Personal Loan Rates a Better Bargain for Debt Consolidation
It’s more than a little ironic that most people borrow money to cover expenses they can’t afford, yet some loans and credit cards come with interest rates so high that they’re unaffordable. That used to be the case with personal loan rates, but right now they’re a lot less expensive than many credit cards.
Today, the average interest rate is down to 12% for unsecured personal loans with terms ranging from 12 to 60 months, but there are a lot of banks offering personal loan rates lower than that.
Compared to average credit card rates of 11.68%, the average personal loan rates are slightly higher, but because revolving credit card accounts have variable interest rates compared to the fixed rates of personal loans, personal loans are the better bargain. And, of course, 33% of credit card issuers have raised their interest rates this year, many as high as 29.99% or more.
To get some idea of how much money those lower personal loan rates can save when used for debt consolidation, take a look at these figures:
- Today the average household carries $8,924 in total credit card debt. If that household is among the millions whose interest rates have been increased to 29.99%, the five-year, payoff will cost $288.67 per month.
- In comparison, if the credit card debt were paid off with the average personal loan rate of 12%, in a five-year payment period the monthly cost would be only $201.23—a savings of $87.44 per month or $5,246.40 over the life of the loan.
- The average interest rate for balance transfer cards is now 14.54%, so if the card holders in the average household consider that route for paying off high interest cards, they can expect to pay $210.15 monthly, in addition to the balance transfer fee that is typically 3%.
- So again, using the credit card debt of an average family, the balance transfer fee will be an additional $267.72.
- The total savings of using a personal loan to pay off credit card debt compared shifting it to a balance transfer card is $802.92.
When you do the math, personal loan rates are by far the better bargain.