Guide to Average Personal Loan Rates

Personal loans represent the type of consumer debt with the fastest growth. In 2019, there has been a significant boost in the number of people who took out personal loans. As of Q2 of 2019, the loan balances reached $305 billion, which shows a 12% increase with each year. People who took out personal loans had to deal with interest rates for the most part. How much are the average personal loan rates, though? Let’s take a look!

What Is an Interest Rate?

An interest rate refers to an amount of cash that a lender charges when you make use of their money. It’s like a payment you make for borrowing money in the first place. So, it is an additional amount that you have to repay. Interest is calculated depending on several factors, whichever is more beneficial to the lender. It comes in the form of a percentage, and although it is usually calculated as an annual rate, there are cases when it can be calculated for a shorter or longer period.

How Are Interest Rates Determined?

Average personal loan rates are determined based on several factors. That being said, your situation will determine whether you will have a high or low interest rate to repay. Since personal loans are unsecured debt, they usually come with an interest rate higher than the one for your auto loan or your mortgage. After all, you don’t use any collateral to back up the loan, so it only makes sense that the lender wants to feel more secure. It’s also important to note that sometimes, personal loans will use the term APR to refer to the costs added to your loan balance. APR stands for annual percentage rate.

One of the things that will contribute to your interest rate is your DTI or debt-to-income ratio. This one can be calculated by taking a look at your total debt payments on a monthly basis and dividing them by your gross monthly income. If you have credit card bills, mortgages, auto loans, student loans or other personal loans, these debts will all be included in your DTI. The lower your DTI is, the more chances you have to get a lower interest rate because it means you can deal with a new payment.

Your credit score will also be relevant when it comes to calculating your interest rate. Credit scores should be as high as possible because that’s when it’s obvious that you are responsible and make your payments on time. If you have a good credit score, as close to 850 as possible, then you increase your chances to get a lower interest rate. This is because the lender thinks you present a lower risk, compared to someone with a bad score. As such, it’s important to make payments on time and not take out more debt than you can deal with, and you will be able to maintain a good credit score.

For a lower interest rate, you can also apply with a cosigner who is creditworthy. If you have such a person and you know you can trust them, you can have them applying along with you. The lender will then assess their DTI, credit score, income on an annual basis and their ability to pay off the loan. So, if you will be unable to deal with the payments, you will have your cosigner doing this for you.

What Is the Average Interest Rate on a Personal Loan?

According to some data from Experian from the second quarter of 2019, the average personal loan rate is 9.41%. Of course, the interest rate will all depend on the financial history and credit score of the borrower, as well as the lender. Personal loan rates can go anywhere between 6% and 36%.

Not to mention that average personal loan rates are lower compared to the average credit card interest rate. According to the Federal Reserve, that one was about 17% in November 2019.

Personal Loan Interest Rates by Credit Score

If you have a good or excellent credit score, then you are in luck – you can find very low interest rates, as low as 10.3%. Meanwhile, if you aren’t lucky enough and you have an average or poor score, then you will set yourself up for a higher interest.

So, for example, someone who has a credit score between 720 and 850 will have an interest rate between 10.3%-12.5%. Just like that, those with a score of 690-710 will have their rate around 13.5%-15.5%. If you go lower – 630-689 – the interest rate will range between 17.8% and 19.9%. And lastly, those with a lower score – between 300 and 629 – will have their interest rate between 28.5% and 32.0%.

Personal Loan Interest Rates by Lender Type

It may seem weird to think about it, but even different lender types will have different interest rates – so the average personal loan rates vary by lender. If you want to find something that suits your needs, then it’s essential to consider the rates of each of these lender types.

Average Personal Loan Interest Rates by Online Lender

Average Personal Loan Interest Rates by Bank

Average Personal Loan Interest Rates by Credit Union

Other Factors that Determine Your Interest Rate

If you don’t have the best credit score, don’t worry – the lender will take other things into consideration when determining your interest rate. As they are trying to figure out your creditworthiness, lenders will take a look at various other details.

For instance, they will look at your employment status, because it shows that you are able to repay the loan. Your DTI will also be considered because it shows a lender how much debt you currently have, in comparison to your income. And lastly, the lender will take a look at your income. After all, they need to know how much you earn, so they can determine if it’s enough for you to deal with monthly loan payments, as well as the interest rate.

It’s essential to know that in some cases, you will be denied a personal loan if your credit report has a recent bankruptcy, or if there are any open collection cases going. Make sure to inform yourself about the lender’s requirements before applying.

Final Thoughts

Knowing the average personal loan rates will help you determine what type of lender you should go to for your personal loan. It will also tell you if you’ll be able to handle the interest. Many aspects are influencing how much you will pay in interest – some of them are your credit score, financial history, DTI, and so on. In the end, it’s up to you and the lender how much you will pay in interest. Don’t hesitate to check out Stilt if you want to know more about interest rates.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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