Average Personal Loan Interest Rate by Credit Score

Knowing the average personal loan interest rate can help you determine whether or not you want to go forward with the application process for a personal loan. The average annual percentage rate on personal loans can go from 10% to 28%. There are different factors that go into the rate you get, including your creditworthiness, the length of the loan, the lender, and the loan amount.

Average Personal Loan Interest Rate Using Credit Score

Avarage personal loan interest rate depending on the credit score

Your credit score will be one of the largest determining factors for your average personal loan interest rate. The higher the score, the lower the rate will be. Those who have an excellent score between 720 and 850 should be getting a rate between 10% and 12%. Some individuals can even qualify for lower rates. If you don’t have what is considered an excellent score then you could consider a 0% balance transfer credit card instead of a personal loan as a way to save some money on interest rates.

Good scores are between 680 and 719 and the average personal loan interest rate is 13.5% to 15.5%. For those who have poor credit and scores below 640, the interest rate can be between 18% and 36%. Not only can the interest rate be higher but also you may have trouble qualifying for a conventional personal loan. There are other options, such as payday loans, but it can be easy to fall into a never-ending debt cycle.

Average Personal Loan Interest Rate by Lender

Interest rates on unsecured personal installment loans can range by lenders. Credit unions and banks will offer competitive rates but you may find the lowest rates from online lenders. If you have a lower credit score, you may have better luck with an online lender. Each lender will have various types of loan offerings and different ways to evaluate a potential borrower. In order to find the best average personal loan interest rate for your situation, do some comparison shopping before you decide to take out a personal loan.

What Kind of Personal Loan Should You Consider?

A good average personal loan interest rate will vary depending on what you are using the loan for, the loan term, and the loan balance. You may not qualify for the best loans a lender offers but can still be in the average. It’s best to apply to multiple lenders to see what rates you can qualify for based on your specific situation. If your rates are too high and you won’t be able to pay back the loan with the interest rate you are given then consider other options. You may also want to work on improving your credit score before you apply for the loan. Personal loans for good credit usually come with better terms.

Factors That Affect the Average Personal Loan Interest Rate

Lenders look at many different data points when they make a decision about whether or not to extend an offer to you. The biggest factors are credit score, credit history, employment stats, and debt-to-income ratio. You have probably already heard that your credit score will be the biggest factor in whether or not you qualify and it can also affect the average personal loan interest rate you get. Many lenders will have strict cut-offs for credit scores but some lenders, especially online, can be more flexible. Other factors, like your credit history, also play a role.

Your lender may consider your employment history and current financial status. Some lenders ask that you provide proof of income, whether it’s part-time or full time. Some lenders can require that you have a minimum personal or household income and if there is a requirement for this, you will need to show documentation.

You also need to make sure that you work with a credible lender. Doing your own research is always a smart idea, and you can also go to Loanry for guidance. We partnered up with Fiona to bring you reputable lenders.

Why You Should Care About Personal Loan Interest Rates

Interest rates work both ways. When you borrow money, the interest rate is the amount the lender charges you for the use of their money. On the other side, when a bank borrows money from your savings account, you then earn interest the bank pays for the use of the funds. Interest rates will drive U.S. economic growth. This will impact the costs of other loans and how much return you get from your savings.

Smart Money Tip!

By paying attention to the current interest rate, you can decrease the amount of money associated with borrowing money or you can increase the investment earnings. High interest rates will give lenders an advantage and lower interest rates will benefit borrowers. If you see that interest rates are dropping then this is the perfect time to start looking at personal loan options.

Why Your Credit Score Matters for Personal Loans

Your credit score will give lenders an idea of how you have handled money and debts against different statistics that will predict your behavior. If the statistics are against you then there will be a chance that you will be turned down for a loan. If you do get a loan then there is a good chance the interest rate will be higher if your credit isn’t good.

Why You May Need a Personal Loan

There are a number of reasons why you may want to borrow money with a personal loan. There are also different types of personal loans. Many people don’t have hundreds of dollars saved up in order to pay for expenses and need a personal loan.

