What is a Good Interest Rate on a Personal Loan?

How personal loan rates have changed over time

Personal loan rates have shifted significantly over the last decade. Since 2014, rates followed the Federal Reserve’s cycle of gradually rising through 2018, falling during the early pandemic when rates were slashed and then jumping sharply from 2022 to 2023.

Those increases pushed many borrowers into double-digit APRs, even with strong credit. By 2024 to 2025, gradual easing by the Federal Reserve has helped stabilize average personal loan rates, though they remain higher than pre-pandemic.

For consumers, the big takeaway is that personal loan APRs are based on the larger economy. When inflation rises or the Federal Reserve increases rates, lenders raise APRs to manage risk. When the economy cools and rates fall, borrowers may see more competitive offers. Understanding this cycle can help you decide when to shop for a loan, refinance an existing balance or wait for better conditions.

What is considered a good interest rate?

For most consumers, a good personal loan rate is under 12%, and borrowers with excellent credit may qualify for single-digit APRs. If your offer is above 20%, lenders likely see you as higher risk, and it may be worth improving your credit before accepting a loan.

The Federal Reserve reports the average two-year personal loan rate is 11.14% as of August 2025, although interest rates can vary widely depending on the loan type and repayment terms, your credit score and if you have any assets securing the loan.

Your credit score has a major impact on the interest rate you’ll be quoted. According to marketplace data from Credible for November 2025, average five‑year personal‑loan APRs were approximately:

Keep in mind that some lenders charge application fees, origination fees and other fees that can impact the total loan cost. These fees are factored into the loan’s annual percentage rate (APR), which may differ from its interest rate. When evaluating your loan options, compare both the interest rate and the APR to find the best deal.

Also watch out for predatory rates that take advantage of struggling borrowers. ConsumerAffairs considers rates over 35.99% to be predatory. If you cannot qualify for a lower interest rate, take steps to improve your credit score or financial situation before taking out a personal loan.

» MORE: Average personal loan interest rates

How are interest rates determined?

Interest rates on personal loans take into consideration numerous factors. In general, lenders adjust interest rates based on the risk they take on when issuing the loan.

While each lender uses different criteria and weighs them according to their needs, these are the primary factors a bank considers when determining your personal loan interest rate:

• Cost of funds: This is the interest rate the lender pays depositors or the Federal Reserve for the money it lends to borrowers. Many loans are based on the prime rate, so when the Federal Reserve raises rates, it affects the rates borrowers pay.
• Fixed or variable rate: Fixed rates offer a constant interest rate throughout the loan term, while variable rates adjust based on economic conditions. Locking in a fixed rate usually results in higher initial rates than a variable-rate loan. But, with a variable rate, you risk an unknown rate in the future should the market shift.
• Loan type: The type of loan affects interest rates. Loans secured by assets, such as a home or vehicle, typically offer lower rates than an unsecured loan.
• Loan amount: The larger the sum of money, the greater the risk of loss to the bank. Only borrowing what you need can yield a lower interest rate.
• Repayment term: Generally, loans with longer repayment terms have a higher risk of default versus shorter terms, so lenders will charge a higher interest rate.
• Credit score: Credit scores are a representation of your credit risk based on your payment history, credit utilization and other factors. Higher credit scores typically qualify for the best interest rates.

» MORE: What affects your credit score?

Why is interest rate important?

The interest rate is one of the biggest factors in determining your monthly payment. Higher monthly payments can affect your debt-to-income ratio (DTI). Your DTI measures how much of your monthly income goes toward debt payments, such as loans, credit cards and mortgages. Lower ratios signal stronger financial health, while higher ratios suggest higher risk. Your DTI determines which loan programs you’re eligible for, what fees you’re charged and your loan terms.

This table highlights the potential difference in monthly payments for three borrowers with different credit scores. Each borrower is applying for a $20,000 personal loan to be repaid over five years. Additionally, it shows how much interest each one pays over the life of the loan.

As you can see, a lower credit score can result in a much higher monthly payment, as well as a drastically higher cost of the loan overall — nearly double the total interest paid if you only have fair credit (a FICO score of 580 to 669) versus excellent credit (a FICO score over 800).

Jon Morgan, CEO of Venture Smarter, said that interest rates are a "critical factor in determining the cost of borrowing for a personal loan. A lower interest rate can lead to lower overall repayment amounts, making the loan more affordable and manageable for the borrower."

» MORE: How does a personal loan affect your credit score?

How to get the best interest rate possible

To keep your interest rate and the overall cost of your loan low, Morgan recommends that you "focus on maintaining a high credit score, managing existing debts responsibly, showcasing a stable income and selecting a suitable repayment term based on your financial capacity."

Before you apply for any loan, check your credit score. There may be some erroneous items on your file that you can remedy (such as unreported payments or closed accounts still showing as open) to help boost your score.

Additionally, paying down any credit card balances is one of the fastest ways to improve your score — and therefore your potential interest rates. Ideally, the balance on each credit card should be 30% or less of your credit limit.

Here are some other ways to improve your chances of getting a lower interest rate.

Check different lenders

Compare lenders (at least three) before committing to one. Thankfully, credit bureaus understand that borrowers like to shop around, so multiple applications within a short time for the same type of loan only count as a single inquiry.

Secure the loan

Putting down collateral on a secured loan can help to reduce your interest rate. Eligible assets may include your home, automobile, investments or bank balances. The loan type you apply for often dictates the collateral you’ll use. For example, when using your home, you’ll apply for a home equity loan.

Apply with a cosigner

Adding a cosigner with stronger credit, higher income or more assets can strengthen your application. This is especially true if you’re new to credit or have negative marks on your credit report. Because the cosigner is responsible should you default, you can often qualify for a lower interest rate.

Bottom line

When borrowing money, securing a good interest rate lowers your monthly payment and reduces the overall cost of the loan. But interest rates are based on a number of factors, including your credit score, repayment term and type of loan.

You can improve your odds of getting a good rate by improving your credit score, shortening the loan term and other strategies. Shop a few lenders to compare your options and find the best terms for your borrowing needs.