Low-interest personal loans are offered to the most trusted borrowers from banks, credit unions and online lenders. There is a competitive annual rate (APR). This is below the national average personal loan rate of 12.37% as of April 3, 2025, and in many cases is below 10%.
Unlike other personal loans, to qualify for this low fee, you must well exceed the minimum lender requirements. This includes:
- FICO credit scores above 740 (or 800 at the highest rate).
- Annual income exceeding a specific annual threshold.
- Clean credit record.
- Established credit history.
How to get a low-interest personal loan
Although all lenders have different criteria and minimum requirements, following these seven steps can increase your chances of receiving approval for a low-interest personal loan.
1. Know your credit score
A good credit score is most likely to receive low interest rates on personal loans. Before applying, check your credit report to make sure your score is in the best possible form and there are no errors that will negatively affect your credit.
Visit AnnualCreditReport.com to get free copies of the report once a week from all three credit departments (Exect, Experian and Transunion). If you have no mistakes in your report but your score may improve, get your past accounts up to date and continue paying timely on all other accounts. It is equally important for each hard credit inquiry to refrain from applying for new credits as your credit score will blow away some points.
2. I’ll pay off my debt
When applying for a loan or any credit item, the lender will look at the ratio of your debt income (DTI) to determine whether you can afford potential monthly payments. To calculate your DTI, you add up the monthly obligations that appear in your credit report, including credit cards, loans, and other regular obligations, and split them with your monthly total income. The DTI is the last number and is expressed as a percentage.
In general, especially with low interest loans, the higher the DTI, the higher the fees and lower the approval odds. Most lenders look for DTIs below 36%. However, you probably need to lower it to get the best price. If your DTI is above 36% or approaching it, consider implementing a debt repayment strategy to improve your debt management.
The two most common options are the snowman and avalanche methods. This is useful for those who have stable income but have unruly levels of monthly debt. Both require monthly payments, while debt snowballs focus on paying the smallest debt first, while debt avalanches start with debt with the highest interest rate.
3. Research lender
Personal loans are not a versatile product, and there are things that each lender can offer. Pre-qualify at least three options before you settle for a good looking first. By doing this, using preview rates that can be received after submitting your formal application does not imply guaranteed approval.
However, not all lenders offer prequalification. If you come across a loan that appears to meet your needs, research the details and fees to ensure your credit profile is competitive.
Also, check out our opening hours and customer reviews in our Customer Service department. Make sure you have the support you need for your application and the entire repayment process.
If you don’t know where to start and feel overwhelmed, remember your options. Please take a look:
- Online lender.
- Local and national banks.
- Local and national credit unions.
- Online markets like Bankrate.
Unlike banks and online lenders, credit unions are non-profit organizations that exist to provide banking solutions to their members. Their personal loan rates are often lower than they would find in traditional banks. However, you will generally need to apply for membership, and some may limit membership based on employment, organization, or location.
4. I’ll look for discounts
If you already qualify for the lowest rate offered by the lender, check if you can receive an extra discount. In many cases, these discounts range from 0.25% to 0.50% of your rate.
The most common discount offered by lenders is the Autopay discount. Additionally, some lenders offer discounts to apply with qualified co-borrowers.
Also, check with your bank or credit union. Some offer rate reductions or benefits to existing customers. Additionally, other perks may be offered, such as the extended grace period and the ability to change monthly dates.
5. Only apply for the amount you need
It could potentially be approved for more than what you were originally looking for. However, you will only need to borrow what you need. This will allow you to create a more manageable monthly invoice than if you were to borrow more.
Before applying, calculate numbers, look at the lender’s terms of use page and find the rate. Some lenders may waive certain fees or charge lower fees to those with excellent credits, but keep an eye on origination, advance payments and postponed fees.
6. Apply for pre-qualification
Most lenders allow borrowers to check their fees through pre-qualification before they formally apply for the loan. This step requires you to provide your contact information and estimated gross income, date of birth and Social Security number.
The biggest part of getting a loan prequalification is knowing exactly what you’re going to do with that particular lender without damaging your credit, as the lender is only doing soft pulls at this step. At least three lenders are qualified in advance to get a well-lit idea of what you can qualify for.
How interest rates on personal loans work
The lender evaluates several factors to determine whether he qualifies for a low-interest personal loan, including his credit score, employment status, and debt-to-income ratio.
Your credit score plays a key role in letting lenders know how well you managed your loans and other financial products in the past. The FICO scores that many lenders and creditors use to make loan decisions range from 300 to 850. The lowest rate is generally reserved for borrowers with excellent credit scores above 800 due to the low risk of default payments.
You may still be approved with a lower credit score, but that may be more difficult. You can also expect higher interest rates and more fees.
Things to look for when comparing low-interested personal loans
Once you understand how interest rates on your personal loans work and what most lenders need, the next step is to shop for the best deal.
- Interest and fees. Find the lowest starting interest rate and see if there are origin fees, underwriting fees, or early repayment fees.
- Loan terms. Various terms can help you plan both your monthly budget and how much you will pay overall. If you can afford a monthly loan payment in the short term, your lender may offer you a low interest rate.
- Online prequalification. Prequalification will make shopping easier and avoid formalizing it to apply to lenders that are not appropriate.
- Customer service. Customer Support 24/7, customer reviews on third-party sites, and the type of customer service offered may affect whether the lender is appropriate. Also, if you prefer in-person services, consider whether there are branches available.
- Lender incentives. Referral bonuses, discounted fees for signing up for automated payments, free access to credit scores, or unemployment protections can all affect your overall borrowing experience.
Conclusion
A good credit score, consistent income, and a low income ratio are key to securing a low-interest personal loan. However, if your finances aren’t at its best, consider taking a step backwards to improve your credit score and lower your utilization before applying.
If you can’t wait and need the funds as quickly as possible, you can also use Cosigner to get a better deal or sign up for an Autopay discount. Most importantly, you can shop for the best low interest personal loans for your credit situation, prequalify if possible, and compare options before getting the loan.
