What Is a High Interest Rate on a Personal Loan?

Personal loans are often viewed as an attractive borrowing option because they tend to be more affordable than credit cards when it comes to their interest rates. You can use the money for almost anything, so they are also a flexible borrowing solution.

If you're considering getting a personal loan, though, you'll want to understand what rate you're paying and how much borrowing is going to cost you. Specifically, it can be helpful to know if your rate is reasonable -- or too high.

Here's how you can tell.

This is a high rate on a personal loan

One of the easiest ways to tell if your personal loan rate is pretty high is to compare the rate you're being offered to the national average. Currently, that national average rate is 12.35%.

If the rate you are offered is below the average, then you are getting a pretty good deal. On the other hand, if lenders are offering you loans at 15.00%, 20.00%, or higher, then you are well above the average and your rate is pretty high.

A higher rate can make a big difference in both monthly payments and total costs, so it's important to make sure you're being charged a fair amount of interest. For example, the table below shows different monthly payments and borrowing costs for a $10,000 loan repaid over five years at a high rate, average rate, and low rate.

As you can see, the loan at the highest rate is a lot more expensive both each month and over time.

Your own financial situation will determine your rate

It's important to realize, when looking at personal loan rates, that the interest any lender charges you is going to be based on not only market conditions, but also, perhaps more importantly, on your financial credentials.

If you have great credit, you should be able to qualify for loans from lenders that have stringent qualifying criteria, such as LightStream. This lender allows you to borrow only if you have good or excellent credit, and it offers a starting APR as low as 7.49%. On the other hand, Upgrade is more open to loaning money to borrowers with bad credit, but its rates start at 8.49% and come with an origination fee, which LightStream doesn't charge. (Rates are accurate as of March 19, 2024).

Ultimately, you will need to shop around and get personalized quotes from several different lenders to see whether any one loan provider is offering a low or high rate for you. That way, you can avoid spending more than necessary when borrowing. If your rates are high because of an imperfect credit score, you can also consider asking someone with more solid financial credentials to cosign for you. If they agree to share responsibility for repayment if you default, lenders will often offer you a better rate.

Since your rate does make such a difference, it's well worth the effort to explore all of your options in order to make sure your personal loan rate isn't too high.