You may need a personal loan to cover a medical cost, to pay for car or home repairs, or even to fund a vacation.

Getting a Personal Loan with Bad Credit

Anything under 650 is considered a bad credit score and this will make personal loan interest rates higher.  However, it’ s still possible to get a personal loan for bad credit. You may have a low credit score because you have made late payments. It is possible to get a personal loan with bad credit but it’s not as easy as walking into the neighborhood bank and filling out an application. Online lenders will give you the best opportunity to find a personal loan with bad credit. In the majority of cases, you may need someone to co-sign with you.

What Can You Do

The best option for getting a personal loan with bad credit is to loan shop. First, look at the amount of interest you will be charged. You want to find the lowest possible rate in order to save money. The next thing you want to look at is the amount of time you will be given to repay the loan, since this will also affect how much interest you will pay. Also consider the payment amount you will need to make. This will be based on the amount of the loan and the time period you have for paying it back. You want to make sure you can fit the payments into your budget and not get yourself into greater financial hardship.

Even if you need the money, there can be some cons of getting a personal loan with bad credit. The interest rate will be higher than if you were to have a better credit score. The length of time you are able to pay back the loan may also be shorter. Be sure to keep in mind that you can also be limited in the amount of money you can borrow. Personal loans can help improve your credit so it’s important that you get into a situation where you will end up improving your score in the end.

Should You Get a Personal Loan if You Have Bad Credit?

Whether or not you get a personal loan with bad credit will depend on your situation. You are the one that knows your situation best. You may be facing a medical bill or losing your home with a missed mortgage payment. This would mean you are in a situation where you need cash now and don’t have time to improve your credit score before applying.

The best chance you have of getting a personal loan with bad credit is to start before you actually need money. Evaluate your different options so you can go to a reputable place that will help you improve the chances of getting a personal loan.

Why Should I Care About Personal Loan Interest Rates?

Getting a Personal Loan with Good Credit

If you have good credit and know that you can get approval, there are still some things you should consider.

It is best to think about getting a loan ahead of time if you can. This way, you can boost your credit score even more. Refrain from any new requests and stay current on your bills to boost your score even more and get more attractive offers.  You will want to ask for the right amount of money. You need to get what you need but you also don’t want to end up with a payment you can’t afford. If you get behind on bills, including your personal loan, then it can reverse the hard work that you have put into getting a higher credit score. If you are using a personal loan to pay off your credit card debt and consolidate then be sure you are cooling it on new spending so you don’t have to be in the same position again.

How a Good Credit Score Helps You Save on a Personal Loan

A lower interest rate you get with good credit means that you that you will pay less money back throughout the length of the loan.

Getting a Personal Loan with Fair Credit

If you find out you have a fair credit score then you may be wondering if it’s worth your effort to get a personal loan.

A personal loan with fair credit may mean a higher interest rate, which means it costs you more money. With fair credit, you could still have plenty of options and this makes loan shopping even more important.

How to Get a Personal Loan

If you have already checked your credit score to get an idea of the personal loan interest rate that is available to you, there are still some other steps for getting an unsecured personal loan. Once you have compared interest rates, you can get prequalified for a loan.

Prequalifying for a loan can give you a sneak peak at the kind of offers you will get. During this prequalification process, you can be asked for some information. This includes your Social Security Number, income, monthly debt obligations, work information, and previous addresses. You may not prequalify if you have a low score, too little income, a high debt-to-income ratio, or little to no work history.

When you shop around for personal loans, compare the loan amounts, the monthly payments, and interest rates. Don’t just look at one source. Compare your other offers with other credit options. Depending on the interest rate, there may be better options to get the money you need.

Read the Fine Print

It’s important to read the fine print. This is important with every financing option, including personal loans. Make sure to watch out for prepayment penalties. Many online lenders won’t charge a fee for paying off the loan early, but some online lenders will. If you want to prepay the loan early, you will need to make sure that there is no fee. Some lenders will require automatic withdrawals. If a lender requires that then you may want to set up an alert with your bank so you can avoid overdraft fees. You also don’t want to be caught off guard with any APR surprises.

