The overall average interest rate for personal loans moved again this week by a modest 3 basis points to 21.04% after increasing 10 basis points the week before to 21.01%. Last week's increase took the average above the 21% threshold for the fifth time in 2023.

Average intereಌst rates se✨gmented by credit tier were higher for all segments with the exception of loans for poor credit, which saw a drop of 40 basis points. Specifically, average rates for those with excellent and good credit moved up by 4 basis points each, while borrowers with fair credit saw a bigger increase of 42 basis points.

The net effect of modest increases for the top two credit tiers coupled with the bigger jump in fair credit rates was tempered by the ꦺdrop in rates for poor credit borrowers, resulting in a net increase of only 3 basis points this week.

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 and Sept. 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 Sept. 20 that it would hold rates steady. For the upcoming Fed meeting in November, 98.4% of futures traders are predicting the fed funds rate will hold steady, whereas 1.6% 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. But the Federal Reserve's decisions are not the only rate-se🙈tting 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 most recently met on Sept. 20 and, as was widely expected, announced that it would hold interest rates steady for the time being. In remarks following the meeting, Fed Chairman Jerome Powell reiterated that any future rate decisions made by the Federal Open Market Committee (FOMC), which meets again on Nov. 1 and Dec. 13, would be based on economic data and that 澳洲幸运5开奖号码历史查询:anot✤her rate increase is certainly possib🎀le at either meeting.

What Is the Predicted ♑Trend for Personal Loan Rates?

If the Fed continues to raise the federal funds rate in 2023, personal loan rates could also increase. However, with competition for personal loans still stiff, upward movement in loan rates 💦cou♑ld 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.