Personal loan interest rates vary widely based on your credit score, income, and the lender
There is no single interest rate for personal loans. The rate you are offered depends on your credit history, the lender you choose, how much you borrow, and how long you take to repay. Banks, credit unions, and online lenders all set their own rates. A person with excellent credit might receive an offer at 6 percent, while someone with poor credit from the same lender might be quoted 36 percent or higher.
Interest rates on personal loans typically range from around 6 percent to 36 percent annually, though some lenders operate outside this range. The rate matters because it determines how much you pay back in total. On a $5,000 loan over three years, the difference between 10 percent and 25 percent interest means paying roughly $800 more in interest alone.
Your credit score is the single largest factor lenders use to set your rate. Lenders view people with higher scores as lower risk. If you have not checked your credit score recently, you can request a free report once per year from AnnualCreditReport.com, which is the official government site for credit reports.
Key Takeaways
- Personal loan interest rates range from roughly 6 percent to 36 percent annually, depending on your credit score and the lender you choose.
- Your credit score is the primary factor lenders use to determine your rate; higher scores typically receive lower rates.
- The loan term (how many months you have to repay) affects your rate; shorter terms often come with lower rates than longer ones.
- Comparing offers from multiple lenders before accepting shows you what rate you might receive and helps you understand the total cost.
- The annual percentage rate (APR) includes both interest and fees, so comparing APRs between lenders gives you a more complete picture than interest rate alone.
How credit score affects the rate you receive
Lenders use credit scores to predict whether you will repay on time. Credit scores typically range from 300 to 850. People with scores above 700 usually receive the lowest rates available. People with scores between 600 and 700 may receive moderate rates. People with scores below 600 often face rates above 25 percent, and some lenders will not work with them at all.
Your credit score reflects your payment history, how much debt you currently carry, how long you have had credit accounts open, and whether you have applied for new credit recently. If your score is lower than you would like, you cannot change it overnight, but you can improve it over time by paying bills on time and reducing the amount of debt you owe relative to your credit limits.
What the annual percentage rate (APR) includes
The annual percentage rate (APR) is different from the interest rate alone. The APR includes the interest rate plus any fees the lender charges, such as origination fees, processing fees, or prepayment penalties. A lender might advertise a 12 percent interest rate, but the APR could be 14 percent or higher once fees are included.
When you compare offers from different lenders, always compare APRs, not just interest rates. The Truth in Lending Act requires lenders to disclose the APR in writing before you sign any agreement. This disclosure appears on a document called the Loan Estimate, which you should receive within three business days of applying.
How loan term length affects your rate
The term is how long you have to repay the loan, usually measured in months. Common terms are 24, 36, 48, or 60 months. Shorter terms typically come with lower interest rates because the lender's money is at risk for less time. A 24-month loan might carry a 10 percent rate, while a 60-month loan from the same lender might be 12 percent.
However, a shorter term means a higher monthly payment. You have to decide whether you can afford the higher payment in exchange for paying less total interest. A loan calculator can show you the monthly payment and total interest cost for different term lengths so you can compare.
Differences between lenders and loan types
Banks, credit unions, and online lenders often offer different rates for the same borrower. Credit unions are membership-based organizations and sometimes offer lower rates to their members than banks do. Online lenders often approve people with lower credit scores but may charge higher rates to offset that risk. Banks typically require higher credit scores but may offer competitive rates to people who meet their standards.
Some personal loans are secured, meaning you pledge an asset like a car or savings account as collateral. Secured loans usually carry lower rates because the lender can take the asset if you do not repay. Unsecured personal loans have no collateral, so lenders charge higher rates to cover the increased risk.
What happens if you have poor credit or no credit history
If your credit score is very low or you have no credit history, many mainstream lenders will decline you. Some lenders specialize in working with people in this situation, but their rates are typically much higher—sometimes 30 percent or above. Before accepting a high-rate loan, consider whether you could improve your credit score first by becoming an authorized user on someone else's account or by securing a credit-builder loan from a credit union.
A credit-builder loan is a small loan designed specifically to help people build credit. You borrow a small amount (often $500 to $1,000), and the lender holds the money in a savings account while you make payments. Once you repay, you receive the money back and your credit score improves. These loans have lower rates than personal loans for poor-credit borrowers.
How to compare rates from multiple lenders
Most lenders allow you to check what rate you might receive without affecting your credit score. This is called a soft inquiry or prequalification. You provide basic information about your income and credit, and the lender shows you an estimated rate and monthly payment. Soft inquiries do not appear on your credit report.
Once you have narrowed your choices to two or three lenders, you can submit a full application. A full application involves a hard inquiry, which does appear on your credit report and can temporarily lower your score by a few points. However, multiple hard inquiries from lenders within a short window (usually 14 to 45 days, depending on the credit scoring model) count as a single inquiry for scoring purposes. This means you can shop around without significant damage to your score.
Frequently Asked Questions
What is a good interest rate for a personal loan?
A good rate depends on your credit score and current market conditions. If your credit score is above 700, a rate below 12 percent is generally considered competitive. If your score is between 600 and 700, rates between 15 and 24 percent are typical. Rates change frequently, so comparing current offers from multiple lenders shows you what is available to you right now.
Can I negotiate my interest rate with a lender?
Most lenders set rates based on automated formulas tied to your credit score and income, so there is limited room to negotiate. However, some lenders offer rate discounts if you set up automatic payments from a bank account or if you are an existing customer. It never hurts to ask, but your best strategy is to shop around and choose the lender offering the lowest rate.
What if my rate seems too high?
If you receive an offer with a rate higher than you expected, you have options. You can decline and apply with a different lender, work on improving your credit score before applying again, or consider a secured loan if you have an asset to pledge. You can also ask the lender whether any discounts apply to you, such as an autopay discount.
Does the interest rate change after I receive the loan?
Personal loan interest rates are fixed, meaning the rate stays the same for the entire loan term. Your monthly payment does not change. This is different from variable-rate loans, where the rate can go up or down. With a personal loan, you know exactly what you will pay each month.
How much will I pay in total interest?
Total interest depends on the loan amount, interest rate, and term. A $10,000 loan at 15 percent over 36 months costs roughly $2,450 in interest. The same loan at 15 percent over 60 months costs roughly $4,050 in interest. A loan calculator on most lender websites lets you enter your numbers and see the total cost before you apply.