You may want to look for consumer-friendly features. This includes payments being reported to credit bureaus, flexible payment features, and direct payment to creditors. Your credit score will benefit if your lender reports on-time payments to credit bureaus. Most lenders will only report late payments that harm your credit score and not on-time ones.

When you have selected a lender that matches your needs, you will then get final approval. When you get final approval, the lender will run a hard credit check that could knock a few points off your credit score. Upon final approval, you will get the funds you need.

How to Improve Your Credit Score

There are different ways that you can improve your credit score to increase your chances of getting a personal loan and get a lower interest rate.

Pay Bills on Time

When lenders request to see your credit score, they want to know how reliable you are when paying your bills. This is due to the fact that past payment performance can be considered a good predictor of any future payment performance. If you pay late or settle an account for less than what you originally agreed to pay, it can negatively affect your score. It’s not just credit cards and loans that you need to pay on time but also your rent, phone bill, and utilities. While on-time payments for rent or utility bills aren’t usually reported, late or missed payments will be. Use the resources and tools available to you, such as automatic payments, in order to make sure that everything is paid on time.

Pay Off Debt and Keep Balances Low

Credit utilization ratio is another factor in credit score accumulations. This ratio is calculated by adding all of the credit card balances at and then dividing it by the total credit limit you have available. Lenders typically want to see low ratios below 30%. Those with good credit scores will have very low utilization rates. When you have a lower ratio, it tells lenders that you don’t max out your credit cards and can manage your credit well. You can influence your credit utilization score by paying off debt and keeping your balance low.

Be Careful about Applying for New Credit

Don’t open a new account just to have a better credit mix since it probably won’t improve your credit score much. Applying for new credit that you don’t need can harm your score in different ways, from creating too many hard inquires on your account to tempting you to overspend and then accumulating more debt.

Don’t Close Unused Cards

You should keep unused credit cards open if they aren’t costing you money in annual fees. If you close an account, it can lower your credit utilization ratio. If you owe the same amount but have fewer open accounts then it can lower the score.

Be Sure to Fix Any Inaccuracies on Your Credit Report

Be sure to check your credit reports at the three credit reporting bureaus. Incorrect information could be dragging down your scores. Dispute any wrong information and be sure to get it corrected as soon as possible.

Unfortunately, there is no quick fix for bad credit scores and you have to pay bills on time and wait. Time is your friend when it comes to improving your credit score. The length of time it takes to rebuild your credit history can depend on the negative change. Most negative changes in the credit score are because of an addition to a negative element on the credit report, such as a delinquency. These new elements will affect your score until there is a certain point. Inquiries will remain on your report for two years, while delinquencies can remain on the credit report for seven years.

It may be that you don’t necessarily have a bad credit score but you don’t have a credit score at all. A thin credit file means that a bank or lender isn’t able to calculate a credit score since there isn’t enough history. There are things you can do to improve your thin credit file, such as applying for a secured loan or becoming an authorized user on someone else’s credit card that has a good credit score.

What You May Not Know About Credit Scores

Credit scores are complex calculations and the more you know about credit reports, the more you can take control of your own credit and get approval for loans and better interest rates. Negative information on the credit report can lower the score. This information will remain on your credit report for a set period of time. Late payments can appear for seven years from the date of the first missed payment. Bankruptcies can remain on your report for seven to 10 years, depending on the type of bankruptcy.

You don’t need to carry a monthly credit balance to build your credit history. It’s possible that you can pay off the credit card bill every month and it can still help your credit standing. This not only helps your credit standing but it also helps that you don’t get into trouble with debt.  If you settle an account for less than the full amount you owe, it can also harm the score. Any time you fail to repay a debt you originally agreed to, it could have a negative effect.

A good credit score can open doors for you. It helps you qualify for the best interest rate and terms when borrowing money and influence how much you pay for other things. Landlords can even consider your credit score when you apply for an apartment.

