Personal loan rates dipped for a third straight week, but to a much greater degree than last week. The overall rate dropped over a quarter of a percentage point with a 28 basis point plunge. Monday's results place the overall average almost a half a percent below 21%, at 20.57%. Personal loan average APRs surpassed the 19% mark seven weeks ago.
The lowest average rate reported by our surveyed lenders remains at 5.99% APR, while the highest was again 36.00% APR.
The average loan amount rose $128 this week, to $20,586, and the average term remained at 50 months.
Rates segmented by credit tier show that average APRs for those with excellent credit increased by an eighth of a point while those with fair credit experienced a massive decrease of 286 basis points. Borrowers with bad credit also experienced significant rate relief with a 142 basis point drop in average APR.
|Personal Loan APRs by Credit Quality|
|Credit Tier||Average APR Last Week||Average APR This Week||Week-Over-Week Change|
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 13 rate decision meetings, but it often hiked the rates by historically large increments. Indeed, six of those increases were by 0.50% or 0.75%, though the last two increases were more modest at only 0.25%.
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 approximately 500 basis points 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 in 2022, fierce competition in this space prevented them from rising at the same magnitude as the federal funds rate.
As for 2023, inflation has begun to moderate, though it remains relatively high. As a result, the Fed is contemplating when to stop raising rates in its efforts to achieve a soft landing for the economy. Recent market forecasts had predicted one more quarter-point increase from the Fed and then a rate plateau, perhaps followed by a rate decrease later this year. This prediction appears to be potentially playing out as the Fed indeed announced that the Federal Funds Rate would increase by 25 basis points at their most recent meeting on May 3 along with their intention to hold rates steady in the near term. The Federal Reserve's next rate-setting committee meeting will conclude on June 14.
|Lender||Average APR||Average Loan Term (Months)||Average Loan Amount|
|Bankers Healthcare Group||16.18%||87||$70,439|
|All Lenders Above||20.57%||50||$20,586|
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 seeking 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 necessitate taking out additional personal loans.
Rate Collection Methodology Disclosure
Investopedia surveys and collects average advertised personal loan rates, average length of loan, and average loan amount from 15 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."