What is the Average Personal Loan Interest Rate?
Personal loans are a popular financial tool for consolidating debt, covering unexpected expenses, or financing major purchases. One of the key factors to consider when taking out a personal loan is the interest rate, which determines how much you will pay in addition to the principal amount borrowed. Understanding the average personal loan interest rate can help you make informed financial decisions.
Current Average Personal Loan Interest Rate
The average personal loan interest rate varies based on several factors, including credit score, loan term, and lender type. As of 2025, the average personal loan interest rate typically ranges between 10% and 25%, depending on the borrower’s creditworthiness.
Factors That Affect Personal Loan Interest Rates
1. Credit Score
Your credit score is one of the most important factors in determining your interest rate. Borrowers with excellent credit (720 and above) typically receive rates as low as 6% to 12%, while those with fair or poor credit (below 650) may face rates above 20%.
2. Loan Amount and Term
Shorter-term loans (12–24 months) usually have lower interest rates than longer-term loans (48–60 months), as lenders take on less risk with shorter repayment periods.
3. Type of Lender
- Traditional Banks: Often offer lower rates, usually between 8% and 15%, for well-qualified borrowers.
- Credit Unions: Provide competitive rates, often as low as 5%, especially for members with good credit.
- Online Lenders: Rates vary widely, from 6% to 36%, depending on the borrower’s profile.
4. Income and Debt-to-Income Ratio
Lenders assess your income and existing debt to determine your ability to repay the loan. A lower debt-to-income (DTI) ratio can lead to better interest rates.
How to Get the Best Personal Loan Interest Rate
- Improve Your Credit Score: Paying bills on time, reducing debt, and avoiding new credit inquiries can help raise your score.
- Compare Multiple Lenders: Shopping around for the best rate can save you money over the life of the loan.
- Choose a Shorter Loan Term: Opting for a shorter repayment period can result in lower interest rates.
- Consider a Co-Signer: If your credit score is low, a co-signer with good credit can help secure a lower rate.
Final Thoughts
The average personal loan interest rate depends on several factors, but understanding these influences can help you secure the best possible rate. Whether you are consolidating debt or funding a major expense, comparing offers and improving your financial health can lead to significant savings.