Personal loan interest rates today trended in opposite directions, with fixed rate averages for 3- and 5-year terms hitting 14.40% and 21.12%, respectively. Especially creditworthy applicants (those with credit scores of 780 or higher) were being quoted the best personal loan rates, with averages of 12.78% for three years and 19.09% for five years.
Today’s personal loan rates
Personal loan interest rates today trended in opposite directions, with rates for 3-year terms increasing to 14.40% while rates for 5-year payback periods decreased to 21.12%.
Personal loan rates by credit score
The best personal loan interest rates are reserved for the most creditworthy applicants. Borrowers with credit scores of 780 or higher — “very good” or “exceptional” scores in FICO’s eyes — were quoted average rates of 12.78% for 3-year repayment terms and 19.09% for 5-year terms.
Even if you have “fair” and “good” credit, you tend to receive significantly higher rate quotes — and then face higher monthly payments as a result. Borrowers with credit scores between 640 and 679, for example, were quoted an average rate of 27.20% for 3-year terms and 28.13% for 5-year terms.
Understanding personal loan rates
The rate on your personal loan generally refers to how much the lender charges you to borrow. Be sure you understand the distinction between interest rate and annual percentage rate (APR):
- Interest rate is the percentage of your principal that will be charged as interest throughout the life of the loan.
- APR represents the total annual cost of borrowing, including your interest rate and any fees. It allows you to make more comprehensive comparisons between lender offers. (Under the Truth in Lending Act of 1968, lenders are required to disclose your loan’s APR before you sign a loan agreement.)
Let’s say you take out a $10,000 personal loan with a 10% interest rate over a 36-month term, and you must fork over a 5% origination fee (which is typically removed from the principal before the loan is funded). Over the life of the loan you’ll end up paying $1,535 in interest, plus $500 for the origination fee for a total of $1,835 in loan costs. This puts the APR on that loan at 13.56%.
Here’s a look at how different interest rates can affect your monthly payment and the APR on a $10,000 loan. The following example assumes a 0% origination fee:
| Interest rate | Monthly payment | APR |
|---|---|---|
7% | $308.77 | 10.50% |
10% | $322.67 | 13.56% |
15% | $346.65 | 18.67% |
20% | $371.64 | 23.78% |
And here’s how different fee amounts can affect your APR on the same $10,000 loan with a 10% interest rate:
| Origination fee | APR |
|---|---|
2% ($200) | 11.39% |
3% ($300) | 12.11% |
5% ($500) | 13.56% |
10% ($1,000) | 17.40% |
Different variables impacting personal loan rates
There are a number of factors that affect personal loan rates — some you can control and others you can’t.
“Borrower-centric factors like your personal credit score, annual income and source, and the size of the loan and repayment timeline are all based on individual risk factors,” said Tiffany Soricelli, a New York-based financial advisor. “Economic factors that are outside of individual control can also have an impact.”
The primary factor affecting personal loan interest rates is how much it costs the lender to borrow funds. Benchmark rates set by the Federal Reserve and interbank lending rates, such as the Secured Overnight Financing Rate, determine how much a lender charges you to borrow. In a high-rates environment like the inflationary times of 2022 and 2023, that can translate to higher interest on your loan.
| Factors affecting interest rates than you can (mostly) control |
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Generally, if you have high credit scores, you’ll qualify for a lower rate. Your debt-to-income ratio, which divides your monthly debt payments by your gross monthly income, also helps lenders to determine your creditworthiness.
Another factor that can affect your rate is what loan you choose. In most cases, personal loans are unsecured debt, meaning you don’t need to provide collateral to secure the loan. Secured personal loans, which require collateral (such as liquid or physical assets like cash or a car), are less common but can carry lower rates since they pose less risk to the lender.
Importance of credit score in personal loan rates
Your credit scores help a lender gauge how risky it is to give you a loan. You can often still qualify for a personal loan with low credit scores, but a lender will charge a higher rate to compensate for the perceived risk. For example, if you had a credit score between 640 and 679, today’s average personal loan rate for a 3-year fixed rate personal loan is 27.20%. This is 14.42 percentage points higher than what someone with excellent credit would pay.
Each lender advertises a range of interest rates it offers. These days, you might see a lender promote a range of around 7.99% to 35.99%.
