Personal loan rates forecast for 2024

The Federal Reserve has increased the federal funds rate 11 times since March 2022 in efforts to reduce inflation. This has brought the target rate range up to a 22-year high of 5.25% to 5.50%. 

While federal rate hikes have slowed in 2023, lenders have responded to these increases by raising rates on credit cards, auto loans, mortgages and personal loans. As of August 2023, the average rate for a two-year personal loan was 12.17% — up from 10.16% a year prior, according to the Federal Reserve.   

If you’re wondering how personal loan rates will look in 2024, here’s what you should know.

Will interest rates go down?

Personal loan rates are inarguably high right now, but whether they’ll decrease in 2024 is debatable. 

The Fed has been hinting at a “higher-for-longer strategy, which means rates could stay elevated for a while,” says Joseph Camberato, CEO of business lending firm National Business Capital. “But the impact of these high rates on businesses and households is significant and will likely prompt a gradual decline.”

Patrick Harker, president and CEO of the Federal Reserve Bank of Philadelphia, also suggested the Fed should hold rates where they are to see if inflation continues to cool in a speech at the Mortgage Bankers Association Annual Convention and Expo in October. 

In October, the U.S. inflation rate decreased to 3.24% from September’s 3.70% — seemingly in accordance with experts predicting a slight decrease. However, while a 3.24% inflation rate is significantly lower than the historically high inflation rates we saw in 2022, it’s still higher than the Fed’s target inflation rate of 2%. Whether the Fed will raise its benchmark rate again in late 2023 hinges on inflation’s overall trajectory.   

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Our prediction

If inflation rates decline, chances are good that the federal funds rate will hold steady or decline slightly. But that’s a big “if.” While a decline in the federal funds rate could result in decreasing consumer loan rates, we could instead see personal loan rates increase slightly if the Fed hikes its benchmark rate later this year. 

Apart from the federal funds rate, borrower demand is another key factor in the trajectory of personal loan rates. Post-pandemic personal loan originations increased steadily, with around 22.1 million loans originated in 2022, according to data from TransUnion. High demand for these loans is expected to continue through 2023. This could result in stiffer competition among lenders, keeping personal loan rates steady despite potential benchmark rate increases.   

How personal loan interest rates look now

The average rate on a two-year personal loan —12.17% as of August 2023 — is the highest it’s been since 2007. Personal loan rates have also increased by over three percentage points since early 2022. 

While this is a fairly significant increase, consumer loans with longer terms have seen even sharper hikes. For example, the average 30-year mortgage rate was 3.22% at the beginning of January 2022, according to the Federal Reserve Bank of St. Louis. It then rose to 7.50% in November 2023 — an increase of over four percentage points.

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What is a good personal loan interest rate?

A good personal loan rate is generally considered to be a rate lower than the national average —  currently 12.17% for a 24-month personal loan. Even a slight difference in your rate can significantly affect your overall interest costs. 

For example, if you take out a $30,000 loan with a five-year term and a 12.17% rate, you’d pay about $10,195 in interest over the life of your loan. But if you got a rate just one percentage point lower at 11.17% instead, you’d pay around $9,289 in total interest — meaning you’d save approximately $900. 

Note that personal loan rates vary by lender. Additionally, the exact rate you’re offered will depend on a variety of factors, such as your credit and the repayment term you choose. You’ll typically need good to excellent credit to qualify for the lowest rates — a good credit score is usually considered to be 670 or higher. In general, the higher your credit score, the better your rate will be.

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How to compare the best personal loans

Before taking out a personal loan, be sure to shop around and compare your options with as many lenders as possible. This can help you find a good deal on a loan that works for your needs. Here are some important factors to consider as you weigh your choices:

Interest rates

Your interest rate plays a major role in determining your overall borrowing costs. Remember that you’ll typically need good to excellent credit to qualify for the lowest advertised rates.

Tip: Many lenders allow you to pre-qualify for a personal loan with only a soft credit check that won’t hurt your credit score. This will give you a better idea of what rate you might get approved for if you choose to submit a full application.

Loan amounts 

Personal loan amounts can range from as little as $300 up to $100,000, depending on the lender. Be sure to borrow only what you need to keep your repayment costs as low as possible.

Repayment terms 

Personal loan terms usually range from one to seven years, depending on the lender. If you want to keep your monthly payments low, you might opt for a longer term — though this means you’ll pay more in interest over time. 

While a shorter term will come with higher payments, it’s usually best to pick the shortest term you can afford to avoid additional interest charges. Many lenders also offer better rates on loans with shorter terms.

Tip: Use our personal loan calculator to see what your monthly payments could look like with different repayment terms.

Fees

Lenders often charge fees on personal loans, such as origination fees and late fees, that can impact your total costs. Opting for a loan that comes with a high amount of fees could offset the benefits of getting a lower interest rate.

Eligibility requirements 

You’ll typically need good credit, sufficient income and a low debt-to-income (DTI) ratio to get approved for a personal loan. Keep in mind that exact qualifications vary by lender, though. For example, while many lenders require good credit, some accept lower credit scores — though bad credit loans typically come with higher interest rates compared to good credit loans. 

Funding speed

If you’re approved for a personal loan, it will generally take about a week to get your funds, depending on the lender. However, some lenders offer faster funding, which can be crucial if you need to cover emergency expenses. For example, LightStream funds its loans as soon as the same business day after approval.

Final verdict

Whether personal loan rates will decline in 2024 remains to be seen and largely depends on inflation and the Federal Reserve’s future monetary policy decisions. 

Lender competition also plays an important role in short-term loan rates. If demand for personal loans remains high, lenders could respond by keeping rates steady in the wake of potential federal funds rate increases.