What Is a Good APR for a Personal Loan?
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A personal loan is a loan taken out for a short period of time, usually between two and five years. The annual percentage rate (APR) is the yearly cost of the loan including interest and fees.
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Introduction
The APR for a personal loan can vary greatly depending on the lender, the type of loan, and your creditworthiness. In general, the APR for a personal loan is higher than that of a credit card or auto loan, but lower than that of a mortgage.
For example, Chase offers personal loans with APRs ranging from 6.99% to 22.99%. Wells Fargo has personal loan APRs starting at 7.49% and going as high as 35.99%. And SoFi offers personal loans with APRs starting at 5.99% and going as high as 14.99%.
Your creditworthiness will play a big role in determining the APR you qualify for on a personal loan. If you have excellent credit, you’ll likely qualify for a lower APR than someone with fair or poor credit. Also, the type of loan you’re seeking can affect your APR. For instance, secured loans (such as auto loans) typically come with lower APRs than unsecured loans (such as personal loans).
Ultimately, the best APR for you is the one that you qualify for from a reputable lender at terms that are acceptable to you. Comparing APRs from multiple lenders is a good way to ensure you’re getting the best deal possible on your personal loan.
What Is APR?
APR stands for Annual Percentage Rate. It’s the interest rate + other loan costs divided by the loan amount, multiplied by 365 to get a yearly percentage. Lenders use APR to make sure they charge the same amount for all their loans, even though some loans have different terms. For example, if you have a $100 loan with a 10% APR, you’ll owe $10 in interest at the end of one year. If you have a $100 loan with a 5% APR and you repay it over two years, you’ll only owe $5 in interest at the end of two years.
Good or Bad APR
Because personal loans can have such low APRs, they’re often used to consolidate debt or make large purchases. If you can qualify for a personal loan with a good APR, it can save you money on interest payments. A good APR for a personal loan is anything below 10%.
Factors That Affect APR
There are a few different things that can affect the APR you’re offered on a personal loan, including:
-Your credit score: This is one of the biggest factors that lenders look at when considering you for a loan. The better your credit score, the lower your APR is likely to be.
-The type of loan you’re applying for:Different types of loans come with different APRs. For example, secured loans (where you put up collateral like a car or savings account) typically have lower APRs than unsecured loans.
-The lender you’re working with: Some lenders are simply able to offer lower APRs than others. It pays to shop around and compare offers from multiple lenders before selecting one.
In general, the better your credit score and the more favorable the other factors listed above are, the lower your APR is likely to be.
How to Get the Best APR on a Personal Loan
The average APR on a personal loan is 10.09%, according to Experian data from the first quarter of 2020. But depending on the type of personal loan, your credit score, and other factors, you could qualify for an APR below 10% or even 6%. Here’s what you need to know to get the best APR on a personal loan.
How Personal Loan APRs Are Determined
Personal loan rates are determined by your credit score and credit history, as well as the type of loan you’re applying for. For example, some types of loans—such as secured loans—usually have lower interest rates than unsecured loans because your collateral (like a car or savings account) acts as a buffer for the lender in case you can’t repay your debt.
In general, the better your credit score and credit history, the lower your personal loan APR will be. That’s because lenders see you as less of a risk when they know you have a strong history of repaying debts on time.
Keep in mind that your debt-to-income ratio (DTI) also plays a role in how much you’ll pay in interest. Lenders want to be sure that you can afford your monthly payments, so they may offer lower rates to borrowers with DTIs below 50%.
Conclusion
In conclusion, there is no one answer to the question, “What is a good APR for a personal loan?” The answer may vary depending on your individual circumstances and the type of loan you are looking for. However, in general, a lower APR is better than a higher APR.
