How to Get a Lower Interest Rate as Personal Loan Balances Rise 31%

According to the Q2 2022 TransUnion Credit Industry Insights Report, total personal loan balances have grown 31% since last year, reaching a record $192 billion.

That number might not sound that surprising, however, considering we’ve experienced significant inflation, which has led to higher prices for food, gas, furniture, and just about everything else. Not to mention that personal loans have recently become a more popular financing tool due to their versatility, as they can be used to cover any number of expenses, from a wedding or vacation to home renovations or car repairs.

Personal loan amounts can range from as little as $600 to as much as $100,000 — it really depends on the lender — and like any form of debt, this funding comes with a cost. Not only do you have to pay back the borrowed amount in smaller, equal monthly installments, but you will also be charged interest.

Interest rates on a personal loan are typically lower than interest rates on a credit card – according to the latest data from the Federal Reserve System, current APRs on personal loans, or APRs, average 8.73%, while current APRs on credit cards average 16. 65%. .

If you have big expenses, first check if you have enough savings to cover the expense – if it’s something unexpected, your emergency fund will come in handy.

If taking out a personal loan really is the best way to pay for it, there are a few things you can do to ensure you’re getting the lowest possible interest rate from your lender, which could potentially save you hundreds or even thousands of dollars while you pay back the balance.

The best way to get a lower interest rate on your personal loan (or any line of credit) is to improve your credit score before applying. With a higher credit score, you’re more likely to get a lower interest rate because the lender sees you as a less risky borrower — someone who’s more likely to pay off the loan balance in full without missing out on payments.

It’s in your best interest to work on improving your credit score before you apply, especially if you don’t need the money right away. Paying your bills on time is the most important thing you can do to increase them, since your payment history actually accounts for 35% of your credit score. You should also try to keep your debt levels low and review your credit report regularly so you can dispute any inaccuracies that could hurt your score.

Credit monitoring services like Experian can also help you keep an eye on your credit profile. With the free Experian Boost™ feature, you can connect your bank account and boost your credit score when it finds recurring payments for specific utility, telecom, and streaming services. In other words, paying your cell phone bill or a Netflix subscription every month can boost your credit score.

While it can take just minutes to analyze your bank accounts and improve your credit score with Experian Boost™, building healthy credit habits really is the most sustainable way to maintain them.

In addition to making sure you’re paying all of your bills on time each month, make sure you keep your credit utilization — the amount of credit you’re using compared to the total amount of credit available — low. For example, if your total balance is $10,000 and you’ve only used $5,000 of that, your utilization is 50%. It is generally recommended that you keep your credit utilization below 30%.

It is also important not to apply for too many new lines of credit at once. Each time you open a new line of credit, a lender performs a rigorous review of your credit report, which may temporarily lower your score — think carefully about which lines of credit you open and when you apply for them.

Some personal lenders offer discounts for using Autopay, a feature that allows payments to be automatically deducted from your linked bank account, so you never default because you don’t have to remember to manually pay your bill every month.

Goldman Sachs’ SoFi, LightStream, and Marcus are just a few lenders offering a 0.25% APR rebate for using the Autopay feature. While 0.25% may not sound like much at first, a little can go a long way, and the money you save on interest payments over months and years certainly adds up.

Getting an Autopay rebate can save you a little money, especially if you need urgent financing and don’t have several months to work on improving your credit score. Applying for a personal loan with good credit should also put you in a solid position to get a lower interest rate.