What Is a Personal Loan Rate?
A personal loan rate is the cost of borrowing with a personal loan over the course of a year, and it’s expressed as a percentage. Personal loan rates typically range from around 4% to 36%, and a good rate is anything under 12%.
It is important for borrowers to understand what personal loan interest rates are and how they work because comparing one personal loan rate to another can quickly give you a sense of which offer may be more worthwhile.
Key Things to Know About Personal Loan Rates
- Many factors can affect a personal loan’s rate, including the applicant’s credit score and income, the type of lender, and the loan’s origination fee.
- Personal loan rates are often cheaper than the rates on credit cards.
- There are two types of personal loan rates: the interest rate and the APR (interest rate plus fees).
You can see what personal loan rates to expect by checking for pre-qualification with multiple lenders.
How Do Personal Loan Rates Work?
A personal loan rate determines your total annual cost of borrowing based on interest (and sometimes fees charged by the lender). Lenders use personal loan rates to offset their risk in lending, as more risky borrowers typically pay higher rates.
Once a lender sets your personal loan rate based on your creditworthiness, it uses that rate to calculate your monthly payments. You must repay the lender based on this rate, which you agree to before taking out the loan.
The basic concept is pretty simple. But in order to fully understand how personal loan rates work, you need to know what determines how high or low they are.
Factors That Affect Personal Loan Rates
- Credit score. The better your credit score is compared to a lender’s minimum, the lower your rate will typically be.
- Income. The more money you make, the more funds you have to pay off debts. People with higher incomes may be able to score lower rates because they are less risky customers.
- Existing debts. The more debt you have overall, the more risk you have of defaulting and the higher your rate will likely be.
- Type of lender. Banks often set their highest personal loan rates at less than 25%. Federal credit unions are required to have a maximum rate no higher than 18% (state credit union maximums are set by the state). Online lenders often have maximum rates as high as 36%.
- Origination fee. Some lenders charge this fee to process a personal loan. Sometimes, it is built into the loan’s APR, and the cost is spread out across the life of the loan. Other lenders charge the fee upfront instead.
- Loan size and timeline. The more money you want to borrow and the longer the payoff period, the riskier the transaction is and the higher your rate is likely to be.
Personal Loan Rate vs. APR
The difference between APR and interest rate on a personal loan is simple: The APR is the total yearly cost of borrowing, while the interest rate is equal to the APR minus the portion of that cost that comes from fees. Both the APR and interest rate are expressed as percentage rates, but the APR is always higher unless the loan includes no fees.
Below, you can see how fees make the APR different from the interest rate with two different loans of the same size and length.
|Category||Example Lender A||Example Lender B|
|Loan length||24 months||24 months|
|Interest rate on the loan||15%||16%|
|Origination fee charged||$300 (3%)||$200 (2%)|
|Amount you pay each month||$485||$490|
|Annual percentage rate (APR)||18.1%||18.1%|
How to Compare Personal Loan Rates
The best way to compare personal loan rates is to use a personal loan calculator to estimate the total cost of each loan, between interest and fees.
Simply seeing which lender has a lower interest rate range could end up being misleading if you don’t know where your rate will fall in the lender’s advertised range or whether any fees will be added to it. As a result, checking for pre-qualification to see what your potential rates and fees will be with the lenders you’re considering is an important step to take if you want an accurate comparison.
For a more general comparison of personal loan rates, you can look at the minimum and maximum APRs charged by various lenders below.
Personal Loan APRs by Lender
|LightStream||2.49% - 19.99%|
|Wells Fargo||5.99% - 24.49%|
|SoFi||4.99% - 19.63%|
|Payoff||5.99% - 24.99%|
|FreedomPlus||7.99% - 29.99%|
|Best Egg||4.99% - 35.99%|
|American Express||6.98% - 19.98%|
|LendingClub||8.05% - 35.89%|
|Prosper||6.95% - 35.99%|
|Discover||6.99% - 24.99%|
|Marcus by Goldman Sachs||6.99% - 19.99%|
|Avant||9.95% - 35.99%|
What Is a Good Personal Loan Rate?
A good rate on a personal loan is between 3.99% and 12%. The lowest APR on a personal loan is around 3.99%, and the average APR for a personal loan is 12.42%, according to WalletHub data.
You’ll likely only be able to get rates close to 3.99% if you have excellent credit. If you have bad credit, you can probably expect rates between 18% and 36%.
Good Personal Loan Rate by Credit Rating
|Credit Rating||Good APR|
|Excellent (750 - 850)||Below 12%|
|Good (700 - 749)||Below 17%|
|Fair (640 - 699)||Below 21%|
|Bad (300 - 639)||Below 27%|
Note: The “good APR” is slightly below the average APR for the credit level, taken from WalletHub data for Q1 2021.
You can learn more about the best personal loan rates on WalletHub.
What Is the Average Personal Loan Rate?
The average personal loan rate is 12.42%, as of Q1 2021. That includes loans of all sizes, from all types of lenders, for people of all credit levels. Naturally, narrowing down the type of loan or type of customer has an impact on the average personal loan rate.
Average Personal Loan Rates
- The average 24-month personal loan APR from a bank is 9.46%.
- The average 36-month personal loan APR from banks and credit unions is 10.24%.
- The average personal loan rate for people with excellent credit is 12.71%.
- The average personal loan rate for people with bad credit is 27.39%.
Learn more about average personal loan rates.
Personal loan rate can be very cheap or quite expensive depending on the lender and other factors like your credit and income. In general, personal loans are a good borrowing option for people who aren’t able to get cheaper rates with a credit card and don’t want to consider borrowing from home equity.
But before applying for a personal loan, it’s always good to get pre-qualification from any lenders you’re interested in. After you pre-qualify for a few loans, you can take those numbers and plug them into WalletHub’s free personal loan calculator to determine your total cost of borrowing over the life of each loan. That will help you determine which loan will be the cheapest.