Conclusion

The average personal loan interest rate can depend on a few different things. Your credit score will be a huge factor in what your average personal loan interest rate will be. There can be a number of reasons why you need a personal loan and the process of getting a loan will involve rate shopping. Your credit score will be a huge factor in your average personal loan interest rate. Improving your score before you apply for a loan and doing some loan shopping will help you make sure that you get the best possible rate.

Common Loan Definitions and Related Terms: Lending 101

The Merriam Webster dictionary defines a loan as a temporary lending of money to an individual or organization with an interest rate attached. Of course, while the dictionary makes it sound simple, loans are a little complicated.

An Abridged Dictionary of Loan Terms and Definitions

When you begin looking for a loan, you hear a lot of unfamiliar terms. You need loan definitions. Your lender probably won’t sit down and explain them all to you. We will. This glossary explains loan terminology in the most straightforward manner as possible. It breaks the terms down into categories that reference the context in which you’d read the term.

Loanry does not lend money. We function to help you find a lender. We set up a loan mall so you can easily shop personal loans among many lenders, almost as easily as you could visit a shopping mall to pick up a new pair of jeans. Because of this, we just do not have contact with you; your lender does. So, we want you to understand the loan procedure basics and loan terms. We find it better to educate you and give you the tools. The Loanry team wants you to ultimately save money. If you do decide to borrow then please use our library of personal finance education tools to borrow smart.

We are not trying to frighten you with this huge list of terms, but financial institutions use their own lingo. You will get a much better loan deal if you understand what the lender refers to with each term and know what it will cost you. We’ll break this up into types of loan definitions, for example, explaining fees in one section and references to loan terms in another.

The great news is that once you learn the lingo, it remains the same regardless of the loan type or the type of lending institution you find. Whether you need a student loan or a home loan or a car loan or some other type of loan, these terms apply to every situation.

General Loan Terms 101

Loan Terminology

Let’s start with the loan definitions you will come across regardless of the type of installment loan you consider. You’ll read these terms in all types of loan documentation.

Amortization

This refers to the equal loan payments planned out during a specified period to pay off the debt on time.

Amortized Loan

An installment loan also gets referred to as an amortized loan due to its planned series of equal installment payments that repay the loan amount, plus interest without the need for a balloon payment.

Anniversary Date

The annual anniversary of the loan. The initial anniversary date occurs on the twelfth payment’s due date. Thereafter, it occurs on the same annual date noted on the MOP Promissory Note.

Annual Percentage Rate (APR)

The percentage rate referring to the amount of interest charged on the loan.

Balloon Payment

A final payment to fulfill the promissory note on an installment loan in order to discharge the debt. The balloon payment is typically much larger than the monthly installment payments.

Beneficiary

The lender listed on the promissory note that is secured by a deed of trust.

Borrower

The person eligible for the loan and who carries the primarily responsible for its repayment.

Character

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders base your character on your credit score and credit history.

Capacity

Five Cs of CreditA term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders determine your capacity or ability to repay a loan, based upon your monthly income and your outstanding financial obligations.

Collateral

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Collateral refers to the property of merit you provide as a guarantee of re-payment when you apply for a secured loan.

Capital

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Capital refers to your savings or other assets a bank can claim if you default on the loan.

Conditions

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. The conditions of your loan describe how you intend to use the loan.

Curtailment

This refers to an extra payment that reduces the loan’s principal balance before the final balloon payment.

Default

Essentially, failure to repay the loan as specified in the Deed of Trust or Promissory Note.

Demand Note

The term demand note refers to a loan the lender can recall at any time that has no fixed term or repayment schedule.

Friendly Loan

The phrase friendly loan refers to a financial agreement between friends, family, or business associates. These rarely have legal documentation since they are typically verbal agreements. This makes it tough to legally challenge them.

Loan Commitment

The term loan commitment, also called loan approval, refers to the letter issued by the lender that commits to funding for the specified borrower and property. It contains conditions that must be met prior to funding the loan. It expires 60 days from its date of issue.

Loan Denial Letter

A letter from the lender that denies a loan to the specified individual. Depending on the type of loan, the letter may state the denial reason. These reasons may include credit history or score, inadequate monthly income or lack of verifiable liquid assets.

