A 12% interest rate on a personal loan could definitely be thought of as a good rate. However, it is important to note that a good interest rate is subjective as there are many factors that might impact what interest rate you can qualify for on a personal loan. What qualifies as a competitive rate for you might not be for another borrower. This is because the interest rates you’ll be able to access as a borrower will significantly depend on the lender, your creditworthiness, and your overall financial situation.
Average interest rates on a personal loan vary depending on the borrower’s credit score. Those with poor credit under 630 points have an average interest rate between 28% and 32% for personal loans. A credit score between 630 and 689 points has an average interest rate of 17.5% to 20%. Consumers with good to excellent credit will have an easier time accessing the more competitive interest rates on personal loans. The average interest rate for a credit score between 690 and 719 will hover around 13%-16%, while borrowers with a credit score over 720 have an average interest rate for personal loans of 10%-12.5%.
If you would like to access those low rates of 10%-16%, there are several things you can do to raise your credit score and increase the financial opportunities available to you. The aspect of your credit score you will want to focus most on is your payment history which accounts for 35% of your score’s calculation. Every late or missed payment on credit cards or loans will appear on your credit report and bring down your credit score considerably. By making sure you make all your payments on time with consistency, you will improve your payment history and raise your FICO score.
If you are able, we also recommend that you decrease your credit utilization ratio. Your credit utilization ratio compares the amount of debt you owe on your credit cards to the total overall credit limit you have. This has the second most significant impact in your score’s calculation at 30%. Most financial experts say that your credit utilization ratio should be no more than 30%. Paying down a large portion of your debt should make a positive difference in your credit score, making it possible to obtain more competitive interest rates.