Lower Personal Loan Rates vs. Higher Credit Card Rates
Historically, personal loan rates have been higher than those of credit cards, but no more. Now that 33% of credit card issuers have closed customer accounts, increased interest rates or fees and made it nearly impossible to get new credit, the reduced personal loan rates are only one of many reasons personal loans are a good bet.
Interest rates are down on nearly all types of loans, except credit cards; while median personal loan rates are hovering around 12%, median credit card interest rate rose 23% between December 2008 and 2009, according to a study by The Pew Charitable Trusts. And, last December median credit card interest rates were between 9.99% and 15.99%; by July of his year the rates increased to a range of 12.24 to 17.99.
Many also instituted new annual fees, ranging from $29 to $99 a year, including fees for under-utilized accounts.
In the past the best way to escape the squeeze of a high-interest credit card by strategically transferring the balance to a lower-interest card, but these days, balance transfer cards charge an average 14.54% interest on top of balance transfer fees ranging from 2% to 5%.
The best strategy for consumers intent on paying off high-interest credit cards is to take advantage of lower personal loan rates. Personal loan rates are determined by income and payment, but usually have fixed interest rates compared to the volatile, variable interest rates of credit cards.
Many personal loan lenders are currently offering personal loan rates as low as 8.99%–roughly half of widely advertised credit card rates. And, for credit card holders whose interest rates have been jacked up to 29.99%, taking advantage of lower personal loan rates can mean a savings of thousands of dollars. A $10,000 credit card with an interest rate of 29.99% will cost $19, 408.20 if paid off in five years; paying off that credit card with a personal loan will cost $12,452.40–a saving of $6,955.80.