The interest rates you’re coming across for personal loans online are overwhelmingly high.
You don’t know what lender to apply to for a loan that has a low and favorable interest rate.
Can you still get a low-interest personal loan?
The answer is yes! In this ultimate guide, we will show you how to get a low-interest personal loan in 2023. We’ll also discuss specific tips and tricks to set you on the right path to getting your loan approved.
What are Current Personal Loan Interest Rates?
The current interest rate ranges from 3 to 36%, as it is based on the individual's credit score. According to current research, the average interest rate is 11.27% as of early November 2022.
It is important to note that for an individual to be highly eligible for a low-interest personal loan, they must have a good credit score. Therefore, before applying for a personal loan, compare various offers to see which one you are eligible for.
How the 2022 Fed Rate Hikes Affect Personal Loans
To fight inflation, the FOMC increased interest rates by 3/4 of a percentage point in the last couple of months.
Because most personal loans have a fixed interest rate, with this, individuals who have already taken a personal leave have nothing to worry about. But individuals seeking to collect personal loans might face an increased interest rate.
Considering the rise in the average personal loan interest rate, which rose from 10.41% in May to a new rate of 11.27% in November 2022, there are high chances of it rising further if the Fed increases the prime rate in their subsequent meetings.
As a result of this hike, general financings, such as car loans, mortgages, and credit card debt, will become more expensive.
What is a Good Interest Rate on a Personal Loan?
Generally, personal loans have fixed-rate APRs, which means the amount you pay every month will remain the same for the duration of the loan. In certain situations, you may be able to obtain a variable-rate personal loan.
However, you must be comfortable with the possibility of monthly interest rate fluctuation, as these changes depend on the state of financial markets.
Since your interest rate is mostly determined depending on certain factors such as credit history, income, and credit score, Individuals with excellent credit can easily find interest rates quite low and range from 5 percent to 8 percent.
However, people whose credit is not quite good may have an interest rate of about 20 to 25 percent.
6 Tips for Comparing Low-Interest Personal Loans
When it comes to applying for and getting approved for the best personal loan deal, it is essential that you go to several lenders and compare their offers. Here are some tips to consider:
- Annual Percentage Rate
- Consider autopay discounts
- If you have the opportunity, prequalify with a lender
- Look out for extra fees
- Monthly Payments
- Examine the lender's customer service
APR is your loan's entire cost, including fees and interest rates. Compare APR from different lenders to choose the cheapest offer.
Autopay discount is a 0.25% interest rate reduction on loans where you authorize the lender to automatically remove monthly payments from any specified bank accounts.
When comparing low-interest personal loans, ensure you consider those that provide you with an extra rate discount to assist you in getting the low possible interest rate.
Most lenders grant borrowers the chance to prequalify for a personal loan. With this, borrowers can submit certain details such as their desired loan use, housing situation, income, and other personal information to know about the rates, repayment options, and potential loan limits.
You can be assured that prequalification does not affect your credit score as it requires only a soft credit check.
Some providers may charge extra fees, such as late payment fees, prepayment penalties, or origination fees. Although not all providers charge these fees, others charge one or more. Therefore, when comparing low-interest personal loans, ensure that you look out for the structure of the fees.
It is essential to have an in-depth knowledge of the amount of money to be paid monthly and if it will go well with your current budget. You must be sure you can handle all other essential expenses alongside your monthly payments.
This is another essential factor before appending your signature to the loan agreement. Although most people don't consider customer service a significant issue, it can impact you when you face a difficult financial situation during your repayment period.
Check out the lender's customer service reviews and resources to ensure it's the best fit for you.
Get a Tailored Personal Loan at a Lower Interest Rate with CreditYelp
CreditYelp is an online broker that connects clients who need loans to suitable lenders. We provide objective and all-inclusive information and expert comparison and evaluation to help you obtain a low-interest personal loan even if you have a bad credit score and low income.
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If your credit falls into the bad credit range, most lenders and banks will likely see you as a credit risk. This is where CreditYelp comes to the rescue.
