A good interest rate on a personal loan usually falls between 6% and 12% for borrowers with strong credit, and rates rise as credit scores drop. Personal loans use fixed or variable interest, and knowing the difference helps you compare lenders with confidence.
If you’re thinking about a personal loan because an unexpected bill popped up or you need quick cash for repairs, understanding your interest rate helps you avoid paying more than necessary. Comparing interest rates and APRs also makes it easier to spot the truly affordable options.
What Is Considered a Good Interest Rate For a Personal Loan?
The difference between good vs. bad rates is the borrower’s perspective. The best loan rates are typically low, but individuals with low credit scores may not get as low a rate as borrowers with excellent credit. Lender benchmarks vary greatly, so it’s critical to make comparisons to get the best rate for your credit score.
Individuals with good credit scores are more likely to qualify for the best loan rates on the market. The average market rates for excellent credit scores (720 and above) typically range from 6% to 12%. In contrast, the average interest rate for loans can range between 14% to 36% for low credit borrowers.
Your desired loan amount and monthly budget can help you determine whether a rate is good or bad. If a lender offers a rate that results in affordable monthly loan payments, then that rate may be good for your financial situation.
Average Personal Loan Interest Rates by Credit Score
Most lenders offer credit-based loan rates due to the risk of default. For this reason, the average interest rates differ greatly between prime vs. subprime borrowers. A borrower with a high FICO Score demonstrates financial stability, while a low-credit borrower may have a history of late payments. For this reason, credit score ranges directly impact the type of rate a borrower can get on a personal loan.
Here is a helpful chart that categorizes average interest rates by credit score:
| Credit Score Range | Average Personal Loan Rate |
| 720 and above | 10-12% |
| 690-719 | 13-15% |
| 630-689 | 17-19% |
| 590-629 | 23-25% |
| Below 590 | 28-32% |
What Are The Factors That Affect Personal Loan Interest Rates?
Personal loan interest rates are affected by the loan amount, market conditions, the borrower’s credit history, and the lender.
Credit Score
The borrower’s credit score is a numerical representation of their financial history. If it’s low, you may have a harder time qualifying for decent interest rates or even getting loan approval.
The Lender
Every lender has different minimum and maximum interest rates. If you have bad credit, it’s critical to shop around and compare lenders. Look for lenders that offer flexibility and competitive rates, such as CreditNinja.
Market Conditions and Economy
The Federal Reserve can affect loan rates by setting the federal funds rate, which acts as a benchmark for financial institutions. If the federal fund rates go up or down, typically so do personal interest rates.
Loan Amount
Higher loan amounts typically mean higher interest rates. Large loans are riskier for the lender, so they generally charge higher rates to offset the lending risk.
Repayment Terms
A long repayment period could result in higher interest rates because they increase the lender’s risk. Monthly payments may be lower compared to a short-term loan, but the total interest fees will be higher over the course of repayment.
Income
Your income and your debt-to-income ratio can affect your eligibility for a loan and your rate. Having adequate income and a low DTI ratio is crucial to getting a favorable interest rate.
How to Qualify for the Best Personal Loan Interest Rate
Improving your credit score can help you qualify for low-interest loans. Higher scores lower your risk level, which may improve loan terms and give you leverage for loan rate negotiations. Many lenders are willing to lower a rate offer to conduct business with someone who has good or excellent credit.
If you don’t currently have good credit, you may still obtain a good rate by opting for secured personal loans. The difference between a secured vs. unsecured loan is the use of collateral. Collateral lowers the lending risk, which may help you get better loan terms with bad credit. But keep in mind that secured loans are risky. You can lose a valuable asset, defaulting could result in the loss of an asset like a car or savings account.
To avoid using collateral on a personal loan, you can use comparison platforms to find the best loan offer for your FICO Score. And once you obtain a loan, you can use credit repair tools to manage your account and boost your credit. Many borrowers sign up for debt management plans (DMPs) and mobile budgeting apps to improve their financial management.
How To Compare Personal Loans
You can compare personal loans by shopping around and comparing rates from multiple lenders. Some lenders offer prequalifying offers, which allows you to determine if you qualify before submitting a loan application.
These are four things to look out for when comparing personal loans:
- Loan Term — The loan term will affect your monthly payment amount. Longer repayment terms can lower your payment amount, while shorter term loans can cost more.
- Monthly Payments — Your monthly payment should be affordable enough to easily fit into your existing budget.
- Annual Percentage Rate — The personal loan APR directly affects your monthly payment. If you have bad credit, it’s even more important to compare rates to find the best one.
- Fees — Every lender has their own fees, and some have more than others. Compare fees to save money and avoid certain costs, such as prepayment penalties.
How Do Personal Loans Affect My Credit Score?
Personal loans can affect credit scores through credit checks, payment history, and a higher credit utilization. Here’s more information:
- Credit Checks — When you apply for a personal loan, a hard credit inquiry is performed, which may drop your credit score by a few points.
- Payment History — Your payment history will affect your credit score. Timely payments could boost your credit over time, but late payments could appear on your credit report and negatively impact your credit.
- Amount Owed — Acquiring a loan increases your existing debt. Credit utilization makes up 30% of FICO Scores, and a high credit utilization can hurt credit scores.
Use CreditNinja’s Personal Loan Calculator To Calculate Your Monthly Interest
Before committing to a loan, it’s essential to assess affordability. A loan calculator can help you determine your monthly payments based on the loan amount, APR, and repayment term.
CreditNinja provides a free simple loan calculator online to help you better understand how much a loan can cost based on the type of payment plan you get. All you need to do is input the loan amount, APR, loan term, and type of payment schedule. Comparing multiple lenders this way can help you find the best rate and loan offer for your financial needs.
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