Here’s exactly what you can expect to pay on a personal loan right now, based on your credit score.

For those who have excellent credit, good news on the personal loan side: the rates for the week of October 4 have dropped slightly, from 14.20% for a three-year loan and 14.97% for a five-year loan. previous week, to 13.68% and 14.22%, respectively, according to data released this week by Bankrate. And you could get a much lower than average rate because a number of issuers offering rates from around 5%, for qualified borrowers. But for those who only had fair credit, the rates actually increased slightly, reaching 27% for a three-year loan and 20.61% for a five-year loan, from 26.69% and 26. 26%, respectively. (You can view all the latest rates, broken down by credit score, in the table below.)

	3 years, fixed rate	5 years, fixed rate
Excellent (720-850)	13.68%	14.22%
Good (690-719)	20.42%	20.50%
Fair (630-689)	27%	20.61%
Poor (300-629)	29.85%	29.69%

What is a personal loan?

A personal loan is a loan issued by an online lender, bank, or credit union, typically in the amount of around $ 1,000 to $ 100,000. You often repay personal loans at regular intervals, such as monthly, over a period of one to seven years. You can often get these loans quickly, sometimes in as little as a day or two, and they sometimes carry lower interest rates than credit cards, but usually higher interest rates than value loans. home equity or home equity lines of credit.

Who could benefit from a personal loan?

If you need a loan quickly, this might be a good option for you, assuming, of course, you can pay it off and get a good rate. “Obtaining a personal loan often allows you to accomplish something faster by giving you funds up front rather than waiting to save for it,” says Lauren Anastasio, Certified Financial Planner at SoFi. And Ted Rossman, senior industry analyst at CreditCards.com, notes that in addition to quick financing, these loans are often easier to obtain than other types of financing like business loans, especially if you are just starting out and doing business. don’t have much. , where applicable, the company’s income.

“Personal loans can be very useful tools depending on how you use them,” adds Anastasio. This is because you could use a personal loan to consolidate your debt and potentially save money if you got a lower interest rate on the personal loan than your debt. Another advantage? When moving credit card balances to a personal loan, moving revolving debt to an installment loan can significantly improve one’s credit, says Matt Schulz, chief credit analyst at LendingTree. Your credit mix, or the variety of loan types on your credit report, is an important factor in FICO credit scoring formulas, ”he explains.

Personal loans also work well for home improvement projects that you want to get started quickly, like a roof repair, because you can usually go from applying to financing in a week or less, experts say. They can also be an alternative to small business loans, and if you have good credit, they can come with lower interest rates than business and personal credit cards.

But experts say you shouldn’t use personal loans to cover discretionary purchases like vacations and retail splurges. “Personal loans are a big commitment for short-term discretionary purchases. Everyone’s looking forward to getting out and traveling these days, but even the smallest personal loans often have repayment schedules of a year or more, ”says Annie Millerbernd, personal loans expert at NerdWallet.

What are the advantages and disadvantages of personal loans?

Besides being financed quickly, these loans also have other advantages. “Not only do you avoid putting your home or car at risk, but you also avoid giving up any equity in your business,” says Rossman; this is because most of these loans are unsecured which means that the borrower does not have to provide collateral to secure the loan.

However, their interest rates can be higher than other types of loans like home equity loans and HELOCs. And you have to pay attention to the costs. Millerbernd cautions borrowers to be careful with origination fees. “Lenders who charge a origination fee often take a percentage of the amount you borrow from the loan before it reaches your account, which is something to consider if you are trying to borrow a specific amount because with of setup costs, you could find yourself short of a few hundred to a few thousand dollars, ”says Millerbernd. And she adds, “Personal loans also have the potential to speed up spending, giving you the ability to pay for a large expense without having to save for it. “

What do personal lenders look for in a borrower?

Rossman says that every lender is different, but they usually don’t overly care what the reason for your personal loan is. “Typically, they’re much more concerned with your credit score, income, debt-to-income ratio, and other factors that influence the likelihood of you paying them off,” says Rossman. The debt to income ratio can be calculated by adding up all of your monthly debt payments and dividing them by your gross monthly income; many lenders are looking for a DTI of 35-40% or less, although many lend to people with a higher ratio.

How to get a personal loan if your credit score is lower

In general, the lower your credit score, the more interest you will pay on a personal loan. And some borrowers may not qualify at all. That said, there are some things you can do that could take you from being rejected to being accepted by a lender. “If you’re near the threshold, making a large payment on a revolving balance or using something like Experian Boost could put you over the bump pretty quickly,” says McBride. Additionally, “if you make all of your debt and bill payments on time and pay off all revolving debts, time will heal the wounds,” he adds. Remember, you need to pay off a personal loan in full and on time to make sure it doesn’t affect your credit score down the road.