Just two weeks ago, personal loan rates were averaging nearly 20%. But with a large drop this week, added to last week's smaller dip, the average is now down to 19.01% APR. This week's decline was 76 basis points compared to last Monday's 19.77%.
The minimum and maximum rates from our 18 surveyed lenders did not change, remaining at 5.99% APR and 36.00% APR, respectively. And the average loan amount barely moved, declining just $57 to $21,126 from $21,183. Loan terms also dipped, now averaging 49 months instead of 50.
Borrowers in the Fair tier enjoyed most of this week's rate decline, with their average rate decreasing more than three percentage points. But for Excellent and Poor credit borrowers, average rates actually climbed close to a point. For borrowers with Good credit, this week's rates were very similar to last week's.
|Personal Loan APRs by Credit Quality|
|Credit Quality||Average APR Last Week||Average APR This Week||Week over Week Change|
|All tiers||19.77%||19.01%||- 0.76|
Personal loan rates rose over the course of 2022 due to major interest rate hikes by the Federal Reserve. To fight the highest inflation rates seen in 40 years, the Fed not only raised the federal funds rate at each of its last nine rate decision meetings, but often hiked the rates by historically large increments. Indeed, six of the nine increases were by 0.50% or 0.75%.
The Federal Reserve and Personal Loan Rates
Generally speaking, moves in the federal funds rate translate into movement in personal loan interest rates, in addition to credit card rates. But the Federal Reserve's decisions are not the only rate-setting factor for personal loans. Also important is competition, and in 2022, the demand for personal loans increased substantially.
Though decades-high inflation has caused the Fed to raise its key interest rate an eye-popping 4.75% since last March, average rates on personal loans haven't risen that dramatically. That's because high borrower demand required lenders to aggressively compete for closed loans, and one of the primary ways to best the competition is to offer lower rates. Though personal loan rates did increase in 2022, the fierce competition in this space prevented them from rising as much as the federal funds rate.
As for 2023, inflation has come down a bit but still remains an issue, leading the Fed to expect to raise rates further this year. However, the high-profile bank failures of the last few weeks have clouded the Fed's decisions about its 2023 rate path, making forecasts more uncertain. As is always the case, Fed rate decisions are made one at a time based on the freshest economic data and news, meaning nothing can ever be reliably predicted.
The Federal Reserve's rate-setting committee meets every six to eight weeks, with its next meeting concluding May 3.
|Lender||Average APR||Average Loan Term (months)||Average Loan Amount|
|Bankers Healthcare Group||16.27%||87||$68,444|
|Happy Money (formerly Payoff)||n/a||n/a||n/a|
|All Lenders Above||19.01%||49||$21,126|
What Is the Predicted Trend for Personal Loan Rates?
If the Fed raises the federal funds rate higher in 2023, personal loan rates could also increase. However, with competition for personal loans still stiff, upward movement in loan rates could be dampened even in light of an increased federal funds rate, perhaps leaving averages not far from current levels.
Because most personal loans are fixed-rate products, all that matters for new loans is the rate you lock in at the outset of the loan (if you already hold a fixed-rate loan, rate movements will not affect your payments). If you know you will certainly need to take out a personal loan in the coming months, it's likely (though not guaranteed) that today's rates will be better than what you can get in the next few months, if the Fed does indeed hike rates further.
It's also always a wise move to shop around for the best rates. The difference of a percentage point or two can easily add up to hundreds or even thousands of dollars in interest costs by the end of the loan, so searching out your best option is time well invested.
Lastly, don't forget to consider how you might be able to reduce your spending to avoid taking out a personal loan in the first place, or how you could begin building an emergency fund so that future unexpected expenses don't sink your finances and cause you to require additional personal loans.
Rate Collection Methodology Disclosure
Investopedia surveys and collects average advertised personal loan rates, average length of loan and average loan amounts from 18 of the nation's largest personal lenders each week, calculating and displaying the midpoint of advertised ranges. Average loan rates, terms, and amounts are also collected and aggregated by credit quality range (for excellent, good, fair, and bad credit) across 29 lenders through a partnership with Even Financial. Aggregated averages by credit quality are based on actual booked loans.
Board of Governors of the Federal Reserve System. "Open Market Operations."
CME Group. "CME FedWatch Tool."
Federal Reserve Open Market Committee 2023 Meeting Calendar