According to ValuePenguin, average annual percentage rates on personal loans ranged from 10% to 28% last year. Why such a big range? Personal loans, just like mortgage and auto loans, come with terms and rates that vary based on your credit score and other financial information.
Banks offer personal loans for those who need money to finance a household project, a renovation, a medical emergency, or any other type of personal expense. However, online lenders often offer better rates and are more lenient regarding the minimum credit score needed to qualify. Here’s what to know about personal loan rates in 2021 and where to find the best rates.
What’s a Good Interest Rate on a Personal Loan?
Average personal interest rates vary depending on your credit score. The higher your credit score, the lower your interest rates will be. This is because having a high credit score shows lenders that you’re responsible with the credit that others have given you. Therefore, they trust that you’ll pay back the personal loan on time and don’t feel the need to charge you higher rates for the same amount of money. Generally speaking, you can expect to see interest rates of around 10-12% for those with excellent credit (above 720) and around 28-32% for those with poor credit (under 639).
What Else Affects Your Interest Rates on Personal Loans?
Lenders will look at your full credit report to determine your loan rates, but your credit score number isn’t the only thing on your credit report. It also shows other important information related to your finances, such as your employment history, the length of your credit history, and your debt-to-income ratio (try to keep this below 30-40% if you’re applying for a personal loan). Sometimes, a lender might also require that you submit W-2s or tax returns to prove that you meet the minimum income amount to apply for the loan.
What Are Personal Loan Rates in 2021?
So, we’ve established that personal loan rates are usually anywhere between 10 to 28%, on average. But, what about personal loan rates in 2021? Well, 2021 has been a whirlwind of a year, and mortgage rates have dropped to lows we haven’t seen in years. In March of this year, the Fed slashed federal fund rates to nearly zero. This prompted banks to lower prime rates, which in turn lowers personal loan rates in an effort to entice more borrowers and stimulate the economy. Personal loan rates in 2020 have been as low as 4 to 6%, and those rates are expected to extend well into 2021, making it a great time to take out a loan. That is, as long as your credit score is good enough to snag those lower rates.
How to Get the Best Personal Loan Rates
The trick to getting the best personal loan rates is to first compare rates on a loan marketplace. This is going to be a lot easier than searching for great rates lender by lender. Then, you’ll want to see if you pre-qualify for loans. Knowing which ones you qualify for can save you a lot of time as you narrow down your options. Depending on what you need the loan for, you’ll note that certain lenders offer different perks.
SoFi, a well-known lender for personal loans, offers loans with a low APR for people who can show that they have a high income. The Discover Personal Loan, on the other hand, is designed specifically for those who are using the loan for debt consolidation. On the Float loan marketplace, you can filter your search according to the loan amount and what you need the loan for.
Improving Your Credit Score for Great Personal Loan Rates
One thing’s for sure: regardless of how much interest rates continue to drop amid the financial crisis we’re experiencing, your credit score is key in snagging the lowest rates. If you’re browsing loan marketplaces and aren’t finding the kinds of rates you’re after, it might be time to take a step back and focus on improving your credit score.
It’s possible to increase your credit score in 30 days, but you’ll want to start monitoring your score now. Download a tool like Float. It’s always free and always secure. You’ll get access to your credit score plus other information that can help you improve it. We’re the only app that allows you to safely share your score (or a credit range) with friends and family, making the credit monitoring process more fun and interactive.
Just looking for personal loan rates? Check out our loan marketplace.