How Much Higher Are Personal Loan Interest Rates in 2023?

Personal loans can be a smart way to consolidate high-interest credit card debts or finance large purchases, but they aren't the best option for everyone. Plus, over the past couple of years, personal loan interest rates have trended upward along with the overall interest rate environment in the United States.

With that in mind, here's how much personal loan interest rates have increased since reaching record lows just over a year ago, and what it means for borrowers.

How much have personal loan interest rates gone up?

The changes in personal loan interest rates over the past year or two depend on the exact source you're using. And to be fair, different lenders have responded differently to the rising-rate environment. While personal loan interest rates tend to move in the same direction as the Federal Reserve's interest rate moves, it isn't an exact correlation.

Having said that, let's take a look at some of the averages.

According to data from the Federal Reserve, the average interest rate on a 24-month personal loan from a commercial bank has risen from an all-time low of 8.73% in the second quarter of 2022 to 11.48% as of the first quarter of 2023, the most recent data available. Personal loan marketplace Credible found that interest rates on three-year personal loans have risen about 4% from their all-time lows, while rates on five-year loans have increased by nearly 5%.

Here's what this means to the average borrower. Let's say that you want to borrow $25,000 and that you want to pay off the balance over three years.

In February 2022, which was the record low, you would have had monthly payments of $816.10 and would have paid $4,380 in interest, if you were the average borrower. But now, you would have payments of $862.11 and would pay about $6,036 in interest. Of course, that's just the average. But you get the idea -- it has become quite a bit more expensive to borrow money than it was.

It isn't just that rates have gone up. As mentioned, different lenders have responded differently to the rising-rate environment. And one way lenders tend to respond in uncertain economic times is to raise their minimum lending standards. In other words, if you have a below-average credit score, you might find it harder to get approved for a personal loan than it was a year or two ago.

Good deals still exist for high-credit borrowers

One of the key points to know is that in the current rising-rate environment, having good credit is more important than ever. Some of our favorite personal lenders are still offering loans with APRs starting at 6.99% or even less, but to get rates like this, you'll need to have top-notch credit. For example, a Discover Personal Loan offers rates ranging from 6.99% to 24.99%, but specifies that the lowest rates are only available to consumers with "the best credit."

The bottom line is that while borrowing costs have generally trended upward, solid personal loan interest rates still exist for borrowers with strong credit. Fortunately, you can check your personalized rate quotes through most lenders with a quick prequalification form and no impact whatsoever to your credit score.