The average rate on personal loans this week added back the seven basis points it subtracted the week prior, returning to 19.74%. Across all credit tiers, the minimum and maximum rates seen this week did not change, bookended between 5.99% APR and 36.00% APR. Average rates are currently 37 basis points more expensive than at the end of January.
The average loan term held steady at 50 months this week, while the average loan amount decreased by $224 to $21,694.
This week's changes by credit tier show that those with Excellent or Fair credit saw rate improvements, while those with Good credit saw a moderate increase. For borrowers with Poor credit, this week brought a major increase, though it follows a decline of even bigger magnitude last week, leaving the current average rate lower than two weeks ago.
|Personal Loan APRs by Credit Quality|
|Credit Quality||Average APR
|Week over Week
|All tiers||19.67%||19.74%||+ 0.07|
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 eight last rate decision meetings, but often hiked the rates by historically large increments. Indeed, six of the last eight 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, as well as credit card rates. But the Fed'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 Federal Reserve to raise its key interest rate an eye-popping 4.5% since last March, average rates on personal loans have not rise 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. Therefore, the Fed still expects to raise rates further. Current market predictions are that we'll see another three increases from the Fed this year, and perhaps even raising rates another full percentage point. It's critical to note, however, that Fed rate decisions are made one at a time based on the freshest economic data, so nothing can be reliably predicted.
The Federal Reserve's rate-setting committee meets every six to eight weeks, with its next meeting concluding March 22.
|Average Loan Term (months)||Average Loan Amount|
|Bankers Healthcare Group||16.20%||87||$68,741|
|Happy Money (formerly Payoff)||19.17%||42||$25,035|
|All Lenders Above||19.74%||50||$21,470|
What Is the Predicted Trend for Personal Loan Rates?
With the Fed expected to raise the federal funds rate still higher in 2023, personal loan rates could rise higher. 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 19 of the nation's largest 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.