What is the Average Personal Loan Interest Rate In 2023?

You've been hearing about rising interest rates for over a year now. Did you know interest rates can significantly impact how much you pay over the lifetime of a loan, from personal loans to mortgages? While it's true that average interest rates are higher than three years ago, rates vary widely by lender, borrower, creditworthiness, income, and other factors. 

Personal loan interest rates range from 4% to 36%. Read on to understand average personal loan interest rates and the factors that can affect these averages to secure the best loan for your situation. 

Average Personal Loan Interest Rates Based On Your Credit Score

The biggest factor that impacts the average personal loan Interest rates that borrowers can expect is credit scores. A higher credit score demonstrates financial responsibility in paying back loans. A lender sees a borrower with a high credit score as lower risk and therefore is willing to offer a lower interest rate. Here are the average personal loan interest rates you can expect by credit score: 

Excellent Credit Score Interest Rates

Excellent credit scores are 800 and above. Typical interest rates that individuals with excellent credit scores can expect to receive when applying for a personal loan range from 4.6% to 12%. Of course, this depends on the lender and individual borrower's total financial picture, including debt-to-income ratio. However, if you have an excellent credit score, you can usually expect one of the lowest credit scores the lender offers. 

Good Credit Score Interest Rates

A good or very good credit score ranges from 700 to 800. This credit score can open many of the financial opportunities afforded to those with very good credit scores. Of course, a 100-point range is a large range. Those closer to 800 could take advantage of better interest rates, while those with credit scores closer to 700 might have to pay slightly higher interest rates. Maintaining a good credit score can positively impact the interest rates offered by lenders. Having a score in the good range shows lenders that you can use credit responsibly. 

Average interest rates for people with good credit scores range from 5% to 15.5% or more. Factors influencing exact interest rates include lenders' policies, credit score, income, and debt-to-income ratio. If you have a good credit score, you can expect average interest rates and may be in a position to negotiate for better rates. 

Fair Credit Score Interest Rates

A fair credit score is defined as a FICO score of 580 to 669. If your credit score falls in this range, working to build a higher credit score or getting a co-signer can help secure better interest rates on a personal loan. Average personal loan interest rate for those with a fair credit score range from 17.80% to 28.50% or more. 

You might face challenges in obtaining loans if you have a fair credit score. To improve your credit score quickly, consider using a secured credit card, a credit-builder loan, or rent-reporting companies to build a positive credit history. You could also become an authorized user on the credit card of someone with a high credit score to get a fast credit boost. 

Poor Credit Score Interest Rates

A poor credit score is any credit score from 300 to 580. Those with poor credit scores may have difficulty qualifying for a personal loan. If you have a poor credit score and get a personal loan, you'll face very high interest rates. The average personal loan interest rate for those with poor credit scores ranges from 28.50% to 32% or more. 

A poor credit score shows to lenders that you haven't used credit responsibly or have no credit score. It means there is a high probability you won't pay back the loan. Lenders charge high interest rates to recoup their loans and compensate for the additional risk they take by lending to borrowers with low credit scores. 

If you have a poor credit score, focus on rebuilding credit and gradually access better rates. This can be valuable not only for personal loans but to be able to access better financial products.

To improve your credit score, a secured credit card, a credit-builder loan, or rent-reporting companies to build positive credit history. You could also become an authorized user with someone who has a high credit score to get a credit boost. 

Average Loan Rates Depending On The Type Of Lender

Different types of lenders offer varying interest rates for personal loans. Traditional banks typically offer higher interest rates, while online lenders and credit union personal loan rates may be more favorable terms. Here's how each one works: 

Traditional Banks And Credit Unions

Average personal loan interest rates offered by traditional banks and credit unions vary but can range from 5.91% to 23% or more. These institutions offer stability and familiarity for borrowers. They must also balance risk and interest income on loans with other offerings. Credit unions may offer slightly lower interest rates or more favorable terms than banks. 

Online Lenders And FinTech Companies

Online lenders and financial technology (FinTech) companies are an emerging sector that often offers more competitive interest rates and attractive terms for borrowers. Typical interest rates provided by online lenders range from 8% to 25% or more. 

Online lenders and FinTech companies are disrupting traditional lending structures to offer borrowers greater convenience and lower costs. With most of these options, you can apply online from home.

Peer-To-Peer (P2P) Lending Platforms

The collaborative nature of P2P lending means you could secure a lower interest rate. However, peer-to-peer lending platform interest rates can be lower than other options, with averages from 6% to 36%. Find some of the best peer-to-peer lending platforms here. 