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3 Steps to Get a Loan on CreditYelp
Getting a loan with CreditYelp is a relatively straightforward process, as all you have to do is to follow three basic steps:
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Fill out a form: The first step is to complete the form, and your request will then be distributed to a couple of online lenders.
Accept offers: Lenders willing to offer you the loan will send you a customized offer. Then you can compare their offers to decide on the best one.
Get your money: Upon the finalization of the deal, the funds will be deposited into your account as soon as the next business day.
How does CreditYelp compare
Pros of CreditYelp
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Our services support and are friendly to borrowers with bad credit. Your credit score or financial status is not a hindrance.
CreditYelp has partnered with 10+ reputable, legitimate lenders who meet loan requirements with NMLS ID#.
You only have to fill out one form, and over ten lenders will see your request.
Borrowers are open to higher loan limits.
The interest rate is more affordable.
Higher loan approval rate.
Quick loan approval and funding time.
You can enjoy better repayment terms and options.
No hidden fees
11 Factors That Affect Your Personal Loan Interest Rate
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Credit score and history: Borrowers with a 720 credit score have a higher chance of qualifying for the low-interest rate personal loan when compared to those with low credit scores.
Regarding credit history, some things lenders consider include the number of negative marks in the last couple of years, the length of your credit history, and the number of credit inquiries made in the past.
Credit report: Your credit score provides a glimpse of your credit health, but some parts are still not covered. Lenders will also look at your credit reports for high credit card balances, recent credit inquiries, missed payments, and other red flags that indicate bad credit behavior.
Debt-to-income ratio: An individual's DTI ratio is calculated by dividing your total monthly debt payments by your gross monthly income. This figure is how lenders assess your ability to manage monthly payments to repay the borrowed money.
People with a high DTI ratio are a risk to lenders, and they will be offered a higher interest rate. Lenders prefer a DTI ratio of 36% or less.
Employment Status: Salaried applicants are often more eligible for low-interest personal loans than those who are self-employed, freelancers, or own small businesses. This is because lenders consider traditional employees are more stable in terms of income.
Income: The sufficiency of a borrower's income is also considered, with the minimum requirement being about $20,000 per year, while the reduced interest rates are for individuals with a higher source of income.
Loan amount: The size of a loan can influence interest rates because the larger the loan, the greater the risk to the lender. As a result, high-principal loans frequently have higher interest rates when compared to smaller loans.
Loan term: Generally, the longer the loan term, the higher the interest rate. You tend to face higher costs when considering long-term loans because you need to pay more interest over a longer time frame.
Collateral: Some lenders provide secured personal loans, which allow you to use other assets as collateral. This type of loan tends to have a lower interest rate. If the borrower fails to repay, the lender can seize the collateral to settle the debt.
The lender: Each lender has its own criteria for deciding the interest rate for which a borrower qualifies.
Benchmark rates: The interest rates offered to borrowers are also affected by underlying benchmark rates like the London Interbank Offered Rate and the Secured Overnight Financing Rate. The SOFR is based on the interest rates paid among large financial institutions for overnight loans—essentially, short-term borrowing costs.
Market conditions: Following the Federal Reserve adjustment of the federal funds rate, the prime rate tends to be affected, and this is what lenders frequently use in determining their own rates. The direction of the federal funds rate is the same as that of the personal loan interest rate.
6 Tips for Getting a Personal Loan at a Lower Interest Rate
- Settle other debts: It is advisable to pay off existing debt before taking out new loans. A lesser debt amount offers you a higher chance of getting approved for a lower interest rate.
- Prequalify: If you are unsure of the interest rate you might be eligible for, you can consider prequalification. This can be done online and will not affect your credit score.
- Reduce your loan amount and repayment term: Borrowers are mostly advised to take out small loans. Large loans have a higher interest rate and a longer repayment period.
Apply with a co-borrower: A co-borrower has equal access to the loan proceeds and splits the funds and the repayment responsibility. Generally, your spouse or parents can be your co-borrowers. Some institutions may also allow siblings to be your co-borrowers.
