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What is the Interest Rate on Personal Loans?

If you’re seeking a personal loan, it’s essential to find an option that has an affordable interest rate. The amount of interest that you can afford will depend on your financial circumstances.

Let’s explore the typical interest rates you will be offered on personal loans and methods to obtain the lowest rates on the market.

The Average Interest Rate on Personal Loans

While the interest rate that you receive depends on a variety of factors, the average interest rate on a personal loan in the United States 10.6 percent. The rate applies to 24-month loans and valid as of May 2019.

If you do decide to obtain a loan with a lengthier term, you might find that the interest rate is reduced. Those applying with a credit score below 680 can also expect to find much higher interest rates.

How Can I Obtain a Better Interest Rate?

If you want to secure a better interest rate on a personal loan, preparation is critical. Before you file your next lending application, compare rates across different lenders, and find the lowest rates. The most effective way to lower your interest rate offer is to improve your credit score before you turn in your application.

Your credit score is one of the main determinants of the interest rate that a lender will offer. If you have a low credit score that you can’t improve, consider searching for lenders that offer alternative credit checks (such as income checks).

What Impacts Your Credit Score?

If you want to improve your credit score, you need to understand what impacts your report. These four primary factors influence your score:

1. Revolving Credit Balances — Credit Utilization
One of the primary determinants of your credit score is your revolving credit balance. The less credit you use in relation to your limits, the better your score.

If you’re currently carrying high balances on your credit cards, reducing the balances can quickly improve your credit score. Many lenders report balances every month, which means you can see an immediate improvement in your credit score.

2. Payment History
Making prompt payments is another way to build your credit score. You can’t reverse a late payment, so it’s always important to pay your credit cards and other bills on time. Diligent repayments will improve your score drastically and increase the chances of you being offered a lower interest rate.

3. Credit Inquiries
Every time a lender runs a hard credit check on your credit file, the transaction is recorded. It is one of the primary ways that other lenders can assess how often you apply for financing. If you have a vast number of credit inquiries on your report, it can severely damage your score.

Keeping hard checks to a minimum is an excellent way to avoid impacting your credit report. If you’re going to apply for multiple loans, search for lenders that run ‘soft credit checks’ or other types of credit inquiries.

4. Credit History Length
One factor that you can’t change is your credit history length. The longer you have a credit profile, the better your score. It’s wise to start building your credit as soon as possible.

Verdict: Prepare for the Best Rate

You can compare various rates across the market, but the best way to lower the interest rates you’re offered is to prepare for your application.

  • Check your credit score and the items on your credit report.
  • Lower your current credit card balances.
  • Decrease your utilization of the limits.
  • Pay your credit card bills on time.
  • Avoid carrying a balance on more than one card.

A few simple steps go a long way to saving you a considerable amount of money on your next loan.

Writer

Vivaan Marsh is a professional writer, editor and an expert in personal finance. Her career as a professional writer stretch for over 11 years. One of her passions in life is to help everyday families with there financial problems, making their life a bit easier and explaining complicated topics in an easy way. Read more >

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