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The average interest rate on a 5-year fixed-rate personal loan fell from 16.51% in the week of August 30 to 15.3% in the week of September 6, according to data from Credible who examined borrowers with a credit score of 720 and above that used their market. In contrast, the average rate of a 3-year fixed rate personal loan increased slightly from 11.72% to 11.97%. Having said that, the rate that you will get personally on a personal loan depends on factors such as credit score, loan term, loan amount, and the lender. And some rates start as low as 2.49%; see the lowest rates you can qualify for here and below. Note that to get the lowest rates you usually need to have great credit, use the personal loan for specific things, and have a shorter loan term. And these loans are not suitable for everyone. Here’s what to know before removing one.
What is a personal loan?
Quite simply, this is a fixed amount loan that you get from an online lender, bank, or credit union that you will typically pay back, usually monthly, over a period of time. from one to seven years. Loan amounts tend to range from around $ 1,000 to $ 100,000.
Should you take out a personal loan?
If you have great credit and need cash quickly, taking out a personal loan can mean a quick approval process and lower rates than with a credit card. If your credit is not good, personal loan interest rates can be high.
Not only do you make sure that you can repay the loan (failure to do so can damage your credit score and your ability to secure future loans at good rates), but that you also factor in fees such as origination fees. . Annie Millerbernd, personal loans expert at NerdWallet, explains that origination fees can range from 1% to 6% of the loan amount depending on your credit – or can be a single flat rate. Learn more about origination fees on personal loans here.
What should you – and should not – use a personal loan for?
“If you can get a lower rate than alternatives, a personal loan can be an attractive way to consolidate credit debt, medical debt, finance your business, or improve your home,” says Rossman, Senior Industry Analyst at Bankrate. “Refinancing private student loans with a personal loan might make sense, but I couldn’t recommend it for federal student loans because they have more generous forbearance and forgiveness policies,” says Rossman.
Don’t use a personal loan for discretionary purchases like vacations or to pay for a wedding, experts say, as interest charges can easily add up. “It’s easy to end up spending too much money and paying a lot of money in interest. It would be best to save and pay with your savings if possible, ”says Rossman.