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What Is the Average Personal Loan Interest Rate?

A personal loan is a handy tool that can help you fulfill short-term financial needs. It can help you take care of unplanned expenditures or cash crunch. However, the biggest concern with personal loans is the high rate of interest. Compared to home loans or any other secured loans, personal loans carry substantial interest rates, irrespective of your credit score. The average personal loan interest rate varies between 10% and 28%.

The actual rates vary depending on your creditworthiness, the loan amount, period of the loan, and also the lender.

How your Credit Score Determines your Average Personal Loan Interest Rates

Credit scores help a lender determine the annual percentage loan interest rate on your personal loan. If you’ve been able to maintain a good credit score, then there’s a very decent chance that you’ll be charged a low-interest rate on your personal loan. In case you’ve an excellent credit score i.e., a rating between 720 and 850, then you can expect to get a personal loan at interest rates between 10 and 12 percent. With such an excellent credit score, you even stand a chance to get the loan at much lower interest rates.

In case you don’t have an excellent credit score, then it’s better to opt for a 0% balance transfer credit card, wherein you won’t have to pay the interest.

Here’s a table with the average personal loan interest rates, grouped by the credit score

Credit ScoreAverage Personal Loan APRs
Excellent (720 – 850)10.3% – 12.5%
Good (680 – 719)13.5% – 15.5%
Average (640 – 679)17.8% – 19.9%
Poor (300 – 639)28.5% – 32.0%

 

If you haven’t been able to maintain a good credit score i.e., you fall under the category of average and poor credit; then, you can expect an APR between 18% and 36% on your personal loan. However, if your credit score is lesser than 580 or you simply don’t have a credit history, then availing a personal loan through conventional ways can be extremely challenging.

Even while facing such a scenario, you must never opt for payday loans, which can have APRs above 100%. The payday loans are an easy trap, and you will undoubtedly end up falling in the cycle of perpetual debt. Try for financial aid or a loan from your local non-profit financial assistance organization or credit union as the chances of approval are higher.

What APR to expect from a Lender?

Well, the unsecured personal loan carries an APR between 5 and 36 percent. If you apply for a personal loan from a bank and credit union, then you’re sure to land at a competitive rate. However, if you need to find a loan with incredibly low APR, then it’s best to opt for online lenders. Online lenders often cater to the financial needs of borrowers with an excellent credit score.

Individuals with low credit scores can quickly get a personal loan from online lenders because they often approve bowers with credit scores lower than 580. It’s best to do some online research and comparison of rates before you apply for a loan with any of the leading online lenders in your country.

What’s Considered a Good APR on an Unsecured Personal Loan?

Now, this is dependent on multiple factors like the purpose of the loan, the loan term, and the loan balance. It might be that you fail to qualify for a reasonable interest rate on your personal loan, but you should always keep in mind that the APR ranges between 10 and 28 percent.

Thus, you must send loan applications to multiple lenders to get the best rates depending on your credit history. Compare all the rates and choose the one that offers you the lowest rate. If you fail to receive decent rates then it’s better to look for other options or take measures to improve your credit score. Reapply for a loan when your credit score improves, and you get a reasonable rate on an unsecured personal loan.

Which Company Is Offering The Best Average Personal Loan Interest Rate?

Well, many online lenders offering reasonable personal loan interest rates, but at the end of the day, your APR depends on your credit score and other related factors.

Personal loans are not always a good option, and it varies from one individual to another, especially if you can’t back your application with a cosigner. To get the best personal loan interest rate, you’ll have to do your mathematics. Right from your credit score to your financial history, you’ll have to factor in multiple things before calculating the best average personal loan interest rate.

It’s important to compare before zeroing on a lender who would offer you a decent APR on your unsecured personal loan. One lender offers multiple APRs because the exact rate is revealed after a thorough evaluation of a potential borrower.

What Other Factors Can Affect My Personal Loan Interest Rate?

Before extending a loan to you, lenders will take into consideration a wide range of data points. Some of them are:

  • Financial history and credit score
  • Debt-to-income ratio
  • Employment status

Qualification for a personal loan largely depends on your credit score, and your lender will often have a strict cutoff. To check your credit history, a lender regularly checks the following:

  • Age of your credit history
  • Frequency of negative marks
  • Number of credit inquiries that you receive in the last 12 months
  • Credit history of the previous two years

As proof of income and employment, you will have to furnish documents like

  • Tax returns
  • W-2’s
  • Pay stubs

Lenders often use the debt-to-income (DTI) ratio during the evaluation of applications. It’s the total amount of debt relative to your monthly income before paying taxes.

The higher loan amount and extended repayment terms often leads to higher APRs because there’s a higher risk of non-payment associated with such loans. Thus, before applying for an unsecured personal loan, you need to do all the number crunching if you wish to avail of attractive APRs.

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  • APR Rate4.99% to 1386%,
  • APR Rate4.99% to 1386%,
  • APR Rate250% or Higher
  • APR Rate200% Plus
  • APR Rate99% -199%
  • APR RateVaries
  • APR Rate5.99% - 35.99%
  • APR RateN/A
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  • APR Rate5.99% - 35.99%