Average Personal Loan Interest Rate

Kim Franke-FolstadUpdated January 21, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

If you’re thinking about using a personal loan to borrow some much-needed money, you may be wondering what interest rates are available. Applicants who have a high credit score typically can expect to qualify for loans with lower rates than applicants with credit scores on the low end of the range. But what if you’re somewhere in the middle? What’s that number going to look like?Currently, the average applicant qualifies for personal loan interest rates between 10% and 28%. However, that number can move up or down by at least a few percentage points based on several factors, including the applicant’s income, the type of lender, and the amount and length of the loan, among other factors. That’s why it can make sense to compare personal loan rates and other costs before settling on one loan or one lender.

What Is a Personal Loan?

Personal loans may be used for debt consolidation, to pay a big medical or dental bill, or to make a large purchase, in addition to other uses. But they generally can be used for just about anything the borrower chooses, with few exceptions. The borrower receives the proceeds of the personal loan in a lump sum of money to be repaid over a predetermined length of time, usually at a fixed interest rate. Most personal loans are unsecured, but applicants may find they can qualify for a lower interest rate, or other more favorable loan terms, if they secure the loan with some type of collateral.

What Is an Interest Rate Vs an APR?

When comparing loan offers, it can be useful to know both the interest rate and the annual percentage rate (APR) to get a comprehensive understanding of what you're going to pay. What’s the difference?The interest rate is the percentage of the loan amount (or principal) the lender charges the borrower to use its money.The APR, which is also expressed as a percentage, is the total annual cost of the loan — the interest plus other charges, including various fees — over the life of the loan. If you have a no-fee loan, the APR and interest rate will be the same. Depending on the costs attached to the loan, there could be a difference of a few percentage points between the interest rate and the APR.Most personal loans have a fixed APR, which means the rate won’t change during the life of the loan. There are, however, personal loans available with variable rates, which means the rate could start out lower but fluctuate over time. Both have their pros and cons. Fixed-rate loans, for example, have predictable payments, so borrowers know from the start what they’re in for. But if interest rates drop, variable-rate loans have the potential to provide more affordable financing.

What Is the Average Personal Loan Interest Rate?

Because so many factors can go into determining an applicant’s interest rate, most lenders post a range of rates on their websites. To get a more specific rate, you’ll likely have to go through the lender’s prequalification process.One of the most important pieces of information lenders use in determining personal loan interest rates is an applicant’s credit score. Here’s how average rates break down by credit score, according to a recent report from MarketWatch. Average Personal Loan Interest Rates by Credit ScoreInterest rates also may vary depending on the type of lender. For example, online-only financial institutions tend to have some of the lowest personal loan rates — especially for creditworthy applicants. Some banks and credit unions also post competitive rates on their sites. Here’s a look at rates offered by several online and traditional lenders.Unsecured Personal Loan Interest Rates by Lender

What Is a Good Interest Rate for a Personal Loan?

A good interest rate on a personal loan can be different for every borrower. There is no one perfect number to shoot for.That’s why it can be useful to shop for your best rate online, using a comparison site that uses your credit history and other information to find loan offers that best suit your needs.Then, if you find a loan that fits based on the rate (preferably between 10% and 28% — or lower, if possible), loan length, and other terms, you may decide to move forward and apply. If, after comparing multiple lenders you can’t find a rate offer that works for your budget, you may want to consider other alternatives or wait until you can improve your credit score.

What Impacts Interest Rates for Personal Loans?

Lenders look at a number of variables when determining what personal loan rate to offer an applicant. Here are some of the things they typically consider:

Credit Score

There’s one thing you can count on when you shop for a loan: A higher credit score usually will get you a lower interest rate. If your FICO Score is 740 or above, which is categorized as very good (or exceptional if it’s over 800), you’ll likely qualify for the most competitive interest rates lenders are currently offering. If, on the other hand, your score is below 580, which is categorized as poor, you may have trouble qualifying for an affordable rate. There are, however, personal loans that are specifically geared toward applicants with bad credit or who are still building their credit that may be worth checking out.

Debt-to-Income Ratio

Lenders also look at an applicant’s debt-to-income ratio (DTI) to help assess the amount of risk they’re taking when offering a loan. You can calculate your DTI by dividing your monthly debt payments by your gross monthly income. If the number is high (above 36%) the lender may see you as a high lending risk and decide to charge a higher interest rate — even if your credit score is good.

Employment

Stable employment is another factor lenders may review when deciding on an interest rate. If you are self-employed or have gaps in your employment history, lenders may see you as more of a risk than an applicant with a steady job — and that means you could end up paying a higher interest rate.

Income

You also can expect lenders to take your income into consideration when determining rates. Some lenders set income minimums for personal loan applicants. But if an applicant’s low income is paired with a very low DTI, a lender may be willing to make an exception and extend a loan.

Loan Amount

Because larger loans pose a greater repayment risk to the lender, they may come with higher interest rates than smaller loans.

Loan Length

Depending on the lender, a loan with a payback period that’s shorter in length could have a lower interest rate than a loan with a longer length. A longer loan length, or term, also can affect the overall cost of the loan, as the borrower will be paying interest for a longer time.

Collateral

If a borrower backs a loan with a collateral asset — a car, jewelry, real estate, or other owned asset of value — and then defaults, the lender can seize that property to help repay the money owed. Because this type of secured loan poses less risk to the lender, the lender may offer the applicant a lower interest rate than it would have without the collateral.

Benchmark Rates

When a benchmark rate, such as the Secured Overnight Financing Rate (SOFR), is affected by inflation or other changes in the economy, it can affect personal loan interest rates. So if you’re preparing to apply for a personal loan, you may want to monitor this and other benchmark rates for changes.

