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Personal loans in 2020

Bankrate April 22, 2020

Personal loan interest rates currently range from about 5% to 36%. The actual rate you receive depends on multiple factors, such as your credit score, annual income and debt ratios.

What is a personal loan?

Personal loans are shorter-term loans consumers can receive from banks, credit unions or private lenders, like online marketplace lenders and non-bank peer-to-peer lenders. The loan funds can be used for just about any purpose, such as paying off other debt, financing a home renovation or paying for family needs, like a wedding or adoption.

Borrowers receive a single lump sum that’s repaid over a number of years. Most personal loan terms range from 24 months to 60 months, but some can go as high as 72 months. The typical personal loan is repaid in monthly installments, similar to a car loan or home mortgage.

Personal loans are typically unsecured, meaning they are not backed by collateral such as a car, house or other assets.

If you need cash fast, these loans are a good alternative because the approval and funding process is often faster than that of a home equity line of credit.

What are current personal loan rates?

As of April 15, 2020, the average personal loan interest rate is 11.18%. Personal loan rates currently range from about 5% to 36%, depending on your credit score.

The average personal loan interest rates range from 10.3% to 12.5% for “excellent” credit scores ranging from 720-850, 13.5% to 15.5% for “good” credit scores of 690-719, 17.8% to 19.9% for “average” credit scores of 630-689 and 28.5% to 32.0% for “poor” credit scores of 300-629.

The better your credit score, the more likely you are to qualify for a personal loan with the lowest interest rate available. Compare personal loan offers to see what you are eligible for before applying for a personal loan.

Average personal loan rates by credit rating

Credit Rating / Score Range Average personal loan interest rate
Excellent (720 – 850) 10.3% – 12.5%
Good (690 to 719) 13.5% – 15.5%
Average (630 to 689) 17.8% – 19.9%
Bad (300 to 629) 28.5% – 32.0%

Rates as of 04/15/2020

Pros and cons of personal loans

Pros:

  • One lump sum, usually with a fixed interest rate, which helps keep monthly payments on track.
  • Get money quickly, sometimes within as little as a day, depending on the lender you choose.
  • Many are unsecured loans, which means your home or car isn’t used to borrow money.
  • Interest rates are much lower compared with payday loans, which charge upward of 400%.
  • Unlike highly risky payday loans, personal loans give you a reasonable amount of time to repay.

Cons:

  • APRs are generally higher than those of some secured loans.
  • If you have a low credit score, you might not qualify.
  • Some lenders charge fees, like origination, late and prepayment fees. The lower your credit score, the more likely you are to have a lender that charges more fees.
  • Some lenders don’t offer co-signers, which means you can only use your credit score and history to qualify.
  • You’re adding another bill to your monthly payments, which might stretch or even break your budget.

How to get a personal loan

With so many lenders to choose from, getting a personal loan can be a daunting task. Here are five steps to take when searching for the best personal loan for you:

  1. Determine how much you need. Write down the amount of money you’ll need for your loan purpose, whether that’s debt consolidation or a home repair. Make sure to factor in any origination fees, which some lenders take out of the total loan amount.
  2. Check your credit score. The lower your credit score, the better APR you’ll receive. If you have fair or poor credit, consider adding a co-signer to your loan; a co-signer with good credit will improve your overall credit picture and earn you more favorable rates.
  3. Compare lenders. Many lenders allow you to check your rates using a process called prequalification, which won’t hurt your credit score. Look at rates from a variety of lenders, including online lenders, banks and credit unions, to see which offers you the best deal.
  4. Complete the approval process. Once you receive an offer and accept the loan, you will likely have to submit pay stubs, tax documents and personal identification. Many lenders allow you to submit these documents online.
  5. Begin loan payments. After finalizing your loan, you’ll likely receive your loan within a week, although many online lenders boast funding in as little as one business day. Make sure to note your first payment due date, and consider setting up automatic payments if they’re available; many lenders offer discounts for doing so.

For more information, check out our article on how to get a personal loan.

Reasons to get a personal loan

With the exception of loans from a few niche lenders, like Payoff, most personal loans can be used for any purpose. The most common reasons to get a personal loan are:

  • Debt consolidation. If you have multiple lines of credit card debt, for instance, you can pay them off with a personal loan and repay the loan over time, often with a better interest rate.
  • Emergency expenses. Unexpected expenses like a car repair or hospital bill can throw off your monthly budget, and a small personal loan can alleviate the immediate cost.
  • Home renovations. A personal loan is a great way to pay for a large home renovation project and boost the equity in your home.
  • Major purchase or event. Personal loans are often used to cover major expenses, such as a wedding or vacation.

To learn more, read our article on top 6 reasons to apply for a personal loan.

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