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What is a Good Interest Rate for a Personal Loan?

Banking

What is a Good Interest Rate for a Personal Loan?

Get to know what affects the interest rate.

A reasonable interest rate for a personal loan differs from person to person and depends on many factors. Around 15% could be a ripoff, while 30% could be your best possible option. To decide if you’ve been offered the best rate, you need to know the underlying factors that affect it.

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Two main factors are your credit score and employment status.

You might have known that credit score matters. Precisely, the higher your score, the better your rate. At 740 or above, you can take out loans at 8% or even lower rates. Below 740, around 14-15% are pretty good. Those who are just starting to build their credit score might get a rate that ranges from approximately 18 to almost 30%. And those with bad credit will have to put up with 30%.

Next, depending on the lender, your employment status and income can also be deciding factors. The better your employment and income, the better rate you usually get. Any lender wants to make sure their borrower can afford to pay back the money in the future!

Then, the amount of money and your repayment timeline. The more you borrow for a longer time, the more you have to pay back in interest.

Taking out loans in a huge amount presents a bigger risk to the lender, which tends to mean the interest rate will be higher. And the longer you take to pay them all back, the more interest you have to pay along with the main installments.

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Between a fixed rate loan and a variable interest loan, what should be your choice?

A fixed-rate loan defines that you always pay the same amount in every period, for as long as the contract states. But a variable interest loan changes over time and sometimes starts at an eyebrow-raising low enough rate. However, they can be volatile and can go higher than you predicted. Fixed-rate is almost always the less headache-inducing choice in most cases.

For a secured personal loan, can I get a better interest rate?

A secured loan means you put collateral as the safety net for the lender, a guarantee that they’ll get their money back in case you aren’t capable of it. After putting your house or car, or jewelry on the line, will you get a better rate?

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Probably. A secured loan means lower risk to lenders, and they sometimes offer better rates than unsecured loans, which are the more common type of loan offered out there.

Tips: Always check if your credit card offers a better rate!

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