Personal Loans

The Best Personal Loan Rates: How to Find Them

When getting a personal loan, you want the best rate. Here's what you need to know about getting the best personal loan rate.
a couple does online research to find the best personal loan rate.
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By Miranda Marquit
Posted on: October 13th, 2021

Personal loans can be used in a pinch to get money for an emergency, make a large purchase or even consolidate debt. Whenever you get a loan, though, you end up paying an interest charge. If you want to pay less in interest over time — and have a lower overall cost for your loan — it’s important to shop around for the best personal loan rate.

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What Determines Personal Loan Rates?

Personal loan rates are determined by current market rates as well as your personal information. Some of the factors that lenders consider when setting a loan rate include:

  • Your credit score
  • How much debt you already have
  • Your income
  • The length of the loan term
  • How much you’re borrowing

Individual lenders might have other criteria they use to set your loan rate. However, no matter which lender you choose, there’s a good chance that the most important factor used in determining your loan rate will be your credit score. A good credit score can help you get the best personal loan rate.

How Do You Know If You’re Getting the Best Personal Loan Rates?

Understanding whether you’re getting access to the best personal loan rates starts with having an idea of what the average personal loan rate is.

For example, according to Federal Reserve data, the average personal loan rate was 9.39% for a 24-month loan in August 2021. On the other hand, many lenders advertise low starting personal loan rates, potentially below 3%. When talking to a lender, you can ask what percentage of applicants actually receive the best personal loan rates, and what criteria you need to meet in order to get the best possible rate.

Ways to get a better rate

  • Work to improve your credit score. Make on-time payments for your bills and other loans. If you have credit card debt, pay down the debt so that you reduce your credit utilization and improve your credit score.
  • Choose a shorter loan term. In some cases, a shorter loan term can result in a lower interest rate. You might have a higher monthly payment, but you could pay less overall. Use an installment loan payment calculator to run the numbers and see what’s likely to work best for you.
  • Borrow a different amount. Depending on the lender, you might be able to get a lower rate if you borrow a smaller amount of money. By looking for other ways to get the money you need, you might be able to save money on interest.
  • Find out about discounts. In some cases, if you get a personal loan from a bank or credit union you already have an account with, you might get a discount on the APR. Also, some lenders offer an autopay discount, so if you have your payments made automatically from your checking account, you might be able to save a little bit on your rate.

Getting the best rate on a personal loan often requires long-term planning. You’re more likely to be effective if you take steps ahead of time to shore up your credit score and reduce your overall amount of debt.

Don’t forget to consider any additional fees as you calculate the cost of the loan. Some lenders charge origination fees. These can increase the cost of your personal loan, and make the actual rate higher than what’s listed as the APR.

How Should You Compare Personal Loan Rates?

It’s almost always a good idea to shop around and compare personal loan rates. That way, you end up paying less overall.

When comparing personal loan rates, you can use your credit score as a way to estimate what rates you’re likely to see.

Credit Score Range Potential Interest Rate Range
720+ 9% to 13%
690-719 13% to 16%
630-689 18% to 21%
Below 630 25% and up

Some lenders will let you check your rate using a soft credit inquiry. With a soft inquiry, your credit score isn’t impacted. This can be a way for you to get several rate quotes without having it impact your credit.

It’s important to understand, however, that your final personal loan rate will be offered to you after you officially apply for the loan. Once your application is filled out and submitted, the lender will run a hard credit inquiry. This inquiry will have a small impact on your credit score. Your final rate might be higher or lower than what was originally quoted to you.

Beyond the Best Rate: What Else to Look For

Depending on your situation, you might need to get a personal loan that has a higher rate. Some lenders might not offer personal loan terms that work for your situation. For example, you might want a three-year loan, but the lender might only offer terms of two years or five years. Perhaps you need to borrow more than a lender offers. With larger loans, you might end up paying a higher loan rate, but it might be worth it in order to get the funding you’re looking for.

In the end, though, it’s important to have a plan to repay your loan as quickly as possible. Check to see if the lender charges prepayment penalties. If you won’t be penalized for paying your loan off faster, consider paying an extra amount each month in order to reduce your loan balance faster and save money on interest over time.

You should also make on-time payments. Missed and late payments can drag down your credit score, and that can make it harder to get a personal loan in the future — and could lead to higher loan rates next time you borrow money.

Bottom Line

Getting the best personal loan rate can save you money over time when you borrow. While it’s generally better to avoid getting a loan, sometimes you need funds and can’t get them another way.

If you have to borrow, consider shopping around for the best loan rates so that you pay as little as possible. Then, make a plan to get rid of the debt as soon as possible so you aren’t stuck paying interest for longer than necessary.

About the Author

Miranda Marquit, MBA, is a freelance financial writer and money expert. Her work has appeared in multiple media outlets, including Marketwatch, NPR, Yahoo! Finance, Entrepreneur, Forbes, and more. In addition to writing about money, Miranda is also an avid podcaster, contributing to the Money Talks News weekly podcast. She lives in Idaho, where she enjoys hiking, traveling, playing board games, and spending time with her son.