Best personal loan rates for April 2021

 Interest rates on personal loans currently range from about 3% to 36%. The rate you get is determined by a number of factors, including your credit score, annual income, and debt-to-income ratios. It's best to shop around and compare personal loan rates from different lenders to find the best personal loan for your financial situation.

How to get a personal loan

With so many lenders to choose from, you might view getting a personal loan as a daunting task. Here are five tips for getting a personal loan:

  1. Determine how much you need. Write down the amount of money you'll need for your loan purpose, whether that's debt consolidation or a home repair. Make sure to factor in any origination fees, which some lenders take out of the total loan amount.
  2. Check your credit score. The higher your credit score, the better APR you'll receive. If you have fair or poor credit, consider adding a co-signer to your loan; a co-signer with good credit will improve your overall credit picture and earn you more favorable rates.
  3. Get prequalified. Many lenders allow you to check your rates using a process called prequalification, which won't hurt your credit score. Compare rates from a variety of lenders, including online lenders, banks and credit unions, to see which offers you the best deal.
  4. Complete the approval process. Once you receive an offer and accept the loan, you will likely have to submit pay stubs, tax documents and personal identification. Many lenders allow you to submit these documents online.
  5. Begin loan payments. After finalizing your loan, you'll likely receive your funds within a week, although many online lenders boast funding in as little as one business day. Make sure to note your first payment due date and consider setting up automatic payments if they're available; many lenders offer discounts for doing so.

For more information, check out our article on how to get a personal loan.

How to choose a personal loan company

It's always best to get quotes from a few different lenders before applying for a personal loan. When comparing lenders, keep an eye on the following factors.

Approval requirements

Every lender has its own threshold for approving potential borrowers. Lenders will likely consider your credit score, debt-to-income ratio, income and more. Many will list some or all of these requirements on their websites, so it's worth doing a little research before applying. If you have below-average credit, look for lenders that utilize other approval criteria; some will take into account things like your area of study or job history.

Interest rates

Your interest rate is one of the most important things to consider when comparing lenders. If you have good credit, you can focus on lenders that advertise low rates. However, the lowest advertised rate is never guaranteed, so make sure to compare your actual quotes as well.

When comparing interest rates, also make sure to incorporate any fees or penalties; origination fees or application fees can significantly add to the overall cost of your loan.

Loan amounts

You'll want to choose a lender that offers loans with your desired funding amount. If you need a loan for something small, like a minor car repair, you'll look at different lenders than you would if you need to pay for tens of thousands of dollars in medical bills.

Repayment options

A good personal loan lender usually offers multiple repayment terms so you can choose the one that makes the most sense for your situation. If you're borrowing a lot of money, you may want to look for a lender with long repayment terms — doing so will decrease your monthly payment. If you have a smaller loan, a shorter repayment term will cut back on the amount of interest you pay overall.

Unique features

In addition to the features above, you may want to keep an eye out for lenders with any unique perks (or restrictions). Ensure that any lender you're considering will allow you to use your loan for the purpose you're intending. Some, like Payoff, restrict their personal loans to specific uses, like debt consolidation.

It's also wise to investigate a company's customer service options, particularly if you prefer in-person service to online. If you need more information, you can always look up reviews about the company or check out its Better Business Bureau profile.

Reasons to get a personal loan

With the exception of loans from a few niche lenders, like Payoff, most personal loans can be used for any purpose. The most common reasons to get a personal loan are:

  • Debt consolidation. If you have multiple lines of credit card debt, for instance, you can pay them off with a personal loan and repay the loan over time, often with a better interest rate.
  • Emergency expenses. Unexpected expenses like a car repair or hospital bill can throw off your monthly budget, and a small personal loan can alleviate the immediate cost.
  • Home renovations. A personal loan is a great way to pay for a large home renovation project and boost the equity in your home.
  • Major purchase or event. Personal loans are often used to cover major expenses, such as a wedding or vacation.

To learn more, read our article on top nine reasons to apply for a personal loan.

When you should get a personal loan

When used responsibly, personal loans can be a great tool to help consolidate debt, cover an emergency expense or finally install that pool you've been dreaming about. When thinking about applying, it's important to remember that a loan is borrowed money and will need to be paid off. If you have room in your budget to consistently make payments over a number of years, a personal loan may work for you.

When you shouldn't get a personal loan

While personal loans can be useful, they aren't ideal for every situation. If you're looking to use a personal loan for something that can be saved up for, like a vacation or a luxury item, a personal loan may not be the best option. You could be paying off that vacation for years to come.

You also may want to think twice before applying if your income isn't stable. On top of not having a steady flow of income to make the monthly payments, it can be difficult to qualify for a competitive rate. Some lenders take your income and employment into consideration when applying, so it's important to evaluate your financial health before considering a personal loan.

What you need to know about personal loans

What is APR?

APR stands for annual percentage rate. APR refers to the extra amount borrowers pay on top of their loan amount, or principal. APR is different from your interest rate; it equals your interest rate plus any loan fees.

For more detail on how APR can affect your monthly payments, check out our personal loan calculator.

What's the difference between a secured loan and an unsecured loan?

Secured loans are backed by a piece of the borrower’s property as collateral, typically a vehicle or house. Because the borrower stands to lose personal property if they default, secured loans tend to have lower interest rates.

Unsecured loans are not backed by collateral, but instead by the borrower’s creditworthiness. Because the lender takes on more of a risk with an unsecured loan, interest rates tend to be higher. Lenders also require that borrowers seeking an unsecured loan have a higher-than-average credit score.

Learn more about the key differences between secured and unsecured loans.

What's a repayment term?

