When searching for a lender for a personal loan, you may notice that they all can have widely different personal loan interest rates for you. There’s a reason for that, and understanding how personal loan interest rates work can help you figure out if a loan is right for you.
Your Credit Score Affects Your Interest Rate
As with most things, good credit is king. Many lenders have base interest rates, but in some cases, they’re negotiable. That negotiability has a lot to do with your credit score.
The better your credit score, the lower the interest rate you can receive on your loan. Of course, the lender still has to adhere to a range you cannot go above or below, but every percentage point matters.
Personal Loans are Unsecured
Personal loan interest rates tend to be higher than some other types of loans, but lower than others are. One of the reasons is because they are unsecured. That means they do not require collateral. You do not have to back them with an asset.
For some people, a title loan or a second mortgage may offer a lower rate than a personal loan as they are secured loans. Once again, this is because with a personal loan, your credit score plays the most important role.
Personal Loans Are Sometimes Better than Credit Cards
Personal loan interest rates may come out lower than some other forms of borrowing. For example, interest on a personal loan, whether fixed or variable, can still be less than interest on a credit card.
In addition, a credit card can come with fees a personal loan simply does not have. So, depending on your situation, a personal loan can actually save you money if your other alternative is to use a credit card.
Interest Rates are Simple Math
If you want to know how much you will pay in interest, simply multiply the amount of the loan by the interest rate by the number of pay periods.
For example, you request a $5,000 loan at an interest rate of 10% and a plan to pay it back in a year. That’s 5000*.10*1, which equals 500. So you would pay $500 in interest on your $5000 loan.
However, this all depends on your type of interest rate as well. If it’s fixed, it won’t change, but if it’s variable then it can fluctuate. Sometimes fluctuation is to your benefit.
Most personal loans work with fixed rates, which is far more convenient and takes out any guesswork. Note there are many interest rate calculators online that can help you figure it all out.
Interest Rates Sometimes Come With Fees
When applying for a personal loan, make sure you ask about fees. Many lenders charge activation or other fees. In many cases, these fees are upfront and tacked on. But sometimes, they can become a part of your overall interest rate.
Apply For a Personal Loan with Confidence
If there’s anything you don’t understand about personal loan interest rates, you should ask. Personal interest rates vary by lender, but they only make up a part of what constitutes your loan. Understanding that when you go in is key to applying with confidence.
If you want to apply for a personal loan with a professional service, apply with Fast Access Finance. We can help guide you through the process and let you know what you need to know when it comes to understanding personal loan interest rates. Check out our services and contact us today for the personal loan you need.