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Last week, personal loan rates plunged. This means that if you are looking for a personal loan to finance a major project or purchase, you can enjoy a relatively low interest rate, as long as you are a qualified borrower.
From August 9 to 13, the average fixed rate on a three-year personal loan was 11.31% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan market. The rate was 11.53% the week before, according to Credible.com. The average rate on a five-year personal loan rose 0.11% last week to 13.82% from 13.71%.
Keep in mind that qualified borrowers can benefit from significantly lower than average rates. The rate you will actually receive depends on several factors, such as your creditworthiness and the loan you choose.
Related: Best Personal Loans July 2021
Compare personal loan rates
You can start by pre-qualifying for a loan. Look for lenders who offer prequalification online. Prequalifying can give you a more accurate idea of the rate you will receive from a particular lender, as they will prequalify you by performing a smooth credit check (which does not affect your credit score).
Once you’ve prequalified, lenders usually provide you with a list of options that include the rates, terms, and limits of the loan. You can find the best loan for your situation by prequalifying with multiple lenders and comparing loan offers.
Approval is not guaranteed if you pre-qualify. Lenders always require that you submit a formal application and additional documents. After you submit your formal application, lenders usually perform a rigorous credit check, which can lower your credit score by one to five points.
How to calculate your personal loan payments
To see if this fits your budget, it’s important to estimate how much you’ll pay monthly and how much you’ll pay in interest over the life of the loan. One of the easiest ways to do this is to use a personal loan calculator. You will need the rate, term, and limits of your loan.
Let’s say you get a three-year, $ 5,000 personal loan at a fixed rate of 11.31%. You would pay around $ 164 per month and around $ 919 in interest over the life of the loan, depending on the Forbes Advisor Personal Loan Calculator. You would pay $ 5,919 in total over those three years, which includes both principal and interest.
Average interest rates for personal loans by credit score
The rates below are estimated average interest rates for personal loans based on VantageScore risk levels, according to Experian. While the rates below can serve as a general guideline, note that interest rates are ultimately set and determined by lenders.
Get the best rates
Your credit is a big factor in the rates you receive. According to Rod Griffin, senior director of consumer education and advocacy at Experian, “checking your credit report and scores three to six months before you apply for a personal loan” is a good idea. This gives you enough time to make the necessary corrections.
A credit score of 720 or better will usually give you the best deal. If you’re not quite in that credit score range, consider taking steps to improve your credit score. Pay off existing debt to lower your credit utilization rate, remove errors from your credit report, and pay your bills early or on time.