Savings window opens: Personal loan interest rates edge down for 3-year fixed-rate loans

Borrowers with good credit seeking personal loans during the past seven days prequalified for rates that were lower for 3-year loans and higher for 5-year loans compared to the previous seven days.

• Rates on 3-year fixed-rate loans averaged 12.08%, down from 12.23% the previous seven days and up from 10.45% a year ago.
• Rates on 5-year fixed-rate loans averaged 15.24%, up from 15.02% the previous seven days and up from 12.62% a year ago.

Personal loans have become a popular way to consolidate and pay off credit card debt and other loans. They can also be used to cover unexpected expenses like medical bills, take care of a major purchase or fund home improvement projects.

Personal loan interest rates fell over the last seven days for 3-year fixed-rate loans, while rates for 5-year loans rose. Rates for 3-year loans dipped 0.15 percentage points, while 5-year loans edged up 0.22 percentage points. In addition to this week's rate changes, interest rates for both loan terms remain higher than they were this time last year. Still, borrowers can take advantage of interest savings with a 3-year personal loan right now. Both loan terms offer interest rates that are much lower than higher-cost borrowing options such as credit cards.

Whether a personal loan is right for you often depends on multiple factors, including what rate you can qualify for. Comparing multiple lenders and their rates could help ensure you get the best possible personal loan for your needs.

Personal loan weekly rates trends

For the month of January 2023:

• Rates on 3-year personal loans averaged 12.51%, down from 13.03% in December.
• Rates on 5-year personal loans averaged 15.68%, down from 17.21% in December.

Current personal loan rates by credit score

In January, the average prequalified rate selected by borrowers was:

• 10.63% for borrowers with credit scores of 780 or above choosing a 3-year loan
• 30.07% for borrowers with credit scores below 600 choosing a 5-year loan

Depending on factors such as your credit score, which type of personal loan you’re seeking and the loan repayment term, the interest rate can differ.

As shown in the chart above, a good credit score can mean a lower interest rate, and rates tend to be higher on loans with fixed interest rates and longer repayment terms.

How to get a lower interest rate

Many factors influence the interest rate a lender might offer you on a personal loan. But you can take some steps to boost your chances of getting a lower interest rate. Here are some tactics to try.

Increase credit score

Generally, people with higher credit scores qualify for lower interest rates. Steps that can help you improve your credit score over time include:

• Pay bills on time. Payment history is the most important factor in your credit score. Pay all your bills on time for the amount due.
• Check your credit report. Look at your credit report to ensure there are no errors on it. If you find errors, dispute them with the credit bureau.
• Lower your credit utilization ratio. Paying down credit card debt can improve this important credit-scoring factor.
• Avoid opening new credit accounts. Only apply for and open credit accounts you actually need. Too many hard inquiries on your credit report in a short amount of time could lower your credit score.

Choose a shorter loan term

Personal loan repayment terms can vary from one to several years. Generally, shorter terms come with lower interest rates, since the lender’s money is at risk for a shorter period of time.

If your financial situation allows, applying for a shorter term could help you score a lower interest rate. Keep in mind the shorter term doesn’t just benefit the lender – by choosing a shorter repayment term, you’ll pay less interest over the life of the loan.

Get a cosigner

You may be familiar with the concept of a cosigner if you have student loans. If your credit isn’t good enough to qualify for the best personal loan interest rates, finding a cosigner with good credit could help you secure a lower interest rate.

Just remember, if you default on the loan, your cosigner will be on the hook to repay it. And cosigning for a loan could also affect their credit score.

Compare rates from different lenders

Before applying for a personal loan, it’s a good idea to shop around and compare offers from several different lenders to get the lowest rates. Online lenders typically offer the most competitive rates – and can be quicker to disburse your loan than a brick-and-mortar establishment.

But don’t worry, comparing rates and terms doesn’t have to be a time-consuming process.

About Credible