Lenders Target Good Credit Customers for Personal Loans
Oct 15th, 2014 @ 5:34 PM by Amber Nelson
Although they have been synonymous outrageously high interest rates in the past, unsecured personal loans are not being marketed toward those with highest credit scores as a way to consolidate debt, buy cars or even do some home improvements.
Total personal loan originations have jumped up to $34.5 billion during the first half of 2014, an 8.7 percent increase from the year before, according to credit-reporting agency Equifax. That’s the largest increase in at least six years.
Part of that increase has come from less traditional personal loan borrowers – those with stellar credit. Lenders are offering these customers lower rates than they could get on most credit cards, making them a quick and cheaper way to pay off higher interest rate debts. While the average rate on a personal loan is 10.82 percent, according to Bankrate.com, those with the best credit scores can get rates between 1.99 percent and 6.99 percent, depending on the purpose of the loan.
When the average rate on credit cards these days is 11.82 percent, according to the Federal Reserve, borrowers can save themselves hundreds of dollars in interest over the course of their loans if they take out a personal loan and consolidate their credit card and other debt.
These in-demand borrowers can also enjoy fixed rates on a personal loan that are not always available with credit cards. There is very little paperwork involved, with no income or asset verification required, no collateral to stake and the loans can be approved within days or even hours. Still, late payments will reflect badly on borrowers’ credit reports and those with less-than-perfect credit should think carefully before applying as they may have to pay interest rates as high as 35 percent.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.