Personal loan interest rates are seeing major drops: Here’s how borrowers can save on 3 and 5-year terms
Originally Posted On: https://www.credello.com/
Consumers looking to consolidate high-interest credit card debt received good news this week. According to an article from Fox Business, personal loan interest rates are down for both three-year and five-year fixed rate loans. The weekly change for the three-year is -0.5%. The five-year is down a full 1%. That makes it a good week for personal loan borrowing.
Interest rates go up and down frequently, but this is particularly intriguing because the Federal Reserve Bank announced in December that it would be raising interest rates in 2022 on at least three separate occasions. Lower rates on personal loans could be a move by lenders to entice prospective borrowers to apply sooner rather than later.
How to Qualify for a Lower Interest Rate
The weekly interest rate for a three-year fixed rate personal loan is promoted in the article as 11.17%, down from 11.76% the week before. That’s provided the borrower has a credit score of over 720. Consumers in that range can also get a five-year fixed-rate personal loan at 13.73%, down from 14.53%. The caveat is the credit score.
Based on that information, the most obvious way to qualify for a low interest rate is to increase your credit score. It doesn’t mean you shouldn’t apply now if your score is below 720. Rates are still low for those with lower scores, so now is a good time to borrow. In the future, rates could go up, so start working on improving your score right away.
One way to do this is to take out a small loan on the current rates and make all your monthly installment payments on time. For even better results, use that loan to pay off high-interest credit card debt. This is known as debt consolidation. It’s best to do it when personal loan interest rates are low, like right now.
Fed Rate Hikes Will Increase Personal Loan Rates
Most consumers think about mortgage rates when they hear the Fed is going to be raising rates later this year. Jerome Powell told Americans last month that there would likely be three rate hikes of a quarter point each, spaced out throughout the year, to help slow the rate of inflation. Some financial analysts believe there may be more.
To clarify, a Fed rate hike doesn’t directly increase interest rates between the lender and the consumer. It increases the rate that banks pay when they borrow from the Federal Reserve or from other banks. The effect on consumer interest rates is a result of that change. Their rates go up. Yours will too. Lenders set their rates accordingly.
The Bottom Line: Take Advantage of Low Interest Rates
Current interest rates are regularly posted by banks and available online on several lending platforms. If you’re thinking about debt consolidation or funding a big project, look up the current interest rate and do a little research to find out if it’s up or down. Rates are lower this week. Take advantage of them. They could go up again soon.