Tips to Try to Reduce Your Interest Rate

There are a few steps applicants can take to help lower the interest rate they are offered — or already paying, in the case of current borrowers — on a personal loan.

Improve Your Credit Score

Because your credit score can be such a significant factor in determining your interest rate, this can be a great place to start. Here are a few things you can do to bump up your score:

Check Credit Reports for Errors. Requesting a free credit report annually from each credit reporting agency will help you be sure the data used to calculate your credit scores is accurate and current. If you find any errors or signs of identity theft, you can take the appropriate steps to get them fixed.
Monitor Bank and Credit Card Statements. Keeping an eye on your bank and credit card statements can be a good way to monitor your spending, stay within your budget, and thwart identity theft.
Pay Bills on Time. Setting up automatic payments, at least for minimum amounts due, is a good way to make sure bills are paid on time.
Keep Old Accounts Open. Even if you pay off an old account, you may want to keep it open — length of credit history is a factor in calculating your credit score. Some creditors will close inactive accounts, so you may want to check for any minimum use requirements for accounts you don’t use on a regular basis.
Be Cautious with New Credit. Multiple credit applications in a short time period may negatively affect your credit score. Some lenders check an applicant’s credit using a soft credit pull, which won’t affect their credit score.

Consider a Cosigner

If you can find a willing friend or family member who has better credit than you do, asking that person to be a cosigner on a personal loan could help you qualify for a better interest rate. Just be sure any potential cosigners are aware that if you default on the loan, they could be held responsible for repayment, and any late or missed payments could impact their credit score.

Refinance an Old Loan …

If you already have a personal loan, you might be able to lower your costs by refinancing to a better interest rate. This strategy can be especially useful if you’ve improved your credit score, income, or other financial factors since you applied for the original loan. Once you pay off the old, more-expensive debt, you can move on to making payments on the new, lower-cost loan.

… Or Negotiate a Lower Rate

Are you more creditworthy now than when you first got your loan? (Or maybe just a more discerning interest rate shopper?) If you can show your current lender that you’ve prequalified for a lower rate with other lenders, you might get a better deal without switching lenders.

Look for a No-Fee Loan

Lenders often add an origination fee to personal loans. If you can find a lender that doesn’t charge an origination fee or other common fees you could reduce the cost of your loan.

Key Elements to Compare When Shopping Personal Loans

Though finding a low APR may be your primary goal when you begin evaluating personal loans, it’s not the only factor to consider. Here are a few things to watch for as you review various loan offers.

APR

Because the APR represents the loan’s interest rate and basic fees, it can serve as a good measure of the total cost of borrowing.

Fees

Along with the fees included in the APR, such as application, processing, and origination fees, it also can be useful to know if and how much a lender charges for late payments, or if a loan has a prepayment penalty.

Loan Length

If you can afford the monthly payment, a shorter loan term may come with a lower interest rate — and it can reduce the overall cost of the loan.

Monthly Payment

Along with the interest rate and APR, it can be helpful to see the actual dollar amount you can expect to pay each month. That way you can budget better and be sure you can realistically afford the payments.

Potential Discounts

Some lenders may offer discounted interest rates to current customers, so it’s worth checking the financial institutions where you have accounts. Lenders also may offer a rate reduction to borrowers who use autopay.

Interest Rates for Personal Loan Alternatives

If you can’t find or qualify for a personal loan rate that suits your needs, there are other borrowing options you might want to consider, including:

Credit Cards

Some credit card companies offer promotional rates for new customers, with rates as low as 0% for purchases or balance transfers. But those rates typically only last a limited number of months — and they aren’t available to everyone. According to the most recent Federal Reserve data, the average interest rate for all credit cards is 14.54%. Rates can vary widely depending on the type of card and the cardholder’s credit score. For borrowers with bad credit, rates can go as high as 36%.

Payday Loans

If you only need to borrow a small amount for a short time, a payday loan may seem like a convenient solution. All an applicant generally needs is a valid ID that shows they’re 18 or older; an active bank, credit union, or prepaid card account; and proof of income. Payday loans can be expensive, though. Though several states have capped rates at 36%, according to a report from CNBC, nationally, the average APR on a payday loan is 400%.

Overdrafting

Sometimes a financial institution will offer short-term credit to account holders by allowing them to withdraw money even if their balance is at or below zero. Interest is charged only on the overdrawn amount and only for the number of days the account is overdrawn. Along with potential overdraft and set-up fees, borrowers may pay between 4% and 9% over the current prime interest rate.

Friends and Family Loans

A family member or friend may not charge interest on a loan. To protect everyone involved, however, you may want to draw up and sign an agreement that documents the amount borrowed and the repayment terms. Also, the lender should be aware that the IRS sets a minimum interest rate — called the applicable federal rate (AFR) — for loans over $10,000. If the lender charges less than the AFR, they may have to pay taxes on the interest they would have earned, minus the interest that was actually paid. AFR amounts change monthly and vary depending on whether it’s a short-term, mid-term, or long-term loan. As an example, as of November 2021, the annual AFR for a mid-term loan (three to nine years) was 1.08%.

The Takeaway

Loan rates can vary significantly based on the applicant’s credit score, income, and other factors. Comparing personal loan offers from multiple lenders could help you find the best rates for your financial situation and a monthly payment that fits your budget.Ready to find your personal loan? Lantern by SoFi can help you compare lenders and rates.

Photo credit: iStock/cagkansayinSoFi Loan Products SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636. For additional product-specific legal and licensing information, see SoFi.com/legal.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)SOLC1021245

About the Author

Kim Franke-Folstad

Kim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing.

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