Loan Servicing

The process of operational procedures management and the collection of payments related to a loan.

Loan Underwriting

The process and procedures of risk analysis including loan factors such as credit score and history, assets, employment, etc. used by a lender to determine whether to extend a loan to an individual.

Loan Withdrawal Letter

A letter from the lender acknowledging a borrower’s desire to withdraw their loan application/approval from the lender. It may or may not state the reason for withdrawal.

Home Loan/Mortgage Specific Terms

Some loan definitions only apply to property purchases. These terms apply to home loans, mortgages, investment property, business properties, etc. If you visit Accury, our real estate related partner site, you’ll come across many of these terms.

Appraised Value

The monetary value of a single-family home as determined by an approved appraiser.

Co-signer

A person who assumes loan responsibility, but does not take a title interest or live at the property.

Close of Escrow

The legal meeting at which the property officially and legally transfers between the lender, buyer and seller.

Co-borrower

A second individual who assumes responsibility on a loan. This person also has a title interest in the property, meaning they co-own it, and they intend to occupy it as a primary residence.

Date of Recordation

The date on which a deed of trust is officially entered on the books of the county recorder in the county in which the property is located.

Deed of Trust

Sometimes used instead of a mortgage, this financial security instrument conveys the property’s title in trust to a third party to ensure the payment of the promissory note. When the borrower pays off the loan, the deed transfers to the homeowner.

Down Payment

The initial payment offered for the purchase of a piece of real estate. The loan amount covers the difference between the real estate’s purchase price and the loan amount. While some loan types, such as VA loans, allow for a borrower to forgo a down payment, the typical amount is at least 10 percent of the home’s purchase price.

Equity

Equity refers to the property’s fair market value less the current debt on the property. You can leverage the equity on your property to receive a loan, also called an equity line of credit.

Escrow

In escrow, a third party handles the funds disbursement and paperwork as an agent and intermediary for the buyer and seller.

Escrow holdback

When the home needs repairs or treatment for termites, the firm handling the escrow withholds funds until the repairs or treatment is complete.

Evidence of Insurance

This insurance document confirms the property is insured by a homeowners’ policy. This is not a copy of the insurance policy, but a letter or statement of commitment to insure a specific property beginning on a given date at a specified premium.

Hazard Insurance

This is more commonly referred to as the homeowner’s insurance policy.

Home Improvement

Repairs and/or additions made to better the status of the permanent structure of the primary residence.

Home Loan Coordinator

The person designated by the Chancellor of each campus and Laboratory Director as the Home Loan Coordinator. This individual serves as the primary contact at the campus level for loan applicants.

Homeowners Association

An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowner’s Insurance Policy

An insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire, wind damage, theft, and, personal liability. The typical policy does not include flood or earthquake coverage.

HUD-1 Closing Statement

A document required by the Department of Housing and Urban Development (HUD) that discloses all financial information related to funds received and disbursed at a loan’s closing.

Inspection Reports

This term refers to reports generated by the inspector the borrower hires to assess the home’s condition before closing on the home. These usually include a home inspection report and a termite report. The home inspection may include specific detailed reports on the condition of the foundation and roof, as well as, a geological report and a septic tank inspection, when a septic system is present.

Interest

Interest has two meanings. The first is a reference to the annual percentage of the loan you will also re-pay in consideration for the loan. The second meaning is also a business term meaning a share, title or right in a property or business.

Joint Tenancy

Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Lender’s Escrow Instructions

Instructions produced by the Office of Loan Programs for an escrow or title company detailing the documentation and procedures required before a loan is funded.

Loan-to-Value (LTV) Ratio

The ratio of the principal balance of a mortgage loan to the value of the securing property, as determined by the purchase price or Appraised Value, whichever is less.

Mortgagee

The lender that holds the Deed of Trust or mortgage.

Mortgagor

The borrower who named on a Deed of Trust or mortgage.

Refinancing

The process of paying off an existing loan and establishing a new loan.

Renovation

The restoration of the primary residence. Generally, this includes repairs, improvements and additions to the permanent structure of the primary residence.

