When you take out a personal loan, you are charged interest in exchange for the lender providing you with upfront funds. Interest rates depend on a variety of factors, none as important as your credit score. This is how lenders will determine if you are trustworthy enough to repay the loan.
When interest is charged on a personal loan, it is known as an annual percentage rate, or APR. APRs can either be fixed, meaning they stay the same for the loan term, or they can be variable, which means they fluctuate throughout the life of the loan depending on outside factors. Continue reading to learn all about APRs for personal loans.
Borrowing money costs money. When it comes to personal loans, you will be assessed an annual percentage rate (APR) by the lender. Most personal loans have fixed APRs that remain the same throughout the life of the loan.
Those that have variable APRs can only be raised to a certain limit defined by the government to protect borrowers from unfair increases.
If you are a low-risk borrower, you will generally have a lower APR. Lenders consider you a low-risk borrower if you have a high credit score, low debt-to-income (DTI) ratio and a solid repayment history.
Personal loans have an average APR of 9.41%, although it’s important to point out that rates can be much lower for borrowers with good credit.
Don’t have stellar credit? Not to worry. You can gradually improve your score by actively reducing your debt, making on-time payments and avoiding incurring more debt.
While it may be best to wait to apply until you improve your credit score, you may still be able to find lenders willing to work with you. That’s why it is important to shop around and compare rates before you apply for a loan.