When you add a co-borrower to your loan, lenders will consider the joint income. Your co-borrower's income bridges the gap if your income is sufficient. Furthermore, adding a co-borrower with a large income will make you more eligible for a bigger loan at a low-interest rate.
- Get a co-signer: A co-signer agrees to assume responsibility for loan repayment but doesn't have access to the funds. Asking a creditworthy friend or family member to co-sign may be the right choice if your credit score prevents you from getting a loan or you need help finding a lower interest rate.
- Select a secured personal loan: This type of loan is backed by collateral. With this, lenders may end up seizing your collateral upon failure to pay. A secured personal loan can improve your chances of getting approved and getting a lower interest rate.
Average Personal Loan Interest Rates
Average personal loan interest rates by credit score
Generally, Personal loan rates vary greatly depending on credit score. Borrowers with excellent or very good credit will pay much lower interest rates than those with fair or poor credit.
People with excellent credit may be offered an average loan interest rate of as low as 11.08%, while those with poor credit may be required to pay a higher average loan rate.
| Credit Score | Average loan Interest rate |
|---|---|
| 720–850 | 10.73% - 12.50% |
| 690–719 | 13.50%–15.50% |
| 630–689 | 17.80%–19.90% |
| 300–629 | 28.50%–32.00% |
Average loan rates by lender type
Credit unions and banks will provide you with competitive personal loan rates, but some online lenders, particularly those that cater to creditworthy borrowers, will offer some of the lowest.
Borrowers who are looking for an affordable loan service should perform a comparison between any online lender they are familiar with and the offers their bank or credit union makes.
Average Personal Loan Rates by Online Lenders
Below is a table that compares the interest rates on an unsecured personal loan offered by various online lenders
| Online Lender | Loan Interest Rates |
|---|---|
| Best Egg | 8.99%–35.99% |
| Avent | 9.95%–35.95% |
| LendingPoint | 7.99%–35.99% |
| LightStream | 6.99% – 21.49% |
| FreedomPlus | 7.99%–29.99% |
| OneMain Financial | 18.00%–35.99% |
| Prosper | 7.99%–35.99% |
Average Personal Loan Rates by Banks
| Banks | Loan Interest Rates |
|---|---|
| Santander Bank | 6.99%–24.99% |
| Wells Fargo | 5.99%–21.74% |
| Discover | 6.99%–24.99% |
| Citibank | 9.99%–23.99% |
| U.S. Bank | 8.24%–20.74% |
| Citizens Bank | varies by region |
Average Personal Loan Rates by Credit Union
| Credit Union | Loan Interest Rates |
|---|---|
| Navy Federal Credit Union | 7.49%–18.00% |
| USAA | 18.51% |
| Members 1st Federal Credit Union | 11.39% |
| PenFed Credit Union | 7.74%–17.99% |
FAQs
How to calculate loan payments and costs?
Before taking out a personal loan, it is essential to have an in-depth understanding of how the loan payment works. In your loan, you can break down the costs by
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Principal: This is the borrowed amount sent to your bank account.
Interest: This is the fee charged by the lender to borrow your money. Your APR includes your interest rate and paid upfront costs. Most personal loans have a fixed interest rate, implying your monthly payments will not change over the loan's life.
Fee: This refers to the extra cost of taking a loan, which includes late fees, insufficient fund fees, origination fees, and many others.
A loan of $10,000 paid over a period of 10 years will have a lower monthly payment than a loan of $10,000 paid over a period of 5 years due to the spread over a wider time frame. However, note that all additional fees and interest rates are included in each loan payment.
What is APR?
The annual percentage rate (APR) is the interest generated by a sum billed to borrowers or paid to investors each year. APR is a percentage that reflects the actual annual cost of funds over the life of a loan or the money generated on an investment.
How is APR calculated?
The annual percentage rate is calculated by multiplying the periodic interest rate by the number of periods per year that it was applied. For instance, an individual taking out a loan of $5000 with an interest rate of 7% and a 5-year repayment term will have to pay a total of $940.36 in interest over the loan repayment period.
