Personal loan rates have come down. For those with excellent credit, personal loan interest rates for 60-month or 5-year terms are now 13.76%, down from 14.95% the previous week, while for 36-month terms or 3-year yields rose to 12.6%, from 13.71% a week earlier, according to Bankrate’s latest data for the week ending May 9. But if your credit score isn’t among the cream of the crop, expect to pay more. Overall average personal loan interest rates for 60-month terms are 23.43%, down from 24.42% the previous week, while for 36-month or 3-year terms, rates hit 22, 48%, compared to 23.5%. You can see the lowest personal loan rates you can qualify for here.
An introduction to personal loans
A personal loan is money borrowed from a bank, credit union, or online lender that provides a borrower with a lump sum of cash. Personal loans are typically repaid over approximately one to seven years, over a set repayment period, consisting of monthly payments including principal and interest. Personal loans typically range from $1,000 to $100,000 and are offered both secured (you provide collateral) or unsecured (no collateral), although most are unsecured, which makes them easier obtainable, especially for people who do not have substantial assets.
Should I take out a personal loan?
Personal loans can be used to cover anything from emergency home repairs to medical expenses and even large one-time purchases. Because personal loans fund quickly, sometimes in as little as a day, they can be a great option for people who need money fast. (You can see the lowest personal loan rates you can qualify for here.) On the other hand, because they are often unsecured, they often face higher interest rates than other loans that require collateral. That said, if you don’t have any assets to stake and time is of the essence, using a personal loan may be your best bet.
One caveat to consider when taking out a personal loan is that because it’s easy to qualify, it can be tempting to take out more money than you actually need. Don’t, experts say, because if you withdraw more than you need, you have to pay back the full amount with interest. If you are unable to repay part of the balance, you may see your credit score decline, which may affect your ability to take out future loans and benefit from lower interest rates.
Before taking out a personal loan, make sure you understand the structure of the loan and the fees associated with it. Personal loans are not exempt from origination fees, which can range from 1% to 8% of the loan amount. Therefore, if you need to withdraw $100,000 and your origination fee is 7%, you would actually want to apply for a Loan of $107,000 to cover the fees which are usually reduced from the top of the loan, thus ensuring that you do not not miss when the loan is funded.
Get the best rates on personal loans
As with any type of loan, the higher your credit score, the lower your interest rate will generally be. That’s why experts recommend prequalifying for a loan using a soft credit check, so you can get an idea of the rate you’ll pay, without affecting your credit score. This MarketwatchPicks guide can also help you navigate the personal loan application process.