What Is the Average Interest Rate on a Personal Loan?

The average interest rate on a two-year personal loan as of Q3 2023 is 12.17%, according to the Federal Reserve. However, personal loan interest rates can vary significantly based on the lender, the borrower’s credit score, financial situation, and other factors. Rates can range from under 6% to as high as 36%, depending on these variables.

What Factors Affect Personal Loan Interest Rates?

Lenders use a risk-based approach to determine personal loan interest rates. Here are some key factors that can impact the rates:

• The Lender: Each lender has its own set of interest rates and criteria for determining which rate you qualify for. Shopping around can help you find the best rate.
• Market Conditions: Changes in the Federal Reserve’s federal funds rate can affect personal loan interest rates.
• Credit Score: Higher credit scores are typically associated with lower interest rates.
• Credit Report Information: Lenders may review your credit reports for missed payments, high credit card balances, and other risk factors.
• Loan Amount: Higher loan amounts may come with higher interest rates due to increased risk for the lender.
• Repayment Term: Longer repayment terms often come with higher interest rates.
• Debt-to-Income Ratio: Higher debt-to-income ratios can result in higher interest rates.
• Collateral: Secured personal loans typically have lower interest rates but require collateral.

How to Compare Personal Loans

Shopping around and comparing offers from multiple lenders is the best way to ensure you’re getting the best deal. Here are some tips for comparing personal loans:

• APR (Annual Percentage Rate): APR includes both your interest rate and fees, reflecting the total cost of your loan.
• Loan Term: Shorter loan terms often lead to cheaper APRs.
• Fees: Understand the fees each lender charges, including origination fees, late fees, and other charges.
• Monthly Payment: Ensure the monthly payment fits within your budget.
• Discounts Available: Some lenders offer rate discounts for existing customers or for setting up automatic payments.

How Personal Loans Affect Your Credit Score

A personal loan can impact your credit score in several ways:

• Credit Inquiry: Submitting an official application results in a hard inquiry, which can affect your score.
• Amount Owed: The new loan could temporarily affect your score depending on how much you borrow.
• Length of Credit History: Opening a new credit account lowers the average age of your accounts, which can cause a temporary decline in your score.
• Payment History: Making all your personal loan payments on time can help improve your score over time.

Consider How the Loan Will Affect Your Financial Plan

It’s crucial to ensure that a personal loan is the right fit for you and that you can afford its monthly payment for the entire loan term. Managing a personal loan responsibly can put you in a better position to get other financial products at low rates in the future.

Contact O1ne Mortgage for Expert Mortgage Services

If you’re in need of mortgage services, O1ne Mortgage is here to help. Our team of experts is dedicated to providing you with the best rates and terms to fit your financial needs. Call us today at 213-732-3074 to discuss your mortgage options and get started on securing your financial future.