Personal loan rates are falling. Consider These Things Before Getting a Personal Loan

Unlike home equity loans or HELOCs, personal loans do not always need to be secured.

Getty Images

Personal loan rates fell slightly from the previous week. For those with excellent credit, average interest rates on 60-month personal loans reached 14.12% and for 36-months at 13.16%, according to Bankrate’s latest data for the week ending March 21st. Overall personal loan averages also fell: for 60-month personal loans, average interest rates were 23.45%, while 36-month personal loans were 22.49%. You can see the lowest rates you can qualify for here.

Advantages and disadvantages of personal loans

There are a number of reasons why a personal loan can be good or bad for you. Some of the benefits are that personal loans can be used for just about anything – from home improvement projects to debt consolidation. They are also usually funded faster than other loans, sometimes in as little as a day or so. And unlike home equity loans or HELOCs, personal loans don’t always need to be secured – so you don’t have to worry about having collateral to take out a personal loan.

There is an important caveat, however: personal loans are known to carry higher interest rates than many other loans, in part because they are unsecured. Lenders want to know that they will be covered in case the borrower cannot repay them. It is also important to know that failure to adhere to a personal loan repayment schedule can affect your credit score. And while it may be tempting to use a personal loan for discretionary spending, experts strongly advise against it.

The promise of quick access to cash is certainly an advantage of taking out a personal loan, but it comes at a cost. Most loans have origination fees, which can typically range from 1% to 8% of the loan amount. Origination fees are usually deducted from the top of the loan, so you may need to borrow more money than you think, depending on how much you need and what portion will be used to pay the fees when your loan will be funded.

How do personal loans work?

Personal loans are disbursed from a bank, credit union or online lender, usually for amounts ranging from $1,000 to $100,000. Personal loan repayment terms typically last between one and seven years and are usually repaid monthly, with interest.

How to get a personal loan

Having a strong credit score before applying will help you get better interest rates. Experts often recommend prequalifying for personal loans so you can get a taste of the rates you might be paying. Reviewing prequalified loans does not affect your credit score and can be helpful in identifying different APR rates and repayment terms. This guide will help you understand the necessary documents and information you need to get a personal loan.