A repayment term refers to the length of time borrowers have to repay their loan. A personal loan's repayment term is typically between one and 10 years, depending on the lender.

How does my credit score affect my offer?

Because personal loans are often unsecured, they may come with higher APRs than other types of loans. With unsecured loans, lenders tend to pay extra attention to a borrower's credit score.

The lower a borrower's credit score is, the more they'll have to pay in interest. Lower credit scores can lead to APRs in the double digits. Loan rates differ by lender, but opting for a secured loan can often help lower the loan's APR, even for someone with bad credit. In some cases, secured loans can offer APRs up to 6 percent less than unsecured loans.

Will a personal loan hurt my credit score?

A personal loan can temporarily hurt your credit score, since lenders will do a hard credit check when you apply. However, you should be able to recover and even improve your score if you make on-time payments for the duration of your loan. If you miss payments or make consistently late payments, be prepared to see a more significant dip in your score.

What’s the difference between fixed and variable interest?

Depending on the loan and the lender, you may have a choice between a fixed rate (which stays the same over the life of the loan) and a variable rate (which can rise or fall depending on changes in the market).

The interest on a variable-rate loan often starts low but may increase over time. The terms of the loan agreement will specify how often the lender is allowed to raise the interest rate, and some loans cap the maximum rate at a certain percentage. By contrast, the payments and interest charges on a fixed-rate loan will remain the same.

Base your decision on whether you prefer the stability of a fixed rate or the possibility of saving on interest with a variable rate.

Is a personal loan worth it?

A personal loan could be a good option for you if you need a large sum of money upfront and the stability of a predictable monthly payment. Personal loans typically have better APRs than credit cards or lines of credit, and most personal loans maintain that fixed rate over the life of the loan.

However, before committing to a personal loan, weigh the APR you're offered to make sure that a monthly loan payment fits into your budget. Some loans have repayment periods as long as 10 years, and some companies charge a fee if you choose to pay off your loan early. It's also important to take out only as much as you need for your project or expense; borrowing extra will increase your monthly payments and the total amount you'll pay in interest.

If you're unsure if you can afford a loan, try using a personal loan calculator to see how much you'll pay in interest on top of the cost of your loan.

What is a good interest rate on a personal loan?

A "good" interest rate on a personal loan depends on your credit score. In general, you should look for a rate below the average APR — 10.3 percent to 12.5 percent for excellent credit, 13.5 percent to 15.5 percent for good credit, 17.8 percent to 19.9 percent for average credit and 28.5 percent to 32 percent for bad credit.

The rate you're quoted depends on many factors, including your credit score, credit history and annual income. Many lenders offer prequalification, a step that allows you to see if you're eligible for a loan without a hard pull on your credit score. Checking your rate with a few companies can help you determine which will offer you the best APR.

What are the requirements for a personal loan?

While every lender's requirements will vary, you may be granted a personal loan based on three factors: your credit score, your income and your payment history. While all of these elements are important to overall financial health, lenders typically focus more heavily on your credit score. The lower your credit score, the less likely you are to get approved for the loan and the higher your interest rates if you are approved. It's important to complete an assessment of your credit and financial history to determine if a personal loan is the right fit for you.

When applying for a personal loan, the lender may also require you to show documentation. You may be asked to show your proof of identity, employer, income and address.

What is better: Personal loans or low-interest credit cards?

When it comes to debt consolidation, both personal loans and credit cards could be useful in paying off high-interest debt. With a personal loan, you'll be able to borrow a specific amount from the bank and then pay it back in monthly installments. With a credit card, you'll be able to complete a balance transfer, a method in which you transfer your existing debt to a new credit card.

Both options have drawbacks and benefits. With a personal loan, you're given the security of knowing the total loan costs, and you'll pay a fixed monthly amount, making it easier to budget and keep track of your expenses. The downside is that in some instances, a personal loan could have more upfront fees and a higher starting APR.

With a balance-transfer credit card, many card issuers will offer a 0 percent APR introductory period, which gives you the opportunity to pay down debt without accruing interest for a certain number of months. However, if you still have debt remaining after the introductory period, the APR could be higher than that of a personal loan, which may put you at risk of accumulating even more debt.

Before choosing a method, compare the rates and fees of each option and evaluate how much flexibility you're looking for when consolidating debt.

How much can you borrow with a personal loan?

The amount you can borrow with a personal loan depends on the lender and your credit score. Many lenders offer loans between $5,000 and $50,000, but some may offer loans as low as $500 or as high as $100,000.

Can I pay off my loan early?

There are some situations where you may want to pay off your personal loan early; if you get a raise or receive a cash gift, putting those funds toward your personal loan can help you save on interest and eliminate the loan from your monthly expenses. Many lenders will even let you pay off your loan early without charging a prepayment penalty.

If you'd like to make extra payments on your loan, let your lender know that you'd like the extra payment to go toward the principal — otherwise, the lender may apply the funds toward your next payment.

Keep in mind that paying off your loan early may not be worth it if you have other higher-interest debt on your plate, like credit card debt, or if you don't have emergency savings built up. In those cases, it may be better to put extra funds toward those projects instead.

What happens if I can't pay back my loan?

If financial hardship means that you can't pay back your loan, your loan will eventually fall into default. With some lenders, default could happen as soon as you miss a payment, while with others it could happen after a few months of missed payments.

With a defaulted loan, you'll likely rack up late fees and see a dip in your credit score. If you miss enough payments, your loan may also be sent to collections. To minimize the impact of a defaulted loan, contact your lender as soon as you know that you won't be able to make a payment; your lender may be willing to work with you on an adjusted payment plan.

Additional personal loan resources