Monetary Transfer Terms

Some loan definitions you need to know, refer to the manner in which loan monies transfer from the lender to the borrower.

Automated Clearinghouse (ACH)

A money transfer network that electronically transmits funds from one participating financial institution to another.

Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) refers to the actual transfer of funds through an ACH. In loan terms, it refers to the transfer of the loan amount electronically from the lender to the borrower. Other EFTs include direct deposit and debit card transactions.

Types of Loan Definitions

You’ll find many types of loans available. Financial institutions specialize. Some offer credit cards, some offer mortgages, some offer unsecured loans and some offer many types of loans. Here are the unusual terms you might come across when exploring loan types.

Bridge Loan

A loan type used in real estate with a loan term of less than 12 months. Considered a temporary loan, the bridge loan provides the borrower the net proceeds from an impending home sale so the borrower can purchase a new home. The borrower repays the loan with the proceeds of the home sale.

Deferred Payment Loan

A loan that defers all monthly interest and principal payments to the promissory note’s maturity date. The loan principal balance, plus the accrued interest comes due when the deferment ends. These are common with student loans.

Graduated Payment Mortgage

You will commonly see this written as GP-MOP. It refers to loan type related to the Mortgage Origination Program (MOP) that provides an initial lower interest rate than the standard rate. There minimum rate is 2.75 percent. The interest rate will annually increase by 0.25 percent to 0.50 percent until it equals the standard rate.

Interest-only Payment Loan

This type of loan does not amortize. During the loan term, the borrower pays only the interest each month. They re-pay the principal as a lump sum when the length or the loan term ends.

Unsecured Loan

This type of loan typically charges higher interest rates but requires no collateral. Credit cards and student loans are the most common types of unsecured loans. This is the most common type of consumer loan.

Fee Definitions

Getting a loan entails much more than the interest rate and the amount of the loan. You’ll incur a number of fees. Here are the definitions for the fees your lender will charge.

Application Fee

A nominal charge, typically of $50 or less, that accompanies the loan application. You pay this fee at each lender, for each loan application submitted. If your loan application gets denied, you will get charged another fee if you re-apply. Some lenders waive the re-application fee if you have good credit.

Administration Fee

You’ll incur the administration fee to process the loan application. This charge ranges between $35 to $50. Some lenders bundle this into the application fee.

Origination Fee

The origination fee typically amounts to about ten percent of the loan. It can be charged in addition to application and administration fees or in addition to them. It is paid from the loan monies, for example, if you apply for a $1,000 loan, you’ll receive $900.

Late Fee

You only incur a late fee if you pay your monthly payment late or miss your payment. These range from $30 to $37. You get charged for each late payment. You may receive one-time forgiveness of this fee, if your lender offers it.

Prepayment Penalty Fee

Your lender counts on making back the cost of loaning you money by charging interest. If you try to pay it off more quickly, by making double payments or large lump sum payments, in addition to your monthly installments, you’ll pay a fee. It is a hefty fee, generally amounting to about 80 percent of six months of interest.

In Conclusion

The plethora of terms and loan definitions can seem overwhelming but we hope this short glossary helps you better understand them. Loanry wants you to find a lender for your financing needs. We try to make it easy for you to find lenders and their loan offers. While we cannot promise you will find a lender here that can get you a loan, we can make it as simple as possible for you to look for the right lender who can help you. We even offer money tools to help you compare different types of lenders.

Our service lists numerous types of personal loan options from a plethora of lenders. These consumer loans include credit cards, installment loans, payday loans, mortgage loans, student loans, car loans, and more with both short-term and long-term options. Our loan mall has lenders who offer high and low-interest rates. You’ll find options for those with great credit, bad credit, and no credit. Print this article or keep it open in a separate browser window while you loan shop. That lets you refer back to it easily. Make your loan search simpler. Start at Loanry and find the lender you need. Loanry connects you with reputable companies that may give you a loan if u qualify for it. You can check whether you qualify right now, by putting in your information below. We do not loan money, but we do make it easier to help find a lender for you.