Personal loan rates can vary from lender to lender. No matter the advertised rate, you will likely receive a different rate based on several factors. Understanding a little about the interest rates can help you make an informed decision when choosing a personal loan. Here is what you should know about personal loan rates.
1. Personal Loans Don't Require Collateral
A personal loan doesn't require you to give anything up as collateral for the loan. These types of unsecured loans typically come with a higher interest rate, but you don't have to put up your house. Secured personal loans also exist but aren't the norm.
Instead of securing a personal loan with collateral, the lender will instead change their base interest rate based on your credit score. If you have good or better than good credit, it's possible to receive a far lower rate than the one advertised
2. Personal Loan Rates Compete With Other Loan Types
An interesting thing about personal loan rates is their ability to compete with other types of loan options. When considering the rates of a loan, you must also consider fees and the length of time you will spend paying the loan back.
Personal loan rates are set higher than some other types of loans. However, you usually pay back personal loans much faster because they're usually for smaller amounts of money. If you shop around for the right personal loan, you can even find rates that are better than those of most credit cards.
If you want to know just what your total interest payments will look like for a personal loan, you can use an online calculator. Or, you can do the math yourself; the formula for a fixed rate personal loan is the principal multiplied by the percentage multiplied by the term length in years.
For example, consider if you take a $3,000 personal loan at 9% interest with a year to pay it back.
3,000*.09*1 = 270
You'll pay $270 in interest over the course of the year, for a total of $3,270. Knowing this, you can compare other types of loans or credit cards to see which can benefit you most.
3. Personal Loans Can Come From Various Places
Many financial institutions offer personal loans. You can find them at banks and credit unions. Often, you don't even have to be a member of a credit union to apply for a personal loan. Many private lenders offer personal loans, as well as some companies that specialize in them.
Given the wide availability of personal loans, you can spend a little time shopping around for a rate you can work with. In some cases, you can negotiate your rate as well. As long as you understand how the rate works, you can apply for a personal loan with confidence. For more information, contact a local lender like US Community Credit Union.