What are interest rates like on personal loans?

By Sabrina Karl

Although personal loans aren’t a new financing option, they’ve dramatically risen in availability and popularity in recent years. You may be seeing teasers for loans splashed on your bank or credit card login page, or may be getting personal loan offers in the mail.

 

Personal loans are a sort of hybrid between credit cards and mortgages or auto loans. Like a credit card’s line of credit, you can use a personal loan for whatever you like. And it’s unsecured by any collateral.

 

But personal loans are structured like auto loans and mortgages. You apply for a certain sum, and if approved, you get the funds in a lump sum. You’ll then have a set repayment schedule of equal monthly payments.

 

So what do interest rates look like for personal loans? Here again, rates are often between auto and home loan rates and credit card rates. Though they’re unsecured, the fixed amount, term, and payments of personal loans make them slightly less risky than a free-reign spending limit on a credit card. So rates tend to be better than card rates.

 

The very best rates on personal loans currently run around 6%. Note, however, that personal loan rates are heavily dependent on your credit score. If you only have a mediocre credit rating, you likely won’t get a rate in the single digits. The length of the term also matters. Personal loan terms are generally 1 to 7 years, and the longer the term, the higher the rate.

 

Beware that some personal loans will offer rates above 20%, or even 30% or more. At any interest rate, and especially at these very high ones, it’s critical you thoroughly investigate your other options to make sure a personal loan at that cost is your best move.

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