Personal Loan Rates Decline – December Week 1 2021
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Personal loan rates dropped during the first week of December, giving borrowers who qualify for loans an opportunity to get good interest rates and finance projects, pay unexpected bills or fund their holiday purchases.
The average fixed rate on three-year personal loans was 11.36% for borrowers with a credit score of 720 and above according to data from Credible.com – a personal loan market place. This was a 0.33% drop from the previous week. The average fixed interest rate on five -year personal loans also dropped last week to 14.04% from 15.13% the previous week.
However, it is important to note that the actual personal loan rates you receive depend on various factors including your creditworthiness and what your preferred lender has to offer. If you are a well-qualified borrower, you are likely to find rates that are significantly lower than the average rates available in the market.
Related: 5 Best Christmas Loans For 2021
You are, therefore, advised to compare the available rates when taking out a personal loan to benefit from the lowest available rates.
Personal Loan Rate: Making the Comparison
When you are comparing personal rates, start by pre-qualifying for a loan. Start by looking for lenders who offer prequalification online, which makes the prequalification process more convenient for you. Prequalification provides you with an accurate ide of the rate you are likely to receive from a certain lender, because they pre-screen you by carrying out a soft credit check. Note that the soft credit check does not, in any way, impact your actual credit score.
In the prequalification results, the lender provides you with a snapshot of the amount of loan you qualify for, including the loan rates, repayment periods, limits, terms and any fees (where applicable). You can run the prequalification process on multiple lenders, comparing the different terms to find the best personal loan rate for your particular situation.
However, if the prequalification tells you that you qualify for a certain loan amount at a particular rate, that is not a guarantee that your will be approved by that particular lender. Once you find an offer that fits your situation, you will still be required to make a formal application and provide additional documentation to the lender. When reviewing you application, the lender runs a hard credit check which will affect your credit score by one up to five points.
Related: 5 Best Guaranteed Pre-approved Installment Loans
Calculating Your Personal Loan Installment Payments
The prequalification process gives you an idea of your personal loan rate. With this information, you can calculate your monthly installments. To do this, you will be required to enter your loan interest rate, term limit and the principal amount of the loan into an online installments calculator. This helps you to determines how much you are required to pay monthly and how much total interest you will pay over your loans lifetime.
Take this example: Suppose you get a personal loan worth $5,000 with a fixed term of five years and at a fixed rate of 14.01. If you enter this information in an online personal loan calculator, you will find that you will be required to pay approximately $116 monthly installments and a roughly $1,987 in interest over the life of the loan. That is, you will repay $6,987 in total, which includes both the principle amount borrowed and the total interest to be paid.
Personal Loan Rates Calculated According To Credit Score
The table below illustrates average estimated personal loan interest rates calculated according to the credit scores defined by the VantageScore risk tiers by Experian.
| Vantage V4 credit score | Average Interest Rate |
| Deep subprime (300-499) | 15.30% |
| Subprime (500-600) | 15.91% |
| Near prime (601-660) | 15.56% |
| Prime (661-780) | 10.93% |
| Super prime (781-850) | 6.59% |
Whereas the rates above serve as general guidelines, it is important to note that the interest rates on your personal loans will be ultimately set and determined by your preferred lender.
How to get the best rates
Several factors determine the personal loan rates you are likely to get from a lender. These are but not limited to your overall creditworthiness, your credit score, your income and your debt-to-income (DTI) ratio.
There are two quick ways you can use to receive lower rates. The first is paying your existing debts to reduce you DTI and the second is improving your credit score.
Rod Griffin, senior director of consumer education and advocacy at Experian, advises that as a borrower, you should check “your credit report and scores three to six months before you apply for a personal loan.” This will give you an opportunity to make any necessary improvements on your creditworthiness.
While personal loan rates ultimately differ from one lender to the other, a minimum credit score of 720 and above will typically give you the best terms possible. If your credit score falls below this point, and you are looking for the lowest rates for your personal loans, take necessary steps to improve your credit score. Strategies like lowering your credit utilization ratio, cleaning your credit report to remove errors and paying your bills on time, may work good for you in this quest.
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