Personal loan rates have a big impact on whether consumers decide to take out a loan. Some of these loans are taken out of necessity for things like debt consolidation, college tuition, critical home repairs and such. Others are taken out for pleasurable things like new toys and vacations. You might think banks would always keep their rates low so more people can borrow. But the rates vary depending on the times, and depending on a person’s credit report.
Why Do the Interest Rates Vary?
The rates for personal loans vary depending on a couple of things: the prime lending rate and personal credit history. Banks base their loan interest rates on the prime lending rate — the rate that only the most qualified customers get. Anyone with less than stellar credit will get a higher rate. If a customer has good credit, he will get a higher rate than what prime is. One with fair credit gets a little bit higher rate, and a consumer with bad credit usually gets a very high interest rate. With that in mind, consumers do have some control over the personal loan rate they get.
How Do Personal Loan Rates Affect the Economy?
Borrowing and lending have an influence on the economy — nationwide and worldwide. When rates are high, fewer people borrow; when they are low, more people borrow. When people borrow, they spend; and when they spend, the whole world is happier and more prosperous. These good times end when consumers have borrowed more money than they can pay back, and they start to default on loans. That makes personal loans more expensive. Then the cycle starts over.
The best thing to do about personal loan rates is to keep your credit in top-notch shape. If you do that, even in hard times it will be easier for you to get financing. In addition to that, it is a good idea to plan on taking out loans when the economy is good and loan rates are lower. Remember that cycle you read about above? Eventually, it will swing in your favor.