.49% per annum on Credible if you have an excellent credit rating. Check your potential rates on Credible and use personal loan calculator to estimate your monthly payment and interest paid. You can compare individual loan offers in just two minutes, all without compromising your credit score.
Have a financial question but don’t know who to contact? Write to the Safe Money Specialist at email@example.com and your question can be answered by Credible in our Money Expert column.