Personal loans are a great way to consolidate debt, fund your next business venture, pay for a wedding or honeymoon, deal with unexpected expenses, or renovate your home. Unlike a mortgage or car loan, you are not restricted to how you can spend your funds. Personal loans and personal lines of credit can be obtained from banks, credit unions, and even online lenders.
But what about personal loan interest rates?
Personal loan interest rates can vary widely depending on your credit score, general creditworthiness, which financial institution you borrow from, and the type of loan product you receive. Keep reading to learn more about personal loan interest rates and the different types of personal loans.
Interest Rate Basics
An interest rate is the percentage of principal charged by the lender per payment for using their services to borrow money. The rate you receive is tied to your credit score and your debt-to-income ratio.
When you apply for a loan, the lender will check your overall financial health and creditworthiness and offer you an interest rate accordingly. This evaluation process typically includes reviewing your credit report, income, employment history, market conditions, and your assets or collateral.
In addition, interest rates are either fixed or variable rates, which are essentially the best rate a financial institution is willing to offer its most qualified customer. Variable rates are affected by the Prime Rate. The Prime Rate is influenced by the federal funds rate set by the Federal Reserve Board. Those with lower credit scores can expect their rates to be progressively higher than the prime rate depending on their credit score.
Types of Personal Loans
Now that you are familiar with personal loan interest rates, you are ready to look at how the type of personal loan can impact the rate you receive.
Unsecured Personal Loans
Unsecured personal loans are the most common loan product offered to consumers with the best credit score and creditworthiness. They are the ideal loan to get if you can qualify.
Low-rate personal loans are a better choice to fund your needs compared to credit cards, which may have higher rates and take longer to pay off. They are also a popular way to pay off debt quickly by consolidating your high-interest debt into one low monthly payment.
Ideally, a personal loan will have no fees and should have a relatively short repayment period as well as no early payoff penalty.
Secured Personal Loans
If you don’t qualify for an unsecured loan, you can obtain a loan based on collateral. A secured loan lets you borrow against assets you already have, such as a home, vehicle, or existing bank account.
If you are just starting out and building your credit, a secured personal loan is a helpful way to pay for unexpected expenses, consolidate debt, or invest toward your future. Funds can be used for whatever you like, from starting a business to funding a wedding or trip. Loan terms typically include low interest rates and short repayment periods with no payoff penalty.
Personal Lines of Credit
Personal lines of credit are also unsecured and do not require the use of any assets or collateral. Unlike a personal loan, a personal line of credit is open and revolving, giving you access to your available credit line any time, for any reason. With a line of credit, you will only pay interest on the funds you receive.
One downside to a personal line of credit is that utilizing all of your available credit or carrying a high balance can negatively affect your credit score. Likewise, if you are tempted to spend and run up debt, you may want to avoid having an open line of credit.
Personal lines of credit offer lower interest rates than credit cards but are typically higher than fixed-rate personal loan interest rates.
Personal Loan Interest Rates: Let Us Help!
The interest rate attached to your loan can make a big difference in both your monthly payment and your overall payoff amount. Therefore, it is to your advantage to fix your credit, shop around, and get the lowest rate possible.
Typically, you will receive better customer service, lower rates, and more advantageous loan terms from going through a local credit union. At APGFCU, we offer personal loans and lines of credit with no fees1, exceptionally low rates, and easy applications. If you think a personal loan is right for you, let us help you with life’s expenses.
1Excludes late fees and any delinquent account fees