Personal loan rates have fallen. For those with excellent credit, personal loan interest rates for 60-month, or 5-year, terms are now 13.76%, compared to 14.95% a week prior, while for 36-month, or 3-year terms, rates hit 12.6%, compared to 13.71% a week before, according to the latest data from Bankrate for the week ending May 9th. But if your credit score isn’t among the cream of the crop, expect to pay more. The overall average personal loan interest rates for 60-month terms are 23.43%, down from 24.42% a week prior, while for 36-month, or 3-year terms, rates hit 22.48%, down from 23.5%. You can see the lowest personal loan rates you can qualify for here.
An intro to personal loans
A personal loan is money borrowed from a bank, credit union or online lender that provides a borrower with a lump sum of cash. Personal loans are typically repaid over about one to seven years, on a set repayment period, consisting of monthly payments that include principal and interest. Personal loans generally range from $1,000 to $100,000 and are offered as both secured (you provide collateral) or unsecured (no collateral), though most are unsecured, which makes them easier to qualify for, especially for people who don’t have substantial assets.
Should you take out a personal loan?
Personal loans can be used to cover anything from emergency home repairs to medical expenses and even large one-time purchases. Because personal loans fund quickly, sometimes in as little as one day, they can be a great option for people in need of quick cash. (You can see the lowest personal loan rates you can qualify for here.) On the other hand, because they’re often unsecured, they’re often saddled with higher interest rates than other loans that require collateral. That said, if you don’t have assets to put on the line and time is of the essence, using a personal loan may be your best bet.
One caveat to consider when taking out a personal loan is that because they’re easy to qualify for, it may be tempting to take out more money than you actually need. Don’t do it, experts say, because if you take out more than you need, you have to pay the whole amount back along with interest. Should you fail to pay back any portion of the balance, you’re bound to experience a ding to your credit score, which can affect your ability to take out future loans and qualify for lower interest rates.
Before taking out a personal loan, make sure you understand the loan’s structure and any fees associated with it. Personal loans are not exempt from origination fees, which can range from 1% to 8% of the amount of the loan, so if you need to take out $100,000 and your origination fee is 7%, you’ll actually want to apply for a $107,000 loan to cover the fees which are usually shaved off the top of the loan, ensuring you don’t come up short when the loan funds.
Getting the best rates on personal loans
As with any type of loan, the higher your credit score, generally the lower your interest rate will be. That’s why experts recommend prequalifying for a loan using a soft credit check, so you can get an idea of what rate you’ll pay, without dinging your credit score. This MarketwatchPicks guide can also help you navigate the personal loan application process.