Looking At The Interest Rates That Personal Loans Offer

Once you've decided to take out a personal loan to fund a major purchase or other expense, the next step is to find a personal loan that best meet your needs. Since the interest rate you pay is a key factor associated with the overall cost of the loan, there are several things to keep in mind when looking at the interest rates for personal loans.

  1. Compare the interest rates offered by more than one lender. Interest rates can vary by as many as 5 percentage points from one lender to the next. That may not sound like a lot at first, but 5 points can have a significant impact on the amount you pay on your loan each month, as well as on the total amount you will be paying back.

  2. Inquire about the rates from more than one type of lender. For example, if you are a member of a credit union, you may be able to get a lower interest rate than you would at a bank. Credit unions also often have programs to help consumers with poor credit. A credit union may approve you for a personal loan at a lower interest rate even if you've had credit problems in the past.

  3. Focus on building your credit score. If you are considering a personal loan to pay off high-interest credit card debt and your FICO score falls between 680 and 739, you may qualify for a personal loan at an interest rate between 5.5 percent and 9.3 percent. Since credit card rates are variable and often as high as 15.9 percent or higher, you will save money on the interest you pay. The higher your credit score, the lower the interest rate you will pay on a personal loan.

  4. Take advantage of the fixed interest rates that personal loans offer. Generally, you can get a fixed interest rate with a personal loan. Unlike a variable rate, with a fixed rate, you won't pay a lower rate if interest rates drop during the term of the loan. But neither will you see an increase in the rate you pay. You will know exactly how much interest you are paying throughout the entire life of the loan. In addition, your monthly payments will be the same until you pay off the loan.

  5. Consider the shorter time it takes to process the loan. When comparing the benefits of a personal loan to a home equity loan to make home repairs or upgrades, depending on your credit score, the interest rate you pay on a home equity loan may be less than the interest rate you pay on a personal loan. However, the time it takes to process a personal loan can be shorter – about 2 weeks to get your money from a personal loan as compared to 4 to 5 weeks to close on a home equity loan. If you need the money sooner – perhaps to repair a leaky roof – it may be worth it to pay a higher interest rate and then work on paying off the loan early. Talk to a bank, like Juniata Valley Bank, for more help.