Personal loan rates can vary greatly from one lender to the next. Institutions like credit unions, banks, and well-known lending institutions are places people are most likely to seek out personal loans. While credit unions tend to offer better rates, there are several other factors that determine personal loan rates. The loan amount, credit history, terms of the loan, and purpose may influence interest rates. It is always best to be armed with knowledge before considering a personal loan.
Smaller loans that are paid back within 12 months or less often come with slightly higher interest rates. However, a small personal loan can often be used to pay for unforeseen repairs or expenses, at a much lower interest rate than using a credit card. Interest rates for personal loan financing can generally range from 6% to 36%, depending on the lender, terms, and other factors. Smaller loans can be used for nearly anything that is considered legal, though the lending officer may ask what the borrower intends to use the loan for.
Type of Loan
Personal loans can be classified as secured or unsecured. Unsecured loans don’t require the borrower to put up collateral, or personal property with some value, to take out the loan. However, unsecured loans tend to have higher interest rates than secured loans. To get the lowest rate possible, consider a secured loan, if you have anything of value such as a collection of art works, jewelry, or something of value that can be verified.
Personal loans with longer terms tend to have lower rates, because lenders know they are getting their money back with interest over time. Though shorter term loans are paid off quickly, they often come with higher interest rates and many institutions will try to avoid them when possible.
Credit history and score is another factor in determining interest rates for personal loans. The better the credit history, the lower the interest rate, in general. If you’re trying to establish or re-establish credit, be prepared to pay a higher rate. However, you should still be able to find personal loans with rates lower than credit cards.
People take out personal loans for a variety of reasons, car or home repairs probably top the list. Medical bills, weddings, funerals, and other family related events are also reasons people seek personal financing. Minor home upgrades, vacations, and debt consolidation are other reasons for seeking out personal loans.
Personal loan rates vary from one region of the country to another, just as they vary from one borrower to another. In regions that are suffering economically, you can expect to pay higher interest than if you live somewhere where the economy is booming.
Personal loans are often a sound way to re-establish credit, establish credit, pay for unforeseen expenses, or handle events like weddings and funerals. It’s not advisable to wait until the event nears to try and find the best rates or terms. By understanding what affects interest rates, you can be more informed before seeking out the personal loan you need.