A low-interest personal loan is any loan with an interest rate below the current market average. As of April 17, 2024, the average interest rate on personal loans is 12.21 percent.
To qualify, you need excellent credit and good finances. Compare at least three lenders to see which one gives you the most competitive offer.
What is considered a low interest rate for a personal loan?
Top lenders like Upstart and LightStream have annual origination percentage rates (APR) of less than 8 percent. Provided you have excellent credit and a strong income, you may be able to qualify for a low-interest personal loan with an APR of less than 10 percent.
Interest rates on loans fluctuate significantly with the rest of the financial market. Because interest rates on all loan products have increased over the past year, even borrowers with good credit can still face interest rates above 10 percent. You’re unlikely to find a lender offering an APR of less than 7 percent.
This also affects what lenders and borrowers consider a low rate. While it won’t be as low as it was a few years ago, it can still be a competitive rate compared to the rest of the current market.
Where can you get a low interest personal loan?
Low-interest personal loans are just like any other loan: they just cost less. You can find competitive low rates from online lenders, banks and credit unions. However, you may need to meet some additional requirements to score the absolute lowest rate available.
Online lenders
Online lenders offer low rates and fast applications. In many cases, you can apply for a loan and, if approved, receive your money within a week. This makes them fast, but many reserve their lowest rates for borrowers with extremely strong credit profiles. And if you manage to score the minimum APR offered, you’ll need to – in most cases – sign up for automatic payments to really get the low interest rate advertised on the lender’s website.
Banks
Not every bank has personal loans. However, those that do may offer a relationship discount if you already have a checking or savings account. Like online lenders, you may need to sign up for automatic payments from that account to get a discount on your APR.
Both local and national banks offer low rates to customers with excellent credit because of their financial support, making them a good place to look first if you don’t want to send out a dozen applications.
Credit unions
Credit unions are owned by their members, so many can offer low rates with less stringent eligibility criteria. Unfortunately, it also means that you need an account to qualify for a personal loan.
Overall, credit unions are likely to offer similar rates as banks and online lenders for borrowers with good to excellent credit. The biggest difference occurs among borrowers who have fair credit. If you qualify, you may be able to take advantage of a small personal loan with interest rates under 20 percent – which is much lower than lenders with maximum annual interest rates of up to 36 percent.
How to get a better personal loan
To qualify for a low-interest personal loan, you need excellent credit, a strong income, and a low debt-to-income ratio (DTI)
- Pay off debts. If your DTI is higher than 36 percent, lenders will be less likely to offer you a loan. Not only will paying off your debt help you score a lower rate, but it can also improve your credit score by lowering your credit utilization ratio.
- Improve your credit score. Lenders offer their lowest rates only to borrowers with good to excellent credit. By improving your credit, you give yourself an edge when looking for a low interest rate.
- Compare lenders. While you may not qualify for the lowest interest rates on the market, you can still find a lender with low rates for your credit margin. Compare lenders to see which offer the best rates, lowest fees and other features important to you.
- Apply for prequalification. Most lenders offer a prequalification process for their personal loans. This allows you to preview your rates and see what you may qualify for.
Current low interest rates for personal loans
While it is possible to qualify for the lowest rates currently available, there have been lower rates in recent years. Interest rates typically rise and fall along with the federal funds rate, which determines how expensive it is for banks to make loans
This means you’ll be looking at higher interest rates than you may have seen in 2020 or 2023. But if interest rates drop significantly after you take out your loan, you can always refinance or consolidate your debt at a lower rate to take advantage of the change.
it comes down to
Low-interest personal loans can be crucial if you need to pay less for major expenses. Ultimately, a high credit score and income give you access to the lowest rates. If you already qualify, compare loan options to find the best solution for your budget. If you don’t qualify for the best lenders, take the time to build your credit score before applying.
