Personal loan rates fell to record-breaking lows in 2020 due to the COVID-19 crisis. In an attempt to provide economic hardship relief, the Federal Reserve slashed interest rates, and the low rates don’t seem to be going anywhere in 2021.
Personal loan rates should remain stable in 2021
Interest rates should hold steady throughout 2021. “Interest rates aren’t going to look a whole lot different at the end of the year than they do at the beginning of the year,” says Greg McBride, CFA, Bankrate chief financial analyst. “This backdrop of record low rates created by the Federal Reserve is in play not just for this year, but likely for the next few years, so there’s not going to be a catalyst for movement in rates.”
The average personal loan interest rate currently hovers around 11 to 12 percent, although lenders offer rates anywhere from 3 percent to 36 percent.
Lender competition is likely to increase in 2021
That being said, the likelihood of the COVID-19 vaccine or the incoming Biden administration impacting personal loan interest rates isn’t high. However, what could happen is the potential for more lender competition, particularly for high-credit-quality consumers, says McBride. Lenders will likely have more generous terms for borrowers who pose the lowest risk of default.
However, overall credit availability is unlikely to change much for borrowers with poor credit. Lenders have scaled back their personal loan offerings, and it will take a full-fledged recovery before lenders are comfortable with taking risks by extending more credit and increasing approval ratings, says McBride. “[Lenders have] got to be comfortable that the worst is behind them from a standpoint of delinquencies and defaults before they get comfortable extending credit again, and that happens at different times for different lenders.”