Tips and Advice

Personal Loan Interest Rates Lowest of 2024: Is Now the Time to Borrow?

According to the Federal Reserve Bank, average personal loan interest rates hit their lowest point in 2023. Learn how to get the lowest rate.
Married people having a discussion about personal loan rates while sitting in front of a computer at home
Written by:
Gina Freeman
Edited by:
Kristin Marino verified

According to the Federal Reserve Bank, average two-year personal loan interest rates fell to 9.09% in the fourth quarter of 2021. That’s their lowest point in 2021 and down about .25% since closing out 2020 at 9.65%.

This trend could indicate an opportunity for consumers to borrow more affordably.

What Is an Average Personal Loan Interest Rate?

The average personal loan interest rate includes loan data from all sorts of providers for borrowers with varying credit scores and loan amounts. Within that average, interest rates offered by mainstream lenders range from under 5% to about 36%.

The average personal loan interest rate might fall because of economic factors causing interest rates to drop across the board. Or it could decrease because more consumers with better credit applied for loans last quarter.

The average personal loan interest rate is an intriguing statistic, but it doesn’t mean much for an individual consumer.

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What Determines Your Personal Loan Interest Rates?

If you need to borrow money, it probably doesn’t matter much what other people are paying — you want to know what’s possible for you.

Several factors drive the interest rate offered to an individual applicant:

  • Credit score
  • Secured vs. unsecured loan
  • Loan amount
  • Income and debts
  • Use of the loan proceeds
  • Automatic payment

These elements are far more likely to influence what you pay for financing than what happens to the average rate paid by everyone. Next, we’ll examine each of these factors and what you can do to save the most on your next personal loan.

Is Now a Good Time to Borrow With a Personal Loan?

This recent downward blip in personal loan rates could signify an opportunity to save money.

Most personal loans come with fixed interest rates. So if you can borrow for less right now, you have the opportunity to protect yourself somewhat from inflation.

In 2021, the US inflation rate hit a 13-year high, and forecasts predict another increase in 2024 — to rates higher than any time since 1990.

In addition, if you are carrying debt with higher, variable interest rates, it might pay to consolidate those balances with a personal loan — again, protecting yourself from future rate increases.

However, borrowing with a personal loan isn’t suitable for everyone. If you can’t afford a loan payment or your income isn’t reliable, be wary of increasing your balances.

How to Get a Better Personal Loan Interest Rate

You can qualify for a better interest rate by addressing the factors listed above. Not all lenders consider each of those components, so finding the right lender for your set of circumstances can make a big difference in your rate. Here’s how to get the best deal available to you.

Improve your credit score and history

The most effective way to improve your loan interest rate is to increase your credit score. According to data from MarketWatch, going up a credit scoring tier (from poor to fair, fair to good, or good to excellent) drops the average interest rate by about 7%. And, depending on whether you’re at the top, middle, or bottom of your tier, you can achieve this by adding 1-60 points.

How do you add those points? It depends on the main factors causing your score to be lower than you want. If high credit utilization is your biggest problem, consolidating credit card balances with a personal loan may immediately improve your score. However, it can take months to improve a poor repayment history. But you’ll get there eventually — your most recent activity gets the most weight, so keep paying on time, and your score should increase as old mistakes fade away.

Choose secured or unsecured

Secured loans generally carry lower interest rates than unsecured personal loans because there is less risk to the lender. When you borrow with a secured loan, you have to pledge an asset that your lender can take and sell if you don’t repay your loan. If you’re willing to pledge an asset, you should get a lower interest rate.

Determine your loan amount

Lenders tend to focus on specific loan amounts and target certain borrowers. Some prefer smaller loans and charge a premium for higher amounts, while others want larger loans and charge less for them. When comparing rates among competing lenders, get quotes for your desired loan amount.

Compare your income to your debts

Your income and debts can determine whether you qualify for financing, and they can also influence your interest rate. That’s because the amount of income available for debt repayment affects the risk of the loan. When a lender takes on more risk, it requires additional compensation.

Spell out your use of funds

While in theory, you can use a personal loan for any legal purpose, not all lenders allow all purposes. It’s fairly common, for instance, for lenders to prohibit borrowers from using their product to refinance out of a federally guaranteed student loan. In addition, some lenders will give you a better deal if you use their loan to consolidate debt.

Opt for automatic payment

Setting up an automatic payment from your checking account is convenient and reduces the chance of missing a payment. Lenders appreciate the fact that it lowers their risk as well, so most of them will give you a break on your interest rate (typically .25%) if you pay your personal loan automatically.

Personal Loan Interest Rates: What Matters Most

You probably noticed that many factors that go into personal loan interest rates have more weight than if you borrow now or a few months from now. You might be better off spending six months improving your credit score before applying, even if interest rates go up. On the other hand, if you have good credit or need money now, today’s low personal loan rates are a benefit that you might not want to miss.