Latest personal loan rates and 4 things to know before getting a personal loan

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For those with excellent credit, the average personal loan APR for the week ending Jan. 17 fell to 12.63% for a three-year loan (they were at 12.76% the week before) and .82% for a five-year loan (13.87% per year). previous week), according to the latest data from Bankrate. And the best-qualified borrowers might get a lower rate than that, because a number of issuers offer rates from around 5-6%. On the other hand, for those with only fair credit, the APRs increase significantly, reaching 27.14% for a three-year loan and a five-year loan; for those with bad credit, they go even higher. Here’s what you need to know if you’re considering a personal loan.

Inasmuch as

3 years, fixed rate APR loan 5 years, fixed rate APR loan
Excellent (751+)

12.63%

13.82%

Good (661-750)

20.72%

21.44%

Fair (601-660)

27.14%

27.14%

Poor (

30.17%

29.35%

What is a personal loan?

A personal loan is a loan from an online lender, bank, or credit union, usually for amounts between about $1,000 and $100,000. You often repay personal loans at regular intervals, such as monthly, over a period of one to seven years. You can often get these loans quickly, sometimes in as little as a day or two, and they sometimes carry lower interest rates than credit cards, but usually carry higher interest rates than things like home equity loans or home equity lines of credit.

Who should consider a personal loan and who should not

If you need a loan fast, this might be a good option for you, assuming of course you can pay it back and get a good rate. “Getting a personal loan often allows you to accomplish something sooner by giving you funds up front rather than waiting to save up for it,” says Lauren Anastasio, Certified Financial Planner at SoFi. And Ted Rossman, senior industry analyst at CreditCards.com, notes that in addition to getting funded quickly, these loans are often easier to get than other types of funding like business loans, especially if you’re just starting out and that you don’t have much, if any, income from the business.

“Personal loans can be very useful tools depending on what you use them for,” adds Anastasio. For example, you could use a personal loan to consolidate your debt and potentially save money if you got a lower interest rate on the personal loan than you got on your debt. Additionally, when transferring credit card balances to a personal loan, shifting revolving debt to an installment loan can significantly improve one’s credit, says Matt Schulz, chief credit analyst at LendingTree. “Your credit mix, or the variety of loan types on your credit report, is an important factor in FICO credit scoring formulas,” he explains.

Personal loans also work well for home improvement projects you want to get started quickly, like repairing a roof, because you can typically go from application to financing in a week or less, experts say. (Remember that you’ll often get lower rates with HELOCs or home equity loans, although they can take longer to fund.) They may also be an alternative to consider for small business loans , and if you have excellent credit, they may come with lower interest rates than business and personal credit cards.

But experts say you shouldn’t use personal loans to cover discretionary purchases like vacations and retail splurges. “Personal loans are a big commitment for short-term discretionary purchases. Everyone is eager to get out and travel these days, but even the smallest personal loans often have repayment schedules of a year or more,” says Annie Millerbernd, personal loan expert at NerdWallet.

Advantages and disadvantages of personal loans

In addition to quick funding, these loans also have other advantages. “Not only do you avoid putting your house or car on the line, but you also avoid giving up the equity in your business,” says Rossman; this is because most of these loans are unsecured, meaning the borrower does not have to provide collateral to secure the loan.

However, their interest rates can be higher than other types of loans like home equity loans and HELOCs. And you have to pay attention to the fees. Millerbernd warns borrowers to watch out for origination fees. “Lenders who charge origination fees often take a percentage of the amount you borrow from the loan before it reaches your account, which is something to consider if you’re trying to borrow a specific amount, because with origination fees, you could find yourself short a few hundred to a few thousand dollars,” says Millerbernd. And she adds, “Personal loans also have the potential to accelerate expenses, giving you the option significant expense without having to save for it.”

What do personal lenders look for in a borrower?

Rossman says every lender is different, but generally they don’t care too much about what your personal loan is for. “Generally, they’re much more concerned about your credit score, income, debt-to-equity ratio, and other factors that affect the likelihood of you paying them back,” Rossman says. The debt-to-income ratio can be calculated by adding up all your monthly debt payments and dividing them by your gross monthly income; many lenders are looking for a DTI of 35-40% or less, although many lend to people with a higher ratio.

Can you get a personal loan with bad credit?

In general, the lower your credit score, the more interest you’ll pay on a personal loan – and they can be very expensive, so always consider all your options when you need money. Also, some borrowers may not qualify at all.

That said, there are a few things you can do that could take you from rejection to acceptance with a lender. “If you’re close to the threshold, making a large payment on a revolving balance or using something like Experian Boost could get you over the threshold pretty quickly,” McBride says. Additionally, “if you make all your debt and bill payments on time and repay all revolving debts, time will heal the wounds,” he adds. Remember that you must repay a personal loan in full and on time to ensure that it does not affect your credit score in the future.

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