Personal loan interest rates continued to rise this week, moving up by another 18 basis points. The average tracked by Investopedia, currently 21.57%, has breached the 21% threshold five times so far in 2023, most recently on Oct. 16, but has retreated below that mark each time except for this most recent occurrence.
Average interest rates split out by credit tier were mixed this week, with three moving up and one moving down. Specifically, average rates for those with excellent, good, and poor credit jumped by 58, 42, and 37 basis points, respectively, while rates for fair credit plunged by 122 basis points.
The net effect of the mixed rate movements across the four credit tiers resulted in a net increase of 18 basis points for the personal loan rates average this week.
- The overall average interest rate for personal loans increased by 26 basis points this week to 21.57%.
- The lowest average rate reported by our surveyed lenders was 5.99% APR, while the highest remains at 35.99% APR.
- The average loan amount is now $17,996, a slight increase of $20 since last week, while the average loan term remained at 47 months.
|Personal Loan APRs by Credit Tier|
|Credit Tier||Average APR Last Week||Average APR This Week||Week-Over-Week Change|
|All tiers||21.39%||21.57%||+ 0.18|
Personal loan rates began rising over the course of 2022 and in 2023 due to a sustained series of 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 11 of its rate decision meetings (except for its June, Sept., and Nov. 2023 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 five increases were more modest at only 0.25%.
The Fed announced at its latest meeting on Nov. 1 that it would hold rates steady. For the upcoming Fed meeting on Dec. 13, nearly 86% of futures traders are predicting the fed funds rate will hold steady, whereas approximately 14% are predicting another 25 basis points increase.
The Federal Reserve and Personal Loan Rates
Generally speaking, moves in the federal funds rate translate into moves in personal loan interest rates, in addition to credit card rates. However, 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 and continues into 2023.
Though decades-high inflation has caused the Fed to raise its key interest rate by 525 basis points since March 2020, 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 beat the competition is to offer lower rates. Though personal loan rates did increase in 2022 and 2023, fierce competition in this space prevented them from rising at the same rate as the federal funds rate.
While inflation has recently begun to drop, it remains higher than the Fed's target rate of 2%. The Fed has opted to hold rates steady at its last two meetings, which concluded Sept. 20 and Nov. 1. But Fed Chair Jerome Powell has made it clear that another rate increase is still possible at a future meeting.
|?Lender||Average APR||Average Loan Term (Months)||Average Loan Amount?|
|All Lenders Above||21.57%||47||$17,996|
What Is the Predicted Trend for Personal Loan Rates?
If the Fed raises the federal funds rate in Dec. 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 or similar to what you could get in late November or even December, depending on how rates react to any Fed rate hikes or pauses.
It's also always a wise move to shop around for the best personal loan rates. The difference of 1 or 2 percentage points 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 Fiona. Aggregated averages by credit quality are based on actual booked loans.