Interest Rate on Personal Loans
One of the most important factors to consider when taking out a personal loan is the interest rate.
Your interest rate plays a major part in determining the total cost of your loan, and depending on your credit score, it can vary by quite a bit.
So, to determine how much money you can afford to borrow and what rates you might qualify for, let’s take a look at the interest rates you can expect to see when comparing lenders.
What is the Interest Rate on Personal Loans?
Interest rates can vary significantly from lender to lender, and each lender has its own criteria for evaluating your creditworthiness.
Still, while they may vary, most lenders will offer rates in the same general range. So, with that in mind, these are the interest rates you should expect to see when shopping for lenders:
● Poor Credit (300-629): ~27 - 32%
● Fair Credit (630-689): ~18 - 22%
● Good Credit (690-719): ~14 - 18%
● Excellent Credit (720+): ~10 - 14%
To ensure you find the best rates available, be sure to compare quotes from multiple lenders. If you’re not able to qualify for a loan with a reasonable interest rate, it might be worth considering delaying your application until you can qualify for better rates.
What Determines Your Interest Rate?
If you aren’t able to qualify for fair interest rates, it might help to know what lenders look at when putting together your offer.
Your credit score is, by far, the most important factor in calculating your interest rate.
As you can see from the numbers laid out above, you’ll generally need a credit score of around 630 or higher to qualify for reasonable interest rates.
If your score is lower than this, you may only be able to qualify for rates comparableo what you might see with credit cards. As such, you might want to delay your application until you’re able to increase your score or consider adding a cosigner.
Aside from your credit score, lenders will want to look at your income and debt-to-income ratio.
You’ll need to provide proof of income in the form of bank statements, pay stubs, tax returns, or other similar documents. Lenders will check to make sure you consistently make enough money to cover your loan payments.
Moreover, you should aim to have a debt-to-income ratio of under 35%. Higher than this and your lender may view you as a risky borrower and deny your application or offer exceedingly high interest rates.
Based on a $10,000 loan, excellent credit score with a 14% interest rate on a 1 year term