With credit cards averaging 14.60 percent (and 21.81 percent on cash advances), personal loans may be looking pretty good right now with consumers. Personal loan rates in September 2015 are as low as 6.70 percent APR, depending on the lender and the borrower's qualifications. Unlike payday loans with exorbitant rates open to most anyone, the cost of personal loans up to $50,000 varies by the borrower's income and credit. Consumers with decent credit, currently agreeing to a three-year term, can get rates from 7.5 percent.
Secured and unsecured personal loans can be highly competitive based on lender – but the best rates are reserved only for those with good credit. Unsecured rates are higher than those imposed on secured personal loans. However, borrowers with poor credit may increase their worthiness for a personal loan if they apply along with at least one co-signer on the loan.
For those with borderline credit scores, a secured loan, such as a home equity line of credit (HELOC), may yield better rates, assuming you're willing to put up your house. A HELOC could go a long way in restoring good credit, too.
Shopping for the Best Unsecured Loan Rates
The good thing about personal loans is that they come at a set rate charged through a monthly payment, making financial budgeting a little easier, or at a variable rate based on the lender. Finding the best lender takes legwork. Some lenders will make loans to people with less than perfect credit, with their qualifications based on a clear history of on-time payments and a solid income. Deals can also vary dramatically by region. In some states, for instance, borrowers can get rates as low as 4.25 percent from a company that evaluates their credit history as well as LinkedIn profiles and academic records. The best terms come with loans lasting under five years.
Rounding Up Personal Loan Offers
LendingTree has tools that help consumers shop for the best rates among reputable lenders who commonly make loans across the range of credit scores. In comparing offers, borrowers should recognize that the rate alone will not in itself guarantee a deal with rates they can live with. For example, there are subprime lenders that establish loans with automatic check payments, putting consumers living close to the edge in jeopardy of overdrawing their accounts. In addition, some lenders assess penalties for paying off the loan ahead of schedule to recover their lost interest. Read provisions with extreme care.
Beware if the lender asks for upfront money or asks you to pay for "credit insurance" against defaulting on the loan. Credit insurance is optional and it is against federal law for its premiums to be included in a loan without the written consent of the borrower. Ask for an offer that breaks out the cost of insurance in clear terms. Red flags include unsolicited telephone pitches or phishing emails, companies with only 900 numbers, or lenders who do not list physical business addresses (if only in small print). Finally, if any lender "guarantees" you'll get the loan regardless of credit, income or bank savings, run away!