Borrowers with good credit, which typically means a FICO score of at least 680, tend to qualify for rates on the lower end of the range. If your FICO score is below 680, generally considered “fair” credit or worse, expect to see rates on the higher end of the range. For context, the average interest rate on a 24-month personal loan was 12.17%, according to October 2023 data via the Federal Reserve.
How personal loan rates interact with repayment terms
Lenders usually offer lower rates for shorter-term loans, which they view as less risky. And since a shorter term means fewer overall payments, the total amount of interest charged would be less.
Keep in mind that shorter repayment terms also mean higher monthly payment amounts, all else being equal. Conversely, a long-term loan will come with a lower monthly payment but higher interest costs over the life of the loan.
Tip: Use a free, online personal loan payment calculator (like Calculator.net’s) to estimate your monthly dues on multiple term lengths — and determine the appropriate term for your budget.
Let’s say you’re seeking a $10,000 personal loan and a lender offers the following terms and interest rates:
| Repayment term | Rate | Minimum monthly payment | Total repaid (original loan amount plus interest) |
|---|---|---|---|
5 years | 16% | $243 | $14,591 |
4 years | 14% | $273 | $13,117 |
2 years | 11% | $466 | $11,186 |
With the five-year term, you’d have the lowest monthly payment but the greatest overall cost. If you opt for a two-year term, however, you’d have the highest monthly dues and the lowest overall expense.
Good to know: If you require a longer-term loan for the lower monthly payment, you can always make extra (large) payments toward your principal to help reduce the total amount of interest. Just be sure your lender applies your extra payments correctly and won’t charge a prepayment penalty.
Comparison: fixed-rate and variable-rate personal loans
Most personal loans come with a fixed rate. A fixed rate means the rate you’re given won’t change over the life of the loan. If you prefer predictability and want to ensure your monthly payment doesn’t change, you’ll want a fixed-rate loan.
Variable rates, meanwhile, are based on an underlying index or benchmark rate that fluctuates. This means your monthly payment would also fluctuate. You might opt for a variable rate if you expect benchmark rates to decline. But if they rise, so, too, will your rate and monthly payment.
The role of lenders in determining personal loan rates
Lenders establish a range of interest rates they will charge borrowers for a personal loan, with the most creditworthy borrowers qualifying for rates on the low end of the range and lower-credit borrowers receiving rates on the high end. Though lenders each have unique underwriting criteria, they typically focus on your credit score, payment history, employment status and debt-to-income ratio.
Your lender also determines how your loan’s interest is calculated. Interest on personal loans is usually calculated through one of two methods: simple or compound.
- With simple interest, which is more common, your interest rate is charged only against your principal balance each month.
- With compound interest, interest is charged against the principal plus any outstanding interest that has accrued.
Compound interest is more often used for revolving debt, like credit cards, but can sometimes be used on personal loans. Ask your lender to disclose its method.
How loan amount, term affects personal loan rates
To determine your personal loan rate, lenders consider how much you want to borrow and how long you need to repay it.
Personal loan amounts can range from as little as a few hundred dollars to as much as $100,000. They typically come with repayment terms of 12 to 60 months (or longer). Usually, lenders offer a lower rate on a shorter-term loan and higher rates on longer-term loans.
Keep in mind that shorter loan terms require higher monthly payments — but also greater interest savings.
Ways to secure better loan rates
To ensure you get the best rate possible, have a strong credit score, clean repayment history and a low debt-to-income ratio.
Taking time to improve your credit and pay down existing debt can increase your odds of personal loan approval. Likewise, enlisting a co-applicant to join your application can also increase your odds. Just be mindful that your co-borrower or cosigner would share responsibility for repayment; if you miss a payment, their credit would also suffer.
Tip: Before you apply for a loan, request your credit reports for free through each of the major consumer credit bureaus: Equifax, TransUnion and Experian. Disputing errors on your reports can improve your credit score.
When you’re ready to apply for a personal loan, look for lenders that offer prequalification — that is, the ability to confirm eligibility and scour rates without a hard credit inquiry that can temporarily ding your credit score. Prequalification also enables you to shop around to see which lender is willing to give you the best rate.
Personal loan rates at credit unions versus banks
Different types of lenders offer personal loans, including traditional banks, online lenders and credit unions.
