The average American household carries $104,755 in debt, including mortgages, credit cards, auto loans and student loans, according to June 2025 data from Experian. For people struggling with multiple high-interest debts, personal loans offer a practical consolidation solution.
Personal Loans as a Consolidation Tool
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Personal loans allow borrowers to combine multiple debts into one loan with a fixed interest rate and consistent monthly payment. Unlike credit cards with variable rates, personal loans provide predictable repayment terms.
“One of the most common ways we see members try to consolidate and pay down their debt is with our personal loan,” said Yolanda Martinez of Advancial Federal Credit Union.
This strategy is particularly effective for credit card debt. The average credit card interest rate was 19.83% as of early December 2025, according to Bankrate, down from a record-high 20.79% set in August 2024.
“By refinancing those balances through a consolidation loan at a lower rate, borrowers can save hundreds or thousands of dollars in interest charges,” said Martinez.
Understanding Personal Loan Rates
Personal loan rates vary widely based on creditworthiness, loan amount and repayment term. Borrowers with excellent credit scores typically qualify for rates in the single digits, while those with fair credit may see rates in the high teens or low 20s.
Keep an eye on the Federal Reserve
The Federal Reserve’s benchmark interest rate directly influences personal loan rates. As the Fed adjusts rates to control inflation or stimulate economic growth, lenders typically adjust their personal loan rates accordingly.
A borrower consolidating $15,000 in credit card debt at 19.83% could save considerably by refinancing with a personal loan at 9.90%. Over three years, the credit card debt would cost approximately $4,900 in interest with minimum payments, while a personal loan at 9.90% would cost roughly $2,350 in interest, saving more than $2,500.
Factors That Affect Personal Loan Rates
Several factors determine the interest rate a borrower receives:
Credit score is the primary factor. Borrowers with scores above 720 typically qualify for the best rates, while those with scores between 640 and 719 receive moderate rates. Borrowers with scores below 640 may face higher rates or difficulty qualifying.
Loan term affects rates. Shorter-term loans,such as two or three years,often carry lower interest rates than longer five or seven-year terms. However, shorter terms mean higher monthly payments.
Loan amount can impact rates. Some lenders offer better rates for larger loan amounts, while others provide tiered pricing based on how much is borrowed.
Income and debt-to-income ratio matter. Lenders want to see that borrowers have sufficient income to repay the loan comfortably, typically requiring debt payments to be less than 40% of gross monthly income.