A low-interest personal loan is a loan with an interest rate that is below the current market average. As of August 14, 2024, the average interest rate for a personal loan is 12.38 percent.
To qualify, you’ll need good credit and a good financial standing, and before you commit to a loan, compare low-rate lenders to see which one will give you the most competitive offer.
What is a low interest rate for a personal loan?
Large lenders like Upstart and LightStream have minimum annual percentage rates (APRs) below 8%, and if you have excellent credit and a sufficient income, you may be able to get a low-interest personal loan with an APR below 10%.
Loan interest rates, like the overall financial market, fluctuate widely. Interest rates have risen across loan products in the past year, meaning even borrowers with good credit can face interest rates above 10 percent. It’s rare to find a lender offering an APR below 7 percent.
This also impacts what lenders and borrowers consider to be a low interest rate: it may not be as low as it was a few years ago, but it may still be competitive compared to the market.
Where can I get a low-interest personal loan?
A low-interest personal loan is just like any other loan; it just costs less. You can find competitively low interest rates from online lenders, banks, and credit unions. However, you might have to meet additional requirements to get the lowest interest rate available.
Online Lenders
Online lenders offer low interest rates and quick applications. Often, once you apply for a loan and are approved, you can receive your funds within a week. While this is quick, many lenders offer the lowest interest rates for borrowers with the best credit scores.
If you get the lowest APR offered, you’ll usually need to sign up for autopayments to get the lowest interest rate advertised on the lender’s website.
bank
Not all banks offer personal loans. However, those that do may offer a relationship discount if you already have a checking or savings account with them. As with online lenders, you may need to sign up for automatic payments from that account to get the discounted APR.
Both regional and national banks offer lower interest rates to creditworthy customers because they have financial backing, so if you don’t want to send out dozens of applications, a regional bank is a good place to start.
Credit union
Because credit unions are owned by their members, they often have less strict eligibility criteria and can offer lower interest rates. Unfortunately, this also means that you must have an account with them to qualify for a personal loan.
Overall, credit unions are likely to offer similar interest rates to banks and online lenders. The big difference is for borrowers who need a fair credit loan at a good rate. If you qualify, you can get a small personal loan with an interest rate cap of 18 percent, which is much lower than lenders with maximum APRs of up to 36 percent.
How to lower interest rates on personal loans
To qualify for a low-interest personal loan, you need to have excellent credit, a high income, and a low debt-to-income ratio (DTI).
- Pay off your debt. If you have a high DTI, lenders are less likely to offer you a loan. Paying off your debt not only means you can get a lower interest rate, but it can also help your credit score by lowering your credit utilization ratio.
- Improve your credit score. Lenders only offer the lowest interest rates to borrowers with good to excellent credit, and improving your credit score can give you an edge when searching for a lower interest rate.
- Compare lenders. Even if you can’t qualify for the lowest interest rate on the market, you can still find a lender with a low interest rate that matches your credit score. Compare personal loan rates to see which lender offers the best terms, lowest fees, and other features that are important to you.
- Apply for pre-qualification. Most lenders offer a pre-qualification process for personal loans, which allows you to see interest rates up front and see what terms you qualify for.
- Choose a shorter repayment period. If you choose a shorter repayment term (usually less than 48 months), lenders may choose to offer you a more competitive interest rate.
- Find a co-signer. If you don’t qualify for the lowest interest rates on your own, having a qualified co-signer or co-borrower can be helpful. Lenders may offer you a lower interest rate if another person shares responsibility for the loan.
- Use collateral. You may be eligible for a lower interest rate if you take out a secured loan. However, since many personal loans are unsecured, secured loans can be hard to find.
Current personal loan interest rates
It’s possible to qualify for the lowest interest rates available, but interest rates have been dropping over the past few years. Interest rates typically rise and fall in line with the federal funds rate, which determines banks’ lending costs.
This means you’ll face higher interest rates than you did in 2020 and 2021. If interest rates drop significantly after you take out your loan, you can always take advantage of the change by refinancing or consolidating your debt with a new loan with a lower interest rate.
Conclusion
Low interest rate personal loans are key when it comes to saving on big expenses, and ultimately, if you have a good credit score and income, you can get a loan with the lowest interest rate.
If you’re already qualified for a loan from a top lender, compare low-interest loan options to find the one that best suits your budget. If not, take the time to build up your credit score before applying.
