Personal loans let you borrow money for any purpose. And for that reason, they tend to be a popular borrowing choice among consumers. As of the first quarter of the year, U.S. personal loan debt reached $225 billion, up from $178 billion a year prior, according to TransUnion.
You may be eager to sign a personal loan to address a number of different needs, whether it's fixing up your car, renovating your home, or paying for courses that give you the skills you need to further your career. But now's really not a great time to sign a personal loan. If you're able to wait until 2024, you may find that it's less expensive to take one out.
Avoiding debt right now is a smart move
It's generally a good idea to keep your debt load as low as possible. But right now is an especially bad time to be signing any sort of loan, whether it's a personal loan, auto loan, or home equity loan.
The reason? Since March 2022, the Federal Reserve has raised interest rates 11 times in an effort to cool inflation. The Fed doesn't set personal loan rates, or any consumer borrowing rates, for that matter. Those rates are determined by lenders on an individual basis.
Rather, the Fed oversees the federal funds rate, which is what banks charge each other for short-term borrowing. When that benchmark interest rate rises, lenders tend to follow suit. So right now, even if your credit is great, you might end up with a higher interest rate on a personal loan than you want to get stuck with. And that could leave you with expensive monthly payments.
You might get a better deal in 2024
While interest rates are up right now, things could start to change in 2024 if the Fed decides to cut rates. So next year might be a better time to put a personal loan in place.
Let's say you're looking to borrow $10,000 and pay it back over a five-year period. If you get stuck with an interest rate of 9% now, your monthly payments will be $208 and you'll end up spending $2,455 on interest over the life of your loan.
But if you're able to snag a 7% interest rate on that same loan next year with the same repayment period, you'll be looking at monthly payments of $198 instead. And you'll only end up spending $1,881 on interest.
If you're not borrowing a particularly large amount, you may decide to just move forward with a personal loan now so you don't have to put off paying for whatever it is that money is supposed to finance. In this example, the difference between a 7% interest rate on a personal loan versus 9% is $10 a month.
Granted, the difference in total interest is more significant. But on a monthly basis, the $10 may not make such a big dent in your finances.
The point, however, is to recognize that borrowing conditions generally just aren't optimal right now. So if you are able to wait on signing a personal loan for, say, another six months or so, you might benefit from that financially.
Our picks for the best personal loans
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.
FAQs
If you get stuck with an interest rate of 9% now, your monthly payments will be $208 and you'll end up spending $2,455 on interest over the life of your loan. But if you're able to snag a 7% interest rate on that same loan next year with the same repayment period, you'll be looking at monthly payments of $198 instead.
Will interest rates on personal loans go down in 2024? ›
When will interest rates go down? The Federal Reserve has indicated that there's a good chance it would cut rates later in 2024.
What is the best reason to say when applying for a loan? ›
There are many reasons why people apply for personal loans. These include: debt consolidation, medical and dental expenses, IVF treatment, home repairs/improvements, weddings, large purchases (like appliances or furniture), car repairs, and more.
Do you have to explain why you want a personal loan? ›
In short, yes. While most reasons won't stop you from obtaining a personal loan, you'll need to explain why you need the money you're borrowing.
What to say to get approved for a personal loan? ›
To get a better idea of what you may want to tell your lender, below are some of the most common reasons to get a personal loan:
- A Short-Term Unexpected Emergency Expense.
- To Consolidate Debt.
- A Large Purchase.
- Home Repair and Renovation.
- Covering Costs for Major Milestones and Goals.
- Paying for School.
- Buying Real Estate.
As recently as their last meeting on March 20, the officials had projected three rate reductions in 2024, likely starting in June. But given the persistence of elevated inflation, financial markets now expect just one rate cut this year, in November, according to futures prices tracked by CME FedWatch.
Is 7% a good rate for a personal loan? ›
A good personal loan interest rate depends on your credit score: 740 and above: Below 8% (look for loans for excellent credit) 670 to 739: Around 14% (look for loans for good credit) 580 to 669: Around 18% (look for loans for fair credit)
How do you answer the purpose of a loan? ›
- Consolidate debt. Consolidating debt is one of the most common reasons to borrow a personal loan. ...
- Cover emergency expenses. ...
- Home improvement projects. ...
- Finance funeral expenses. ...
- Help cover moving costs. ...
- Make a large purchase. ...
- Cover a major life milestone. ...
- Pay for a vacation.
The key is to get as specific as possible. For instance, if you need $700 for a car repair, tell your lender that the money is for that reason. You should also map out a repayment plan, like paying them back $70 a month for the next 10 months.
How to convince the bank to give you a loan? ›
In short, the key items for your bank/investor meeting are:
- Being prepared.
- Having good knowledge of your file.
- Ensuring your application is complete and up to date.
- Presenting realistic figures (draw comparisons with competitors, ask that they be verified by an expert…)
- Being realistic!
Cons of Personal Loans
- Interest Costs. If you have poor credit, personal loans can come with higher interest rates, increasing the overall repayment. ...
- Fees. Personal loans often come with a slew of different charges. ...
- Debt Accumulation. Taking on debt isn't something that should be done lightly. ...
- Overborrowing Risk.
But your loan agreement may prohibit you from using the money for certain expenses, like college tuition or gambling. You may also face restrictions from lenders if you try to use personal loan funds as a down payment on a mortgage. There are alternative financing options for these restricted purposes, however.
Is now a good time to get a personal loan? ›
You might get a better deal in 2024
While interest rates are up right now, things could start to change in 2024 if the Fed decides to cut rates. So next year might be a better time to put a personal loan in place. Let's say you're looking to borrow $10,000 and pay it back over a five-year period.
What not to say when getting a loan? ›
Terms may apply to offers listed on this page.
- You don't want to tell the mortgage lender that the house is in disrepair.
- You also don't want to suggest you don't know where your down payment money is coming from.
- Finally, don't give your lender reason to worry if your income will stay stable.
Requirements to receive a personal loan
This allows them to look at your history from the past seven years and see whether you've typically made payments on time. For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate.
Will interest rates go down again in 2025? ›
While waiting to buy a home could mean a lower interest rate, there's no guarantee that rate drop will happen. If you have the budget to buy a home now, another option is to purchase today, but refinance later once rates drop further. The MBA projects a 5.5% rate by the end of 2025.
Do personal loan interest rates go down? ›
variable-rate loans. The good news for borrowers is that personal loans are fixed-rate loans, meaning that the interest rate remains the same from origination to pay-off. Borrowers with a fixed-rate personal loan will not see changes to their interest rate or monthly payments when the Fed raises or lowers rates.
What is the interest rate forecast for the next 5 years? ›
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025. This forecast is supported by Morningstar's analysis, which projects rates between 3.75% and 4%.
What is the best interest rate for a personal loan? ›
Current Interest Rate on Personal Loans
| Bank | Interest Rate (p.a.) | Processing Fee |
|---|
| HDFC Bank | 10.75% p.a. - 24.00% p.a. | Rs.4,999 + GST |
| ICICI Bank | 10.80% p.a. - 16.15% p.a. | Up to 2% |
| TurboLoan Powered by Chola | 14% p.a. | 4% - 6% |
| Yes Bank | 10.99% p.a. onwards - 20% p.a. | Up to 2.5% |
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