The APR, a borrower, receives on a personal loan will depend on a few different factors. Lenders will look into an applicant’s credit score and general financial history when determining interest rates on a particular loan. Typically, borrowers with a clean financial record and a higher credit score will have an easier time getting more convenient interest rates on a loan. However, there are still options for bad credit borrowers looking for funding.
Interest rates are an additional charge implemented by lenders in order to make a profit on the loan funding they distribute. Interest rates play a huge role in determining how much a borrower will end up spending on their loan at the end of their payback period. The higher the interest rates, the more a borrower will pay over the course of their loan.
Lenders may implement interest charges via fixed or variable rates. Fixed interest means that the rate of a loan will stay consistent month to month. This consistency results in equal monthly payments, making fixed-rate loans easy to plan out. If you are new to finances or are looking to get your finances organized, a loan with a fixed interest rate may work best for you.
Variable interest on a loan means the rates can change from month to month. Interest for variable rates is determined by current market conditions, meaning the interest charged may be higher or lower some months depending on the economy. Since rates on variable interest can change, the amount due each month may also change if a personal loan has variable rates. Loans with variable interest usually work best for borrowers who are confident in their current financial standing and know they can handle higher or lower loan payments each month.
Whether a personal loan has fixed or variable rates, there are steps borrowers can take toward saving money on interest charges. For example, by paying more than the amount due each month, you can end up saving hundreds or thousands of dollars over the course of your loan. Paying more each month will also help you pay off your balance faster!