Personal loan interest rates, after steadily rising through 2023, are now at a high. These rates will remain elevated as we move into 2024, making it crucial to compare lenders when shopping for a personal loan.
Improving your loan application before submission can help you secure the most favorable terms—even with higher interest rates. Here’s what you need to know about personal loans in 2024 and how to get the best loan for your needs.
Personal Loan Costs
When considering a personal loan, it’s essential to be aware of the interest rates and other applicable costs. Here’s what to look out for when comparing personal loan costs.
Interest
Interest is the cost of borrowing money, expressed as a percentage of the loan amount. In general, personal loan interest rates range from around 5% to 36%, depending on the lender, your creditworthiness and other factors. The best personal loans come with competitive minimum interest rates and low maximum rates.
Your credit score, employment history, income and debt-to-income ratio (DTI) will all determine the interest rates you’re offered. A high credit score will signal you’ve managed past credit responsibly and help you qualify for lower interest rates. Reliable employment and income can show a lender that you can repay a loan, and a low DTI demonstrates you’re not overextended on your debts and are able to afford loan payments.
Fees
Fees can add up and significantly impact the total cost of your loan, so it’s crucial to understand all potential fees before taking out a personal loan. Some of the most common fees include:
- Origination fee. The origination fee is a one-time lender charge for processing a new loan. It typically ranges from 1% to 8% of the loan amount and is often deducted from the loan funds before you receive them.
- Late payment fee. If you fail to make a payment by the due date, lenders may charge a late payment fee. This fee can either be a flat amount, often $15, or a percentage of the payment due (usually 5%).
- Prepayment penalty. Some lenders charge a prepayment penalty if you pay off your loan before the end of the term. It’s often a percentage of the remaining loan balance or an amount equal to a certain number of months’ interest.
- Non-sufficient funds (NSF) fee. If you don’t have enough money in your account when your lender attempts to withdraw a payment, you may be charged an NSF (non-sufficient funds) fee—typically around $15 to $35.
Terms
Personal loan terms are the conditions or stipulations outlined in a personal loan agreement. Here are some common personal loan terms you’re likely to encounter as a borrower:
- Loan amount. The loan amount or principal is the money you borrow from the lender. It can range significantly from a few hundred to several thousand dollars, depending on your needs and the lender’s offerings.
- Loan term. The loan term is the duration over which you must repay the loan. Personal loan repayment terms usually range from two to seven years but may be longer.
- Fixed vs. variable rate. A fixed-rate loan means your interest rate won’t change over the life of the loan, leading to predictable monthly payments. A variable-rate loan means your interest rate can fluctuate over time, which may lead to higher or lower payments.
Personal Loan Interest Rates Through 2023
Personal loan interest rates steadily rose throughout 2023 due to a series of economic factors. By the end of the year, personal loan interest rates hit an all-time high. High rates make it even more important to compare a wide range of lenders before accepting a loan.
As we step into 2024, the high interest rates underscore the importance of enhancing your qualifications and loan application to secure loans under favorable terms.
Rates Are High Going Into 2024
Interest rates on personal loans have climbed as a result of central banks increasing interest rates in an attempt to control inflation. This, in turn, has resulted in higher borrowing costs across the financial sector—including personal loans.
The implications for consumers considering a personal loan are significant. Higher interest rates mean the cost of borrowing will be substantially more expensive. Ultimately, that’ll make the total amount you’d repay on a personal loan will be much higher, making it even more essential to thoroughly evaluate your financial situation and consider all available options.
How To Qualify for the Lowest Possible Rates
Securing the lowest possible rates on personal loans requires understanding the qualification criteria. Lenders commonly use the following key factors to evaluate your eligibility for the most favorable rates:
- Credit score. Your credit score is critical in securing a low interest rate. Lenders view a high credit score as an indicator of financial responsibility and lower risk, leading to more favorable interest rates. You can improve your credit score with timely debt payments and a low credit utilization ratio.
- Debt-to-income ratio. Your DTI is the percentage of your monthly gross income that goes towards paying debts. Lenders prefer a lower DTI as it shows you have sufficient income to handle your current debts and additional loan repayment. Paying off existing debts, increasing your income or both can help lower your DTI.
- Employment history. A steady, long-term employment history suggests stability and the continued ability to repay the loan, making you a less risky borrower. If you’re considering changing jobs, you may want to secure your loan before making the transition.
- Collateral. Some types of personal loans, known as secured loans, require collateral. This can be an asset like a car or home. If you default on the loan, the lender can seize and sell the collateral to recover their loss. Because these loans present less risk to the lender, they can come with lower interest rates.
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