The interest rate for a personal loan is dependent on several varying factors, so determining whether 12% is a good rate is not quite so simple. Your credit score and the term length of the loan will have a significant impact on the interest rate you may qualify for. A better credit score will enable you to access lower and more competitive interest rates when applying for personal loans. What counts as a “good rate” on a personal loan varies considerably based on the borrower’s creditworthiness and financial stability as well as the lender.
A good indicator of what interest rate you should be looking to get from a lender of personal loans is the average rate for each credit score classification. The interest rate could be a little higher or lower depending on the lender or other qualifying factors like proof of income. The average interest rate on a personal loan for a borrower with excellent credit within the range of 720 and 850 points is between 10% and 12.5%. For a good credit score between 690 and 719 points, the average rate is 13% – 16%.
The lower the borrower’s credit score is, the higher the interest rates become to compensate for the increased risk the lender takes on. A fair credit score of 630 to 689 points has an average interest rate of around 17.5% to 20%. And finally, poor credit scores under 629 points have an average interest rate for personal loans of 28% to 32%. In most circumstances, a 12% interest rate on a personal loan definitely qualifies as a good rate unless the borrower has nearly perfect credit.
To guarantee that you will be able to qualify for an interest rate near 12%, you will need to have a good to excellent credit score of over 700 points. Improving your credit score is not necessarily something that you can do overnight. It takes effort, consistency, and some patience. Some of the best things you can do to boost your credit score include making on-time payments, reducing your credit utilization ratio, and taking a break from applying for new credit for a while to pause new hard inquiries.