Credit unions are not-for-profit and member-owned, returning their profits to members by offering lower loan rates (APRs), reduced fees and higher savings rates (APYs).
Online lenders also may offer lower loan rates than competitors because they have lower overhead than traditional banks. For one, they don’t staff brick-and-mortar branches.
Here’s a look at how these different types of lenders compare with one another:
| Credit union personal loans | Bank personal loans | Online personal loans | |
|---|---|---|---|
Benefits | Lower interest rates, more flexible repayment terms, more willing to work with customers with bad or limited credit, personalized service | More locations, potential discounts for existing customers, high loan amounts, option to apply in person, more robust mobile banking options | Lower interest rates, fast funding, options for borrowers with bad credit, streamlined application and funding process |
Fine print | Must be a member to borrow; funding could take days or weeks | Some banks require you to have an associated savings or checking account in order to borrow | Lack of in-person customer service, shorter track record than established financial institutions |
Better option for… | Customers who prefer more flexible terms and don’t need money urgently | Existing bank customers with strong credit who might want all their finances under one “roof” | Customers who can qualify for the lowest rates or want a fully online experience |
How to calculate personal loan interest
When you make a monthly payment on a personal loan, some of that money goes toward the principal and some of it covers the interest.
Let’s say you take out a $15,000 personal loan tagged at 12% interest, to be repaid over a four-year term. Over the life of the loan, you’d pay $3,960 in interest and $18,960 overall.
Here’s a breakdown of what your payments cover during each year of repayment, assuming a typical amortization schedule (numbers have been rounded):
| Principal | Interest | |
|---|---|---|
Year 1 | $3,107 | $1,633 |
Year 2 | $3,501 | $1,239 |
Year 3 | $3,945 | $795 |
Year 4 | $4,446 | $294 |
Total | $15,000 | $3,960 |
Frequently asked questions (FAQs)
Many factors contribute to what rate you’re offered on a personal loan. Some are beyond your control, like the current economic conditions or the benchmark rates set by the Federal Reserve. Others, like your credit scores and how much debt you carry, are more under your control.
The higher your credit scores, the more likely you’ll receive a lower interest rate on a personal loan. Borrowers with FICO scores as low as 580 might qualify for a personal loan but would pay the highest possible rates. Borrowers with very good and excellent FICO scores — at least 740 and 800, respectively — would secure the best interest rates.
A personal loan with a fixed rate will charge the same interest rate on the balance for the life of the loan. A personal loan with a variable rate would charge interest that fluctuates over time. This means payments on fixed-rate loans are more predictable and typically a better choice for the budget-conscious and risk-averse.
Generally, lenders offer lower rates on loans with shorter terms. Keep in mind that shorter loan terms typically require higher monthly payments, but lower overall interest costs.
Depending on your lender, you might be able to negotiate a better rate on your personal loan, particularly if you’re an established customer with your bank or credit union. Other lenders may be willing to negotiate certain fees or offer rate discounts (like for enrolling in automatic payments), but they may not have leeway to unilaterally reduce rates.
Various factors determine your monthly payment on a personal loan, including the interest rate, loan term and principal borrowed. Personal loans almost always come with a fixed interest rate, which stays the same through the repayment term. If your loan has a variable interest rate, you can expect the monthly payment to fluctuate over the life of the loan. Using a free online personal loan calculator can help you visualize how rates can increase or decrease your monthly dues.
Credit unions often offer lower interest rates and more favorable loan terms due to their not-for-profit status. Because credit unions are member-owned, profits are returned to members in the form of lower fees and loan interest rates. Online lenders might also offer loans at lower rates than traditional banks.
Annual percentage rate, or APR, on a personal loan refers to the total annual cost of borrowing. This includes the interest rate plus any fees (such as for origination) or additional costs charged as part of the lending process.
You could effectively refinance a personal loan by paying it off with a new loan that carries a lower rate. To refinance in this fashion, you’d have to apply for a new personal loan, which could negatively (albeit temporarily) affect your credit score.
Instead of (or at least before) refinancing, attempt to negotiate your current loan’s interest rate or score rate discounts, like for enrolling in autopay, referring a customer or opening a savings or checking account to qualify for loyalty rewards.
