If you need quick cash, a personal loan can provide you with fast financial relief. Whether you have an unexpected bill or are planning a vacation, these loans can help. Like other types of loans, personal loan rates vary depending on the lender. That’s why it’s important to shop around and compare rates, so you know if you’re getting the best deal.
Learning how to compare personal loan rates is the key to keeping your credit score high and interest charges low. Continue reading to learn more about personal loan rates and how to find the best rates available.
Each personal loan is unique. Although the application process is usually fast and simple, it’s important to do some homework before signing on the dotted line. You want to be sure that you are getting the lowest interest rate or finance charge available.
A finance charge is affixed to the loan as an annual percentage rate (APR), which is the yearly cost charged to borrowers in exchange for borrowing money.
Personal loans can have fixed or variable APRs. A fixed APR does not change throughout the life of the loan, whereas variable APRs fluctuate depending on the market.
Oftentimes, variable rates change based off the prime rate, which is the amount of interest that lenders and financial organizations charge one another when conducting business between financial organizations.
Most personal loans have fixed APRs, so borrowers don’t need to worry about the rate increasing. However, it’s important to note that although personal loans with variable APRs can increase, there is a regulatory cap. This means that APRs can only be raised up to a specified limit, protecting the borrower from extreme fluctuations.
Personal loan APRs are highly dependent on the borrower’s credit score. Generally, the higher the credit score, the more reliable the borrower is. In turn, lenders can charge lower APRs because there is a higher chance of the borrower repaying the loan in a timely manner.
But personal loan rates can also be affected by other factors, such as:
- The type of loan (secured vs. unsecured).
- What the loan will be used for.
- The repayment term.
- Employment history.
- Company policies.
So, which loans have the lowest personal loan rates? Generally, the longer the loan term, the better the rate. Similarly, loans provided by credit unions tend to have lower APRs than online-only institutions. To sum up, when the lender takes less of a risk to lend the money, the borrower is granted a lower APR.