Personal loans let you borrow money for any purpose. And for that reason, they tend to be a popular borrowing choice among consumers. As of the first quarter of the year, U.S. personal loan debt reached $225 billion, up from $178 billion a year prior, according to TransUnion.
You may be eager to sign a personal loan to address a number of different needs, whether it's fixing up your car, renovating your home, or paying for courses that give you the skills you need to further your career. But now's really not a great time to sign a personal loan. If you're able to wait until 2024, you may find that it's less expensive to take one out.
Avoiding debt right now is a smart move
It's generally a good idea to keep your debt load as low as possible. But right now is an especially bad time to be signing any sort of loan, whether it's a personal loan, auto loan, or home equity loan.
The reason? Since March 2022, the Federal Reserve has raised interest rates 11 times in an effort to cool inflation. The Fed doesn't set personal loan rates, or any consumer borrowing rates, for that matter. Those rates are determined by lenders on an individual basis.
Rather, the Fed oversees the federal funds rate, which is what banks charge each other for short-term borrowing. When that benchmark interest rate rises, lenders tend to follow suit. So right now, even if your credit is great, you might end up with a higher interest rate on a personal loan than you want to get stuck with. And that could leave you with expensive monthly payments.
You might get a better deal in 2024
While interest rates are up right now, things could start to change in 2024 if the Fed decides to cut rates. So next year might be a better time to put a personal loan in place.
Let's say you're looking to borrow $10,000 and pay it back over a five-year period. If you get stuck with an interest rate of 9% now, your monthly payments will be $208 and you'll end up spending $2,455 on interest over the life of your loan.
But if you're able to snag a 7% interest rate on that same loan next year with the same repayment period, you'll be looking at monthly payments of $198 instead. And you'll only end up spending $1,881 on interest.
If you're not borrowing a particularly large amount, you may decide to just move forward with a personal loan now so you don't have to put off paying for whatever it is that money is supposed to finance. In this example, the difference between a 7% interest rate on a personal loan versus 9% is $10 a month.
Granted, the difference in total interest is more significant. But on a monthly basis, the $10 may not make such a big dent in your finances.
The point, however, is to recognize that borrowing conditions generally just aren't optimal right now. So if you are able to wait on signing a personal loan for, say, another six months or so, you might benefit from that financially.
Our picks for the best personal loans
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.
FAQs
Once that happens, borrowing costs could come down broadly. There's a good chance the Fed will seek to cut rates at some point in 2024. So if you can hold off on signing a personal loan for the time being, you might benefit by waiting in the form of a lower interest rate on your debt.
Will personal loan rates go down in 2024? ›
While there isn't a direct relationship between personal loan rates and the Fed's actions, they certainly tend to move in the same direction. If the federal funds rate falls in 2024, we may see lower rates on personal loans.
Is now a bad time to get a personal loan? ›
It's generally a good idea to keep your debt load as low as possible. But right now is an especially bad time to be signing any sort of loan, whether it's a personal loan, auto loan, or home equity loan. The reason? Since March 2022, the Federal Reserve has raised interest rates 11 times in an effort to cool inflation.
Is it smart to pay off a personal loan early? ›
Key Takeaways. Paying off a personal loan early may save you money in interest, but it's important to consider all factors before you make that lump-sum payment. Make sure you have three to six months of living expenses in reserve before you think about paying down your loan early.
Do you have to give a reason for taking out a personal loan? ›
In short, yes. While most reasons won't stop you from obtaining a personal loan, you'll need to explain why you need the money you're borrowing. You can generally use the loan proceeds however you see fit, but some lenders have restrictions. Plus, the loan purpose could impact the loan terms you receive.
What will interest rates look like in 2024? ›
In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
Is 7% a good rate for a personal loan? ›
A good personal loan interest rate depends on your credit score: 740 and above: Below 8% (look for loans for excellent credit) 670 to 739: Around 14% (look for loans for good credit) 580 to 669: Around 18% (look for loans for fair credit)
Do banks like it when you pay off loans early? ›
Some lenders may charge a prepayment penalty of up to 2% of the loan's outstanding balance if you decide to pay off your loan ahead of schedule. Additionally, paying off your loan early will strip you of some of the credit benefits that come with making on-time monthly payments.
Does a personal loan hurt your credit? ›
A personal loan will cause a slight hit to your credit score in the short term, but making on-time payments will bring it back up and can help improve your credit in the long run. A personal loan calculator can be a big help when it comes to determining the loan repayment term that's right for you.
Will my credit score drop if I pay off a personal loan? ›
Paying off an installment loan entirely can affect your credit score because of factors like your total debt, credit mix and payment history. The benefits to paying off a personal loan include reducing your debt-to-income (DTI) ratio and saving on interest over the course of the loan.
Top 10 Reasons to Get a Personal Loan
- Debt Consolidation. Debt consolidation is one common use of personal loan funds, particularly among consumers who have high-interest credit card debt. ...
- Home Improvements. ...
- Moving Expenses. ...
- Medical Expenses. ...
- Large Purchase. ...
- Wedding Expenses. ...
- Startup Business Costs. ...
- Tax Bills.
The important thing is to be honest, most people take out loans for things such as paying for a wedding, home renovations or a car, so let them know your personal reasons. A lender will not give a loan to you if you intend to use it for illegal activities or gambling.
Do personal loan companies check your bank account? ›
Your bank account information may be required either to verify revenues or to facilitate ACH payments. It is essential that when you are asked to provide personal information make sure you are dealing with a reputable company and using a secure website. (See tips below.) Loan approval regardless of credit.
Will interest rates go down again in 2025? ›
While waiting to buy a home could mean a lower interest rate, there's no guarantee that rate drop will happen. If you have the budget to buy a home now, another option is to purchase today, but refinance later once rates drop further. The MBA projects a 5.5% rate by the end of 2025.
Why are personal loan interest rates so high? ›
Personal loans are typically unsecured, which means there's no collateral to back the loan. Your credit score plays a significant role in determining your personal loan interest rate, and a poor credit score can result in a higher interest rate.
What is the best interest rate for a personal loan? ›
Current Interest Rate on Personal Loans
| Bank | Interest Rate (p.a.) | Processing Fee |
|---|
| HDFC Bank | 10.75% p.a. - 24.00% p.a. | Rs.4,999 + GST |
| ICICI Bank | 10.80% p.a. - 16.15% p.a. | Up to 2% |
| TurboLoan Powered by Chola | 14% p.a. | 4% - 6% |
| Yes Bank | 10.99% p.a. onwards - 20% p.a. | Up to 2.5% |
26 more rowsSome relief is coming in 2024. Bankrate's chief financial analyst, Greg McBride, anticipates that the Federal Reserve will implement two quarter-point rate cuts in 2024.
