Why Are Personal Loan Rates So High? (2024)

FAQs

Why Are Personal Loan Rates So High? ›

Loan amount: The more you borrow, the more risk the lender takes in the event that you default. As a result, higher loan amounts may have higher interest rates. Repayment term: Longer loan repayment terms typically come with higher interest rates because of interest rate risk.

Loan amount: The more you borrow, the more risk the lender takes in the event that you default. As a result, higher loan amounts may have higher interest rates. Repayment term: Longer loan repayment terms typically come with higher interest rates because of interest rate risk.

According to the most recent Federal Reserve projections (made in December 2023), the median expectation is for three quarter-percentage-point cuts to the federal funds rate in 2024. Investors seem to be expecting the same.

If you think you won't be able to continue making payments on your personal loan, there are a few options. You can refinance it to lengthen the term or lower the interest rate, both of which can reduce your monthly payments. You can also contact the lender directly to ask about renegotiating your loan.

A good interest rate on a personal loan is generally on the low end of the range, which currently starts around 7 percent.

Factors that increase your APR may include federal rate increases or a drop in your credit score. By identifying changes to your APR and understanding the actions that led to your increased rate, you can take steps that may help reduce your interest charges in the future.

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)

Can you pay off a personal loan early? ›

In most cases, you can pay off a personal loan early. Your credit score might drop, but it will typically be minor and temporary. Paying off an installment loan entirely can affect your credit score because of factors like your total debt, credit mix and payment history.

In general, personal loan amounts range from $1,000 up to $50,000, though some lenders may offer loans up to $200,000. The average personal loan amount was about $11,500 as of Q2 2023, according to data from TransUnion.

A. Yes, you can use competing loan offers as leverage to negotiate better terms with a lender. Presenting alternative offers can demonstrate your willingness to explore options and potentially lead to improved terms such as lower interest rates or reduced fees.

Avoid loans with APRs higher than 10% (if possible)

“That is, effectively, borrowing money at a lower rate than you're able to make on that money.”

Key takeaways

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.

Generally, the higher the credit score, the lower the loan's interest rate. Borrowers with lower credit scores are considered riskier to lenders, so lenders may charge these borrowers higher interest rates to compensate for the higher risk.

Consider debt consolidation.

If you have several sources of high-interest debt, debt consolidation may help you get a better handle on what you owe. This process allows you to combine several existing debts into a single, brand-new loan, ideally with a lower interest rate and more favorable repayment terms.

Deciding what constitutes a good APR for a personal loan therefore relies on various factors. Personal Loan APR: The suitability of an annual percentage rate (APR) for a personal loan varies based on several factors but typically ranges between 6% and 12%.