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Last week, personal loan rates fell. If you’re interested in financing a vehicle or home remodeling project, or need to temporarily improve your cash flow, you can get a fair rate, as long as you can meet the qualification requirements.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace, the average interest rate on a three-year personal loan was 10.84% from June 6-10. According to Credible.com, that’s a 0.56% drop from the previous week. The average rate on a five-year personal loan fell 0.20% last week to 13.33% from 13.53%.
Keep in mind that the rate you’ll receive depends on several factors, including your creditworthiness and the loans available through your chosen lender. The most creditworthy borrowers can receive rates significantly lower than average.
Related: The best personal loans
How to compare personal loan rates
If you want to get the best rate, be sure to look for lenders that offer a personal loan pre-qualification process. While many lenders post their rates online, this only gives you a variety of what they offer, not an exact rate based on the qualifications you meet. However, when you pre-qualify for a personal loan, a lender will run a soft credit check to pre-screen you, which has no impact on your credit score.
Based on this information, the lender will give you a snapshot of the terms you might qualify for, including loan rates, terms and limits. You can pre-qualify at multiple lenders and compare terms to find the best loan for your specific situation.
Prequalification does not imply approval of a loan. You will still need to submit a formal application and additional documentation to obtain the loan you want. Lenders usually do a hard credit check when you officially apply for a loan. Hard credit checks can affect your score by one to five points.
Related: 5 Personal Loan Requirements You Should Know Before You Apply
Calculate your personal loan payments
Once you have an idea of the interest rate on your personal loan, you can calculate your monthly payments. You will need to enter the interest rate, amount and term of your loan. This will help you determine how much you will need to pay each month and how much you will pay in interest over the life of your loan.
For example, let’s say you take out a $5,000 personal loan with a term of five years at a fixed interest rate of 13.33%. You’d pay about $115 a month and about $1,877 in interest over the life of the loan, according to Forbes Advisor’s personal loan calculator. In general, you would pay $6,877 in total, which includes principal and interest.
Average Personal Loan Interest Rates by Credit Score
The rates below are estimated average personal loan interest rates based on VantageScore risk levels, according to Experian. Although the rates below can serve as a general guide, keep in mind that interest rates are set and ultimately determined by lenders.
Get the best rates
Personal loan interest rates are based on a number of factors, including your overall creditworthiness, credit score, income, and debt-to-income (DTI) ratio. Two quick ways to help you receive more favorable rates include paying down existing debt to help lower your DTI and improve your credit score.
Rod Griffin, senior director of education and consumer advocacy at Experian, recommends “checking your credit report and scores three to six months before applying for a personal loan,” as this will give you enough time to make any necessary improvements.
While qualification requirements differ among lenders, a minimum credit score of 720 will generally get you the best terms. If your score falls below this marker and you’re looking for the lowest possible rate, you can take steps to improve your score. Try strategies like lowering your credit utilization ratio, removing errors from your credit report, and paying your bills early or on time.