Your personal loan interest rate is based on your unique financial situation. Below are some factors that creditors consider before determining what to charge:

• Credit Score
  You are considered a reliable borrower if your credit score is high. If you fall into this category, you can expect to receive a better rate than someone with a lower score. Some personal loans require a minimum credit score, so you should check yours and eliminate those options you won’t qualify for.
• Type of Loan
  Interest rates vary depending on whether you take out a secured or unsecured loan. Secured means that assets are offered as collateral if you should default. Lenders often offer lower interest rates due to the reduced risk.On the other hand, unsecured loans don’t require collateral. As a result, lenders charge higher interest rates for protection if you fail to pay it back.
• Debt Ratios
  Your debt to credit (DTC) ratio compares your outstanding amount of debt to the amount of credit you currently have available. It plays a vital role since a lower debt-to-credit ratio makes you a more attractive borrower. Anything under 30% is considered acceptable. Let’s say your total credit limit is $20,000 and you have $5,000 in credit card debt. This would give you a debt-to-credit ratio of 25%. (5,000 = 25% of 20,000).
• Income
  Your lender will consider your income level. It reveals your earning power and is a good predictor of whether you will have the means to pay back the loan on time.
• Employment History
  Lenders typically consider your last two years of employment. But if you switched jobs during that time, they will accept a two-year history of consistent work in the same field.

You might need to cover a purchase such as a new car battery or an unexpected medical bill. Or perhaps you want to make your multiple credit card balances easier to manage by consolidating them into a new single loan. There are many reasons why a personal loan might be the best solution for you.

With so many options to choose from, you should first consider how much you need to borrow, a preferable time frame, and how much you can afford to pay monthly.

Keep in mind that the length of the loan will determine your monthly payment amount, interest rate, and more. Your fixed monthly payment is calculated by adding up the principal and the interest.

Most personal loans have repayment terms that typically range from 12–60 months. If your budget calls for a lower monthly payment, you might need a longer stretch of time to pay it off.

A short-term personal loan is usually for up to 12 months. It is typically used to quickly meet expenses over a brief period—like an unexpected car repair. These loans carry higher interest rates than a standard loan, as well as other charges and fees.

You will pay higher monthly payments for the convenience of a short-term personal loan since they must be repaid in fixed, equal monthly payments over a shorter period of time.

Longer repayment terms have pros and cons that tend to contradict each other. On the one hand, you will have lower monthly payments and more time to pay it back. On the other hand, a longer term is riskier for the lender so you will likely pay a higher interest rate.

When you add in the additional interest charges you will accrue in the long term, it could cost more in the end. But it buys time if you can’t afford a higher monthly amount, or you would be hard pressed to pay back your loan in less than a year.

Before you agree to a personal loan, it is essential that you fully understand the terms. You should ask the lender about personal loan rates, monthly payment amounts, the length of the loan, and any other requirements that need to be met.