How to get the best personal loan rates?
The best rates are commonly offered to borrowers with excellent credit history and scores. But besides the rate, other factors affect the overall cost of personal loans. So, check beyond the rate when weighing your options.
Aim for low APRs
Personal loan interest rates represent the cost of borrowing money and don’t include other loan fees yet. In contrast, the annual percentage rate (APR) represents the overall cost of the personal loan. So, keep an eye out for a lower APR to get a cheaper loan.
While rates can either be fixed or variable, personal loans tend to come with fixed rates. A fixed rate means the interest doesn’t change throughout the loan term, so you pay the same amount each month. Meanwhile, a variable rate fluctuates, so your repayments can increase or decrease based on your rate.
What factors affect interest rates?
All banks, lenders, and credit unions differ in the criteria they use to determine the rates you qualify for. But commonly, they review your credit standing and financial situation, including your employment, assets, and debt-to-income ratio (DTI).
What is a good interest rate on a personal loan?
In general, personal loan rates can range from under 6% up to 36%. According to the Federal Reserve, the average rate for a 24-month personal loan was 11.48% in May 2023.
A good interest rate can vary from person to person. But the lower your APR is, the better because it means you will pay less over the life of your loan.
Consider a shorter loan term
Other than your APR, your repayment period also affects your loan. So, make sure you consider the big picture before choosing a loan term.
A longer loan term means you can divide your monthly loan payments into smaller amounts. Because you prolong the duration of your repayments, this means you pay more interest over the course of your loan.
Then, a shorter loan term makes your monthly repayments higher. But this allows you to pay off your loan faster and reduce the overall interest charges.
Longer terms vs shorter terms
You can use a personal loan calculator to check how different terms influence your monthly payments and interest. Consider a $25,000 personal loan with a 7.24% APR.
| Loan term |
Monthly payment |
Total interest payment |
| 1 year |
$2,166 |
$991.23 |
| 2 years |
$1,122 |
$1,928.88 |
| 3 years |
$775 |
$2,888.25 |
| 4 years |
$601 |
$3,869.30 |
| 5 years |
$498 |
$4,871.94 |
The monthly payment for a 12-month term is $2,166, but the overall interest you pay is only around $991. Compared to a 60-month term, the payments are lower, but the interest charges are five times higher.
Adjust your loan amount
How much you borrow affects your rate, too. If you need to loan a higher amount, this increases the risk for lenders. In turn, you may get higher interest rates. So, make sure you only borrow the amount you need and avoid overborrowing.
How to compare personal loans?
Other than the loan rates, terms, and amounts, it helps to compare other features, too. This will allow you to get the best personal loan rates and overall customer experience.
Requirements
All lenders vary in their lending criteria. That said, check which one matches your situation. If you have poor or limited credit, consider lenders that willingly work with borrowers with below-average credit or allow co-signers and co-borrowers.
Special offers
Check personal loan lenders that offer certain discounts and perks. For example, some offer discounted rates when you set up autopay. There are also those that provide discounts if you’re a member of a certain group or organization.
Loan fees
It also helps to compare the personal loan fees that lenders charge, like origination fees and late payment fees. Sometimes, lenders waive these fees, so watch out for those when shopping for a personal loan. This will help you lower your loan expenses.
Funding time
Other than loan costs, assess how long it takes to get a personal loan. Some banks, online lenders, and credit unions provide instant loan decisions, while others may take a few days to get back to you. So, if you need immediate funding, it may be worth looking for lenders that offer a quick process.
What to consider before applying for an auto loan
Check your credit score
Your credit score and history highly impact your rates, terms, and eligibility. So, reviewing your credit rating gives you an idea of the loan options you may qualify for. If you have fair credit, you can then take the necessary steps to build your score to secure favorable offers.
Determine your budget
To fully take advantage of personal loans, make sure you can afford your repayments in the long run. Calculate the monthly payments you can comfortably manage to avoid financial strain.
Consider getting pre-qualified
Many lenders allow prequalification, which doesn’t affect your credit score. Getting prequalified can help you see your potential rates and terms. So, this can aid in comparing lenders and loan offers. Remember though that prequalification doesn’t guarantee loan approval.
