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Last week, rates on personal loans declined. If you’re interested in finance a vehicle or home remodeling project, or temporarily need to improve your cash flow, you can grab a fair rate, so long as you’re able to meet the qualification requirements.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s personal loan marketplace, the average interest rate on a three-year personal loan was 10.84% from June 6 to June 10. According to Credible.com, that’s a 0.56% drop from the previous week. The average rate on a five-year personal loan fell 0.20% last week to 13.33% from 13.53%.
Keep in mind that the rate you’ll receive depends on several factors, including your creditworthiness and the loans available through your chosen lender. The most creditworthy borrowers may be able to receive rates significantly lower than average.
Related: Best Personal Loans
How to Compare Personal Loan Rates
If you’re out to get the best rate, be sure to look for lenders who offer a personal loan prequalification process. While many lenders post their rates online, this only gives you a range of what they offer, not an exact rate based on the qualifications you meet. However, when you prequalify for a personal loan, a lender will run a soft credit check to prescreen you, which has no impact on your credit score.
Based on this information, the lender will give you a snapshot of the terms you could qualify for, including loan rates, terms and limits. You can prequalify at multiple lenders and compare the terms to find the best loan for your specific situation.
Prequalification doesn’t imply approval for a loan. You’ll still need to submit a formal application and additional documentation to get the loan you want. Typically, lenders run a hard credit check when you’re officially applying for a loan. Hard credit checks can ding your score by one to five points.
Related: 5 Personal Loan Requirements To Know Before Applying
Estimate Your Personal Loan Payments
Once you have an idea of your personal loan interest rate, you can calculate your monthly payments. You will need to enter your loan’s interest rate, amount and term. This will help you determine how much you’ll owe monthly and how much you’ll pay in interest over the life of your loan.
For example, let’s say you get a $5,000 personal loan with a term of five years at a fixed interest rate of 13.33%. You’d pay approximately $115 monthly and around $1,877 in interest over the life of the loan, according to the Forbes Advisor personal loan calculator. Overall, you’d pay $6,877 in total, which includes both principal and interest.
Average Personal Loan Interest Rates by Credit Score
The rates below are average estimated personal loan interest rates according to VantageScore risk tiers, according to Experian. Though the rates below can serve as a general guideline, note that interest rates are ultimately set and determined by lenders.
Getting the Best Rates
Personal loan interest rates are based on a number of factors, including your overall creditworthiness, credit score, income and debt-to-income (DTI) ratio. Two quick ways to help you receive more favorable rates include paying down existing debt to help lower your DTI and improving your credit score.
Rod Griffin, senior director of consumer education and advocacy at Experian, recommends “checking your credit report and scores three to six months before you apply for a personal loan,” as this will give you enough time to make any necessary improvements.
While qualification requirements differ across lenders, a minimum credit score of 720 will typically yield you the best terms. If your score falls below this marker, and you’re on a quest for the lowest rate possible, you can take action to improve your score. Try strategies like lowering your credit utilization ratio, removing errors from your credit report and paying your bills early or on time.