A best personal loan interest rate is essential for securing the best possible borrowing terms. This post will explore how to get the absolute best rates on repayment schemes for your personal loan, which can be achieved by understanding the various types of loans available to you.
The post will also cover other things you’ll need to know when it comes time to take out a personal loan including what makes an excellent credit score and how high income affects affordability, as well as exploring some of the factors that really make a difference in interest rates such as your credit history and address. Let’s get into it.
The Difference Between A Personal Loan And A Payday Loan
A personal loan is a loan given over a longer period of time (usually anything from 12 to 60 months, though you can find some that are even longer in duration) with better borrowing terms. This means lower overall interest rates, flexible repayment options (which we’ll get onto in more detail below), and higher credit limits than what’s available on a regular payday loan. By contrast, a payday loan is similar in that it typically provides you with short-term financing to meet essential expenses, but it’s also quite different in some ways:
Payday loans are generally only available for a set period of time, usually being either 30 or 60 days. Depending on the lender, sometimes there may be an extension of up to 2 weeks. Most payday lenders require that you repay the loan within this timeframe. The interest on a payday loan is usually higher than that of a personal loan because most payday lenders want your money back as soon as possible to make sure they’re able to get their next income from you.
What’s the Average Interest Rate on a Personal Loan?
Most personal loan interest rates range from 6% to 36% and up, while nationally, the average personal loan interest rate is 9.41%, according to Experian. Personal loans tend to run lower than average credit card interest rates (20.24%) and higher than secured loans like those for a home or auto.
Banks and credit unions offer personal loans, at competitive rates. However, you may find lower rates through the marketplace or online lenders specializing in personal loans.
What Affects Your Interest Rate?
You’ll find that there are many different factors that can affect your personal loan interest rate, including:
Personal loan repayment terms
Your credit history and payment history. Your credit survey scores, account balances, payment patterns, and asset utilization will all be used to determine how much you’re worth to a lender. The longer you’ve been an established customer of the lender, the more your credit score will impact your interest rate. Your current debt and overall financial situation. Banks look at your total obligations and assets to determine your creditworthiness. The more you owe, the more a loan will be worth for them because that means it’s less of a chance you’ll default on it. If you’re in negative equity (i.e., unable to pay what you owe) or have very few assets, your personal loan interest rate may increase.
The amount of money you borrow. The bigger the loan, the lower the interest rate, but that depends on how much they think they can get from you after adding in all their fees and terms, which is why lenders often have minimum loan amounts requiring approval prior to making an offer to borrowers. Your loan could be denied if the lender doesn’t feel they can make enough money from your agreement or if their rates are higher than similar ones offered by other lenders.
What’s the Difference Between Fixed And Variable Interest Rates?
Most variable-rate loans are tied to a benchmark like the Prime Rate, LIBOR, or another published index, and will fluctuate with changes in those rates. They offer the advantage of protecting you against unexpected changes in the market.
For example, if LIBOR were to rise during your loan, a variable-rate loan would allow you to lower your monthly payment by refinancing to a lower rate when rates drop back down. With a fixed-rate loan, this isn’t possible. Another scenario could be that certain loans with fixed rates include introductory periods lasting six months or even several years where payments remain at their low initial rate. This could also be true for a fixed-rate home equity line of credit (HELOC). Variable and fixed rates typically change yearly. However, lenders can choose to offer a fixed rate for the first two years of your loan. When an introductory period ends or when you consolidate or refinance with another lender, your interest rate will generally increase.
What’s the Best Interest Rate on a Personal Loan?
The best personal loan interest rate depends on many things, including your credit history, circumstances in your life, and how much debt you currently have compared to other borrowers. The table below details some of the factors that affect personal loan borrowing rates and may help guide you to get the best interest rate available from a lender:
Interest Rate – the highest amount that can be determined for the personal loan with a specific repayment schedule (fixed or variable). Estimated Monthly Payment – This is the minimum amount that can be calculated for the personal loan with a specific repayment schedule (fixed or variable).
Best Interest Rate Range –This is a range of potential interest rates based on your credit score, income, debt-to-income ratio, current debt, and other factors. These consumers will typically receive the lowest interest rate available on a personal loan.
Getting the Best Personal Loan Interest Rate
If you have credit problems, you may find that your personal loan interest rate is substantially higher or lower than what you obtain from a traditional lender. If this is the case, a payday loan or installment loan could be an option for you.
You can confirm with your insurance agent or bank that they offer payday advances before starting your application process. If a payday loan option is not available to you, you could consider an installment loan. Installment loans, also known as personal loans, are a good alternative if your credit score is average or fair. The primary drawback of installment loans is that they often carry higher rates than other forms of personal financing.
Finding the best interest rate for a personal loans during a time of economic uncertainty is more difficult than ever before. In addition to the factors listed above, there are others that can increase or decrease the attractiveness of a certain loan. For example, you may qualify for lower interest rates if you have an excellent credit rating. Personal loans with higher rates aren’t always worth it for those who intend on paying them off quickly; this means it’s important to compare your best options in order to estimate which one will provide you with the lowest monthly cost while still giving you enough money over time.