Personal loan rates plunge, giving borrowers a window to save
Americans looking to borrow money on the cheap took a break last week as personal loan rates recovered from a short-lived spike.
Interest rates on three-year and five-year personal loans have fallen sharply, according to a survey by one of the largest loan markets.
In particular, three-year loans are only 0.69 percentage points above their all-time low, giving borrowers the opportunity to lock in a historically good loan.
Short term loans tend to offer lower interest rates because lenders do not have to bear the risk of default on your part for very long.
If you can handle the larger monthly payments, they’re a good choice for borrowing money or replacing high-interest debt like credit cards.
Last week, three-year fixed rate personal loans averaged 11.14%, down from 11.97% the week before, according to the latest survey.
This is not far from the record low of 10.45%, achieved in August 2020.
It is important to note that these numbers are only an average, especially for borrowers with a credit score of at least 720. Better rates are available for people with excellent credit.
Borrowers with scores above 780 have average rates closer to 8.92%. On the other hand, people with poor scores below 600 have average rates above 32%.
Longer-term loans usually have higher rates and cost more interest over time, but individual monthly payments can be much more manageable.
It can help if high interest debt has already depleted your bank balance.
Last week, five-year loans averaged 14.88%, down from 15.30% the week before.
It’s not as close to the all-time low – 12.63%, set in May 2021 – but it’s way better than the rates borrowers were getting just a few weeks ago. Average rates on five-year loans climbed to 16.51% at the end of August.
Again, those with excellent credit qualify for significantly better rates, averaging around 10.91%. Those with low scores could experience rates as high as 29% or worse.
How to get the best personal loan rates
Whether you’re looking to use a personal loan to pay for a wedding, finance a car, renovate your home, or reduce the cost of your debt, a lower rate can make a substantial difference.
Here are three simple steps to make sure you get the best rate possible:
Improve your credit score. Lenders look at your credit score to determine how responsible you are for your money. Take a free look at your online score and consider taking steps to improve it. A free credit monitoring service can offer you some tips, including ways to get rid of debt faster.
Take advantage of discounts. Some lenders will take a small percentage of your interest rate if you agree to sign up for automatic payment. Keep an eye out for any other short-term offers or promotions.
Compare your options. The only way to know you’re getting the best deal is to shop around. Different lenders will assess the factors in your application differently, so always make sure you get multiple quotes before clicking apply.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.