Find a co-borrower or co-signer
Co-borrowers and co-signers with good credit can support your personal loan application. Co-borrowers or joint applicants are responsible for your loan from the start, while co-signers only become liable if the primary borrower defaults. So, if you have credit issues or limited credit history, consider applying with a co-borrower or co-signer to improve your chances of loan approval.
How to apply for a personal loan
After considering your credit profile, budget, and strategies, it’s time to apply for a personal loan.
- Shop around, and compare: Search for different banks, credit unions, online lenders, and other financial institutions that offer personal loans. Then, try to get prequalified from multiple lenders to find which matches your needs and circumstance. Once you have an idea of the potential offers, compare the rates, terms, fees, and overall features of each.
- Prepare your documents: As you compare your choices, prepare your loan documents. Normally, lenders ask for proof of identification, address, income, and employment. Having these ready before formally submitting your application can help make the loan process easier and faster.
- Submit your application: Once you’ve settled on which loan you want to move forward with, submit a formal application. This will require a hard credit check, so applying for a loan can temporarily ding your credit score by a few points.
Depending on your lender and application, it can take anywhere between a few minutes to weeks. When your application is approved, you can typically expect the loan proceeds in a couple of days.
Where to get the best personal loan rate?
Traditional banks and online lenders can offer low rates. However, a credit union generally has flexible lending requirements and tends to give the lowest rates to members. But make sure you weigh your options and assess what you’re looking for.
Online lenders usually approve applications and fund loans quickly, while banks typically offer low rates to their existing customers. Meanwhile, credit unions provide low-rate choices to borrowers with poor credit, but the catch is you need to be eligible for membership first.
Frequently asked questions
Where can I get a personal loan?
Personal loans are widely available in many banks, online lenders, and credit unions. Each offers different advantages, so carefully compare best personal loans before deciding. Make sure the lender you choose will give you the rate, repayment period, and features that best suit your needs.
What is a good interest rate on a personal loan?
A good personal loan interest rate can vary for each borrower. Ideally, your APR should be below the national average for those with excellent credit. Nonetheless, look beyond the rate as other factors, like origination fees and other charges, can make your loan cheaper or more expensive.
What credit score do I need to get a low interest personal loan?
While there are no standard minimum credit score requirements, a score of at least 670 can help you qualify for an affordable interest rate. But to secure the lowest rate from a lender, you typically need a credit score of 720 and above. Remember though that other aspects can affect your APR, such as your repayment history, income, and DTI ratio.
How much will a personal loan cost?
Personal loan costs differ for each situation. Check your loan agreement for the interest rate and fees, like the origination fee and prepayment penalty. Looking at the whole picture can help you compare which one will save you the most.
What can I use a personal loan for?
You can use a personal loan for a variety of purposes. These include home renovations, debt consolidation, vacations, special events, and more. Sometimes, you can even use personal loan funds for medical expenses. However, make sure you check with your lender if there are limitations with the loan purpose.
Can I get a loan with bad credit or no credit?
It’s still possible to get approved for a personal loan even if you have bad or limited credit. Note though that bad credit loans tend to come with higher interest rates. Alternatively, search for lenders that specialize in bad credit loans. They may be more willing to work with you and offer you low rates regardless of your credit standing.
What are the alternatives to personal loans?
If a personal loan doesn’t fit you, common alternatives include credit cards, home equity loans, and personal lines of credit. Each option has pros and cons, so check which type of loan works best for you. Consider how much you need to borrow, what you’re using the funds for, and how much you can afford.
How many personal loans can you have at once?
There’s no rule on the number of personal loans you can have at once, but it can vary per lender. If you have multiple loans at once, this may make some lenders hesitate to offer you additional debt. In the end, excessive debts may strain your budget and put you at risk of defaulting if you don’t carefully manage your loans.
How to manage a personal loan?
Managing your personal loan all comes down to consistently meeting your monthly repayments. Keep in mind that late payments may damage your credit and affect your ability to secure more loans in the future. If you face issues paying your monthly dues, contact your lender as soon as possible to know your options.
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Carla is a skilled copywriter at BestFind with a background in marketing and communications. She specializes in reviewing personal loan and finance products to help readers navigate the complex world of personal finance.
