Personal loan interest rates you should expect given your credit score
If you’re looking at getting an unsecured personal loan, you might wonder what interest rate you should be able to get. Sure, we all want that rock-bottom APR, but most of us won’t be able to get it. So, when you are shopping for a personal loan, how can you know whether the lender is offering a good deal based on your credit score?
We’ve spent years in the lending industry and understand how lenders decide who to lend to and what rate to offer. In this video, we’ll explain the general idea and then tell you what you should be able to expect based on your credit score. We are talking about unsecured personal loans. That means you won’t need any collateral to get these rates. Generally speaking, loans that are secured by your home equity, savings account, or motor vehicle will earn you better interest rates than you could get with an unsecured loan. Today, we’re primarily interested in loans that do not require you to risk losing your assets.
What APR should you expect for your credit score & where to get a personal loan by credit score.
The single biggest factor in determining what interest rate lenders offer customers is how many borrowers would default on a loan. Losses through default are usually the largest cost of lending. Lenders are essentially trying to predict who will have trouble paying them back. If they can eliminate the people who would default, they can lower the interest rate they charge and still make money. This is why securing a loan can get you a lower rate: the lender can recoup losses by seizing your assets. When you sign an unsecured loan, they can’t come after your assets.
But the thing is, there is no way for them to predict whether a particular individual will default. Instead, they track the probabilities of default for whole groups. Statistically speaking, it’s much easier to predict how many people will default in a group of 10,000 borrowers. This allows them to price loans based on the default rate that they would expect in that group. The most obvious way to group people is by their credit scores. The higher your credit score, the less likely you are to default on a loan in the next 18 months.
And, in fact, there is a strong correlation between credit score and the interest rate people get when they take a personal loan. You will see that as we go through the credit score tiers and the rates you can expect. We’ll start at the top and move down.
The top credit score category is “excellent credit.”
These are people with credit scores that are from 800 to the top score of 850. Any score above 800 is functionally perfect. The models get a little clumsy over 800, because there is no practical difference between a 810 and an 830. Right now, people with Excellent credit can qualify for personal loans with Interest Rates/APRs between 7% and 12%.
If you have Excellent credit, you are likely to get the best rates from the bank or the credit union you already do business with. Many of them have relationship discounts that prioritize their own customers. But, it’s not guaranteed. Here is a list of some of the bigger companies that we know offer low rates to people with Excellent credit. [Axos Bank, Citibank, Discover, Happy Money, LightStream, Navy Federal Credit Union, Penfed, Sofi, TD Bank, Truist, USAA, Wells Fargo]
The next group is “very good credit.”
These are people with credit scores between 740 and 800. This are still very good credit scores and people with them are unlikely to default on their loans. These borrowers would definitely be able to get the loan that they need. The only thing that might limit them is their income and debt-to-income ratio. These people are getting personal loans with APRs between 10% and 15%.
The lenders who offer personal loans to people with “very good credit” look a lot like the ones who lend to people with Excellent credit. They will just add a couple of point onto your interest rate. [Axos Bank, Citibank, Discover, Happy Money, LightStream, Navy Federal Credit Union, Penfed, Sofi, TD Bank, Truist, USAA, Wells Fargo]
The next credit score range is “good credit.”
These are people with credit scores between 670 and 740. Again, these are still good credit scores. The most stringent lender might not approve someone at the bottom of this range, but there are always options for people with good credit. When they apply for a personal loan, they can expect to be approved for an APR around 15% and 22%.
The same lenders who offer loans to people with Excellent credit will probably approve people at the top of good-credit range. There are a few lenders that come out, though, because they are really only interested in the borrowers with the highest credit scores. [Citibank, Discover, Happy Money, LightStream, Navy Federal Credit Union, Penfed, Sofi, TD Bank, Truist, USAA, Wells Fargo. Rocket Loans]
The next group is “fair credit.”
This is where things get much more dicey. These are people who have credit scores between 600 and 670. In terms of which lenders will approve them, this might be the most unpredictable group. It’s not that they can’t get a loan. It’s that the lenders shift around a lot. From the bottom to the top of this range, there is a wide variety of lenders. At the top of the range, you might be able to qualify for a prime–or at least prime-ish–lender. But at the bottom of that range, you might only have access to non-prime lenders. For that reason, the range of APRs starts to get much broader. These personal loans would have APRs ranging from 22% to 36%. If you are at the bottom of the “fair credit” range, you might have to turn to lenders that have interest rates above 36%.
At the top of the range, you can expect some of the more traditional lenders, but the space is dominated by FinTech and lending companies. These lenders generally have APRs that run from 8% up to 36%, so if you are close, they will likely have an option for you. In this group, shopping around is crucial. The offers you can get can swing wildly. I’ll tell you a good way to shop around below. [Achieve, Best Egg, Lending Club, LendingPoint, Oportun, Prosper, Upgrade, and Upstart.]
Then comes the “poor credit” group.
These are people with credit scores between 540 and 600. While there is never a guarantee that you will be approved for a loan regardless of your credit score, people in the poor credit range are much more likely to be denied. And, frankly, it can seem pretty unfair. The vast majority of these borrowers will pay off their loans, but there is a higher percentage of people who won’t be able to. So, the cost is higher for all of them. If the lender could identify which individuals would struggle, they could lower the cost of borrowing to everyone. But their crystal ball is a bit cloudy. The personal loans available for people with poor credit will have APR/Interest Rates between 36% and 155%.
An example of the brands that lend to people with poor credit are generally online lenders, but there are also storefront lenders as well. [Oportun, Opploans, NetCredit, Rise Credit, and One Main Financial, World Acceptance]
The last group is people with “bad credit.”
They are people with credit scores below 540. Most of the people in this range are in the middle of their financial troubles and so traditional lenders are unwilling to lend to them, but the ones that do will only lend small amounts, for short terms, at high interest rates. Their APRs will range from 155% to 600%…or more.
Some people might be able to get a loan from the lenders who offer loans to people with poor credit, but others will have to turn to payday stores that are found in strip malls or online tribal lenders. Many of these borrowers have to turn to other products like check cashing, pawn shops, and payday advance. Most the companies in this space are small companies that differ depending on the state in which you live.
Whether you have Excellent credit or Bad credit, the key to finding the best deal on a personal loan is to shop around. Lenders will not use only credit score to determine whether to lend to you and at what rate. Lenders today will look at as much information that they can get. They will look for things like your payment history, debt-to-income ratio, reliability of your income, bank account data, recent credit inquiries, and other information. They all have their own recipes. So, if you can, you should try and get two or three approved offers in hand before you make a decision on which loan to take.
At The Yukon Project, we’ve tried to make shopping around easy. We have assembled dozens of lenders across all of these credit spectrums. If you visit our marketplace page, you can apply to any one of our featured lenders. Behind the scenes, we will check your rate with up to 40 other lenders. Our partners use a soft credit check, so applying won’t hurt your credit score. We will show all of the loans for which you are approved. That way, you can pick the loan that is best for you.
We hope that you found this information useful. If you did, please like this video and subscribe to our channel. Your support means a lot to us and we appreciate it.
APPLY FOR A PERSONAL LOAN. FIND OuT HOW MUCH AND AT WHAT APR (INTEREST RATE). SOFT CREDIT CHECK. UP TO 40 LENDERS.
