What Is the Average Loan Interest Rate for a Personal Loan?

Almost one-third of adults in the U.S. don’t have any type of emergency savings. Often our monthly budgets don’t include things like medical emergencies, funerals, or car problems.

If you urgently need cash, you may be considering taking out a loan. When you qualify for a low-interest rate, a personal loan could solve your immediate financial problems.

While taking out a loan is great for some people, it can be detrimental for others. If the interest rate is too high, you’ll end up devastating your finances and you may never recover.

Your life situation will play a major role in determining how expensive your loan will be. One of the best ways to prepare for taking out a loan is to learn the cost.

Read on to find out how you can estimate your average loan interest rate.

How Does Interest Work with Personal Loans?

The average loan interest rate will vary for each individual case. Personal loan interest is the portion of the loan the lender charges borrowing fees to. The borrower has to pay for the privilege of borrowing the money.

Personal loans are great if you need extra money to cover a surprise expense. However, if you’re looking to build your credit, a payday loan will serve you better. 

The majority of personal loans will have an annual percentage rate (APR). Your APR will be the sum of your interest rate plus any extra fees. Whenever you receive a loan you can expect to pay processing fees. In many cases, the processing fees will show on your bill as origination fees.

When you’re looking for a loan, the APR should be the first thing you review. You have to view the interest rate and monthly fees as one large bill. Reviewing the APR is the best way to truly understand the full cost of the loan.

Total Principal

The total principal will be the entire amount you borrow. Keep in mind that total principal amounts don’t include interest.

Total Interest

The total interest will be the total amount of all the interest payments put together. When you have a longer repayment plan, you’ll pay more in personal loan interest.

Fixed Rates

When you get a personal loan, the installments will be set at a fixed rate. Having fixed installments is going to help your interest rate remain the same.

Find a Reliable lender

You’ll also want to find a reputable company to take your loan out with. There’s plenty of scammers that prey on unsuspecting borrowers. To avoid scams, find out information about the lender ahead of time.

Ask yourself, “Does this company have my best interest in mind?”

Read the online review to determine the experiences other customers are having with that company. Find several lenders you can trust to help you compare interest rates.

Average Loan Interest Rate

Next, we’ll review where you can shop interest rates while looking for a loan.

In most cases, an unsecured personal loan will have an interest rate between 5-36%. You may find banks and credit unions offering different competitive rates.

However, online lenders tend to have the best deals. Online lenders are a great option for people with both low or high credit scores. Keep in mind that different companies will cater to a different group of clientele.

Certain lenders will work with low credit scores, while others only want high credit scores. Take the time to find a company that can help with your particular situation.

How Credit Score Affects Your Interest Rate

Now we can explore how lending institutions use your credit score. The lender will mainly determine your APR using this score. The higher your credit, the lower your interest rate will be.

If you have amazing credit, your rates will be significantly lower. Good credit is any FICO credit score that ranges between 720 and 850. If you have average or poor credit, you’re APR will be the highest.

If your credit score is below 580 you might have difficulty being able to qualify for personal loans. Also being credit invisible can affect your rate. Credit invisibility is when you have little or no credit history.

Employment Status and History

Finally, lenders will want to know about your employment status and history. They’ll need to know if you’re currently working and how long you’ve been there. Having a stable working history will let lenders know you’re reliable.

Without employment or a continuous history, you’ll have trouble finding a loan. If you do qualify with a lending institution, you’re APR will be astronomically high. If you aren’t working or don’t have a long employment history, consider finding a co-signer for your loan.

What Is a Debt to Income Ration?

After they look at your credit score and employment status, lenders will still need to know your debt-to-income ratio. You can use different online calculators to find out what yours is.

Usually, you’ll need to know the following information:

• What’s your annual income?
• What are your minimum monthly credit card payments?
• How much are your car loan payments?
• What are your monthly student loan payments?

The online calculators will determine the amount of debt you have. Next, they’ll compare your total income to the amount of debt present.

You’ll need to have more monthly income than debt to qualify for a loan. The higher your income, the better your loan interest rate will be.

Knowing the Price Helps

Now you know more about the average loan interest rate.

What’s The Cost wants to help you navigate the price of everyday expenses. Life happens quickly and it helps to know the cost of things. Our informative blog covers a variety of areas.

Our categories include learning about the prices of home improvement projects, health care, business, lifestyle and more!

If you need extra cash to read our money saving tips, they’ll surprise you!