The interest rate you can get on a personal loan will vary based on your location and creditworthiness and on the lender itself.
In most cases, rates start around 10% APR for people with good credit who are taking out an unsecured loan — one that does not require collateral — from banks and credit unions.
Borrowers with excellent credit may be able to find lower rates from several online lenders, but those consumers typically also can qualify for an even cheaper 0% interest credit card.
Those with fair to poor credit may have to look a little harder for an affordable personal loan. Some online lenders aim for this end of the market, with rates from 10% to 36% APR. Having a co-signer, a longer credit history and a steady income may help lower those rates and improve your chances of approval.
Although 36% seems high — and is — it is widely accepted as the practical limit for loans with a good chance to be repaid. Many states cap interest rates at 36%, though loopholes abound. Common exemptions include revolving accounts such as credit cards, many installment loans, reverse mortgages and pawnshops.
A no-credit-check loan? Expect the worst
Borrowers with no credit or bad credit scores may not qualify for a loan even at 36%. Instead, they may be tempted instead by loans that require no credit check, finding easy and quick approval on a payday loan or high-interest installment loan at interest rates many times higher.
For example, one large online lender’s advertised annual percentage rate in California for a nine-month, $2,600 installment loan is 209%. If you don’t allow electronic repayment, the rate is 309% APR.
That’s almost cheap compared with a payday loan. The same lender offers online payday loans to Californians at 459% APR for a two-week loan.
For these lenders, all you need is a checking account, a job and a Social Security number. They don’t check your credit with major credit bureaus, and they don’t report payments either.
Just because they will lend you money doesn’t mean you should take them up on it.
Even in the most dire circumstances, we suggest you consider some payday loan alternatives first.
Before you shop for a personal loan
For your best shot at getting a competitive interest rate, do these things:
Compare your options. Is a personal loan cheaper than a low-interest credit card? The best personal loans for good credit start below 5% APR. But if you have good credit and can pay off the balance in 12 to 18 months, you can probably get a credit card that has 0% interest on purchases for a year or longer.
If you have bad credit, find a co-signer. Having a co-signer with good credit allows you to piggyback on his or her creditworthiness and potentially get better rates.
Consider a secured loan instead. If you have a house, you could use it as collateral in order to get lower rates. A home equity loan or home equity line of credit is often cheaper than a straight-up, unsecured personal loan. But using it as collateral means that if you default, you could lose your home.
Pay off as much of your credit card balance as you can before applying. The outstanding balance on your credit card, even if you pay it off at the end of the month and never pay interest, counts against you when a lender runs a credit check. Your debt-to-income ratio will be a factor considered by most lenders.
Image via iStock.
from NerdWallet Credit Card Blog
http://www.nerdwallet.com/blog/loans/whats-a-good-interest-rate-on-a-personal-loan/
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