-
Step 1
Find out competitive interest rates at Bankrate, which provides current rates for mortgages, autos, credit cards and investments. Lenders charge more for a personal loan than for a secured loan, but not as high of an interest rate as credit cards.
-
Step 2
Determine if the loan ends at the end of a set term or if it continues on a revolving term. Loans that also function as a revolving line of credit charge a higher interest than fixed term loans.
-
Step 3
Get a credit report for the person who wants the personal loan. A credit report tells you if a person pays their bills on time, how much debt the person has accumulated and the types of debt the person owes.
-
Step 4
Look at the person's credit score, which factors in the credit history to provide you with an indication of the risk involved in lending to the person. A person who pays his bills on time may have a lower score if he owes more than 50 percent of their income to debt, carry a balance of 50 percent of his available credit card balance or have access to high amounts of unsecured debt.
-
Step 5
Choose a higher interest rate for people with a poor credit report. Charge a higher interest rate for people with a low credit score, an average interest rate for an average score and a low rate for an excellent credit score.
-
Step 6
Consider your own financial situation. If you choose to fund a personal loan, you lose the potential investment your money would have made in another form of investment like mutual funds.
-
Step 7
Evaluate your relationship with the person and determine what interest rate you feel comfortable using. You need to find the balance between looking out for your own interests and helping out the person you loan money to.