Factors that can affect APR
Some significant factors affecting APR include income, debt profile, loan size, and repayment terms.
How do you calculate your debt-to-income ratio?
The first thing to do is to total your monthly income and debts, then divide your monthly debt by your monthly gross income. Let's consider an individual with the following monthly debts:
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Auto loan: $400
Mortgage: $1,500
Minimum credit card payment: $400
Student loan: $300
Total monthly debt = $2,600
Now, the total monthly gross income for the person equals $5,500. To calculate the debt-to-income ratio, you divide $2,600 by $5,500. The total DTI would equal 0.47%.
Is it possible to get a low-interest loan with great credit but no job?
Generally, your ability to qualify for a loan is not majorly dependent on your credit score. Lenders might still need you to provide proof of your income with bank statements, pay stubs, and tax returns.
Your income clearly shows your ability to repay your loan and influences the amount you are eligible to borrow. If you do not have a job but have other sources of income, you may be able to use them to qualify for the loan. Lenders may accept income from Interest and dividends
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Social Security
Long-term disability
Alimony or child support
Trust fund
Rental property
Retirement or pension
Can I get a low-interest rate personal loan with bad credit?
For an individual with relatively bad credit, you are unlikely to qualify for a low-interest loan. Individuals with bad credit might be offered loans with high-interest rates. Therefore, ensure you compare various lenders and select the one with the lowest total cost.
How to consolidate credit card debt with a low-interest personal loan?
People with debt on several credit cards can apply for a debt consolidation loan to lower interest rates, streamline their payments and improve their loan terms.
Many debt consolidation companies will pay off your other debts directly, or you can take the money and pay off your outstanding debt. After the multiple pre-existing debts have been settled, you can make a single loan payment on your new debt every month.
Should I get a personal loan with a fixed or variable interest rate?
Although most personal loans have fixed rates, some lenders offer variable-rate products. Fixed rates are static all through the payment period, while variable rates are subject to change during the payment period.
Therefore, select a variable or fixed interest rate based on whether you prefer a fluctuating amount or a consistent monthly payment. It is important to note that loans with variable rates begin lower than fixed rates. However, it can increase over time depending on market conditions.
How Do Personal Loan Interest Rates Work?
A personal loan offers you the money in one lump sum that you repay over time with fixed monthly payments. In most cases, personal loans are unsecured, meaning no collateral is attached to them.
However, this is not the case with a secured loan, such as an auto loan or mortgage. Secured loans are less risky for lenders because the lender can claim the asset used to secure the loan if the borrower defaults on payments.
What Are the Alternatives to Low-Interest Personal Loans?
In cases where you are not eligible for a low-interest personal loan, some alternatives include tapping into your 401(k), borrowing from a close friend or relative, or taking out other types of loans such as a home equity loan or auto loan.
What documents are required for personal loans?
You may be required to provide your lender with a few documents during the initial application and verification process, most of which can be submitted electronically. Some of these documents include
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Loan application – Name, date of birth, address, social security number, and phone number.
Proof of identity – Birth certificate, certificate of citizenship, driver's license, passport, state-issued ID
Employers and income verification – Paystubs, tax returns, bank statements, W-2s and 1099s, and employers' contact information.
Proof of Address – Utility bill, mortgage statement, lease or rental agreement, proof of insurance on your home, and property tax receipt.
Summary
In conclusion, when it comes to taking out a low-interest personal loan, various factors need to be considered, which is why we have discussed all you need to know before taking action.
Furthermore, you can reduce the likelihood of dealing with delays in application, approval, and funding when using CreditYelp. CreditYelp will connect you with multiple lenders so that you can compare and choose the best lender for you. So, what are you waiting for? Go ahead and use CreditYelp to get a low-interest personal loan.
Patrick Moore is an expert contributor and lead editor at CreditYelp, specializing in credit card news, personal finance advice, and entrepreneurship.
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