Credit Card Consolidation Loans

Credit card consolidation loans are designed to help you pay off debt more easily by consolidating multiple credit cards into a single, lower-interest loan. Average interest rates for credit card consolidation loans range from 6% to 36% and vary by factors like credit score, income, and total debt. 

Additional Variables Influencing Your Personal Loan Interest Rate

Beyond credit score, several factors can influence your personal average loan interest rate. First, lender types can impact personal loan rates. In addition, loan terms, loan amounts, income, and debt-to-income ratios can all affect interest rates and fees. Here's how each of these factors can impact average personal loan interest rates:

Credit Score And History

A borrower's credit score and credit history significantly impact their personal loan interest rate. Higher credit scores often lead to lower interest rates due to the lower perceived risk for lenders. 

However, credit score and credit history aren't the only factors to consider. Even with an excellent credit score, you'll want to search for lenders and terms to find the best options. 

Loan Amount And Term

The loan amount and repayment term can influence the interest rate. Generally, larger loans may have higher interest rates as the lender assumes greater risk. Likewise,  longer terms can have higher interest rates to mitigate lender risk. Assuming other factors are equal, a 12-month loan of $1,000 will carry a significantly lower interest rate than a $25,000 loan for 60 months. 

Income And Debt-To-Income Ratio

A borrower's income and debt-to-income ratio affect their interest rate. Borrowers with higher incomes and lower debt ratios may be offered more favorable rates due to their financial stability. Lenders look for borrowers with lower debt-to-income ratios, which suggests that you'll easily have available funds to pay off the loan. Most lenders prefer a 30% or less debt-to-income ratio, but this can vary by lender. 

Employment Stability

Stable employment history can also impact interest rates. Lenders may view borrowers with consistent employment more favorably, potentially resulting in lower interest rates. While you could get a personal loan without stable employment, the interest rates may be higher. 

Collateral And Secured Loans

If you're offered high interest rates, you could consider offering collateral for a loan. Secured loans, backed by assets like vehicles or property, may result in lower interest rates due to the reduced risk for lenders.

Market Conditions

With all loans, prevailing market conditions, including economic trends and interest rate fluctuations, can impact personal loan rates. Borrowers might experience varying rates based on broader financial dynamics beyond individual considerations. Federal interest rates also impact consumer interest rates. 

How to Obtain a Favorable Interest Rate for Your Personal Loan

To determine what qualifies as a good interest rate for their specific situation, look at the average interest rates above based on your credit score range. Aim for the low end of each range, and consider how a specific interest rate will affect your overall financial health - and how much you'll pay in interest!

You can get pre-qualified with multiple lenders. Then, compare offered and average rates. Consider the impact of the loan on overall finances and whether you can comfortably pay that amount back while reaching other financial goals. Here are some other tips to consider:

Compare Market Averages

It's important to compare the offered interest rate with the current market averages for similar loans. Borrowers can research prevailing rates to determine if the offered rate aligns with the general trend. Check out the best personal loans here for current rates. 

Credit Score Benchmark

When searching for the best interest rates, consider your credit score and creditworthiness as benchmarks. If your credit score qualifies you for lower interest rates, gauge the offer against your credit tier and comparable rates.

Lender And Loan Type

Different lenders and loan types might come with varying interest rates. Banks, credit unions, and online lenders may offer different rates, and the type of loan (secured or unsecured) can also influence the rate. Shop around before settling on one lender or type of loan. 

Terms And Conditions

Understanding the loan's terms and conditions is essential to avoid hidden fees or higher interest. Borrowers should assess if the interest rate is fixed or variable and if any hidden fees could affect the overall cost.

APR Calculation

Look at APR over interest rates. Annual Percentage Rate (APR) includes both the interest rate and additional fees, providing a more accurate representation of the loan's true cost. Comparing APRs can help in accurate analysis to choose the best option.

Negotiation And Pre-approval

Negotiating with lenders and seeking pre-approval can be advantageous. This may give you a clear picture of the interest rate range you can expect and help you negotiate better terms. Remember, especially if you have a good or excellent credit score, you may be able to negotiate for better terms!

Average Loan Interest Rates

Average loan interest rates vary widely based on personal financial factors, lender, and the wider economic situation. The best way to understand your personal average loan interest rate is to get prequalified and compare rates offered. Remember to shop around to find the best terms. 
While searching for the best loan terms, if you can work to raise your credit score, even a 10 to 20-point credit score increase could lead to lower interest and significant long-term savings! With a focus on building your credit score and increasing competition in online lenders, you could qualify for better loan interest rates. Explore how much a lower interest rate could save you here.

Frequently Asked Questions