Sat. Jan 16th, 2021

A personal loan can help you pay for planned or unplanned expenses, but it’s not a blank check. You’ll need to repay not only the principal loan balance but also interest charges.

Shopping for a competitive rate, even on a low-interest personal loan, can reduce the interest you pay on your loan. That can save you hundreds, if not thousands, of dollars on your cost of borrowing.

You may be wondering where to shop for low-interest personal loans and what to ask before you agree to a new loan. Here’s what you need to know.

What Are the Best Low-Interest Personal Loans?

Lender

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APR

Max. Loan Amount

Min. Credit Score

3.49% to 16.79% $100,000 660

5.98% to 35.89% $40,000 600

5.99% to 18.64% $100,000 680

5.99% to 24.99% $35,000 640

5.99% to 29.99% $50,000 640

5.99% to 29.99% $25,000 600

6.18% to 35.99% $50,000 620

6.49% to 17.99% $20,000 Not disclosed

6.99% to 24.99% $35,000 660

6.99% to 28.99% $40,000 Not disclosed

Best for low interest

LightStream is the national online consumer lending division of SunTrust Bank, which last year merged with BB&T to become Truist. LightStream’s online personal loans may allow you to borrow up to $100,000 and use the money for nearly any reason. Borrowers in every state can access these personal loans.

Before You Apply

  • Minimum FICO credit score: 660
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 144 months
  • Better Business Bureau rating: A+

Best Features

  • Offers more than 30 different loan uses

  • Approves loans of up to $100,000

  • Charges no origination, prepayment or late fees

See full profile

Best for fair credit

LendingClub has processed more than $44 billion in loans since 2007. Borrowers with fair to excellent credit in 49 states can access LendingClub loans from $1,000 to $40,000.

Before You Apply

  • Minimum FICO credit score: 600
  • Loan amounts: $1,000 to $40,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: not rated

Best Features

  • Provides loans of at least $1,000

  • Accepts joint applications

  • Accommodates borrowers with fair to excellent credit

See full profile

Best for long loan terms

SoFi, short for Social Finance, makes personal loans of up to $100,000 to borrowers nationwide with very good to excellent credit. Known for offering loans with no fees, SoFi also provides student loans, student loan refinancing, home loans and small-business financing.

Lender Highlights

  • Minimum FICO credit score: 680
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 84 months
  • Better Business Bureau rating: A

Best Features

  • Loans with no fees, including late fees

  • Personal loans of up to $100,000

See full profile

Best for debt consolidation

Payoff offers personal loans to consolidate credit card and other high-interest debts. The lender operates nationwide and provides loans of up to $35,000.

Lender Highlights

  • Minimum FICO credit score: 640
  • Loan amounts: $5,000 to $35,000
  • Repayment terms: 24 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • No prepayment or late fees

  • Preapprovals with no hard credit checks

  • Some fair-credit borrowers eligible

See full profile

Best for bad credit

Best Egg is a national online lender offering personal loans starting at $2,000 for a variety of purposes. Loans can be funded in as little as one business day.

Lender Highlights

  • Minimum FICO credit score: 640
  • Loan amounts: $2,000 to $50,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Funds typically available in one to three business days

See full profile

Best for poor credit

Peerform is a peer-to-peer lending platform that connects borrowers nationwide with investors who finance loans. Borrowers with credit scores of 600 or higher may qualify for loans of up to $25,000.

Before You Apply

  • Minimum FICO credit score: 600
  • Loan amounts: $4,000 to $25,000
  • Repayment terms: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Makes loans to some fair-credit borrowers

  • Allows borrowers to complete the entire loan process online

  • Delivers good customer service

See full profile

Best for customer service

Upstart is a national online lender that uses artificial intelligence to automate more than two-thirds of its lending decisions. Borrowers with fair to excellent credit can connect with investors willing to make loans of up to $50,000. Upstart has originated more than 500,000 loans since its founding in 2012.

Before You Apply

  • Minimum FICO credit score: 620
  • Loan amounts: $1,000 to $50,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Sometimes accepts applicants with fair or no credit history, using artificial intelligence to quantify risk

  • Offers loans for as little as $1,000

  • Provides a financial fitness dashboard that allows borrowers to modify payment dates and view credit score updates

See full profile

Best for no minimum loan amount

You don’t have to be a part of the military to join PenFed Credit Union, although the financial institution serves members of that community. Eligible members and co-borrowers in every state can apply for personal loans.

Before You Apply

  • Minimum FICO credit score: undisclosed
  • Loan amounts: up to $20,000
  • Repayment terms: up to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Offers terms of up to 60 months

  • Charges no origination fees

  • Provides borrowers immediate access to funds upon loan approval

See full profile

Best for low costs

Discover may be known for credit cards but also offers fixed-rate personal loans of up to $35,000 to borrowers in every state. The lender boasts no fees as long as you pay on time.

Before You Apply

  • Minimum FICO credit score: 660
  • Loan amounts: $2,500 to $35,000
  • Repayment terms: 36 to 84 months
  • Better Business Bureau rating: A+

Best Features

  • Offers customizable loan terms from 36 to 84 months

  • Provides borrowers free access to their FICO credit score

See full profile

Best for no origination fee

Marcus, the online consumer banking and lending arm of Wall Street giant Goldman Sachs, offers personal loans for up to $40,000. When you pay your loan on time and in full for at least 12 consecutive months, you can skip one payment. Interest will not accrue, and the lender will simply extend your loan for one month.

Before You Apply

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $3,500 to $40,000
  • Repayment terms: 36 to 72 months
  • Better Business Bureau rating: A+

Best Features

  • Charges no fees on personal loans

  • Allows borrowers to skip one payment and accrue no interest after making at least 12 consecutive on-time payments

See full profile

What Is the Best Interest Rate on a Personal Loan?

When you shop around for the best personal loan interest rate, you can save. Compare your personal loan offers with national average trends for personal loans to know if you’ve found a good deal.

The average personal loan rate is 9.84%. Last week’s average rate was 9.83%.*

*Rate as of Dec. 4, 2020

Personal Loan Finder

Select your desired loan amount and loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan terms.

Why Is a Low-Interest Personal Loan Important?

The lower your interest rate, the larger the portion of your payment that goes toward paying down principal rather than interest over the life of the loan. Here are a couple of scenarios that show the effects of interest rates on the cost of a personal loan:

Let’s say you received an offer for a $5,000 personal loan with a 9.3% annual percentage rate and a four-year repayment term. With this loan, you’d pay $1,006.66 in interest alone.

Now assume that you were approved for a $5,000 personal loan with a four-year term and a 6.75% APR. By comparison, your total interest charges on this loan would be $719.30, resulting in interest savings of $287.36.

Your interest rate makes more of a difference if you’re taking out a larger or longer-term loan. The average personal loan balance is $16,259, according to a 2019 personal loan study from the credit bureau Experian.

With this figure in mind, and the same 9.3% APR but a six-year term, interest charges increase to a sizable $5,017.28. If you can shop around for a loan and get the same term at 6.2% APR, you would spend $3,252.73 and save close to $1,800.

What Is a Good Interest Rate on a Personal Loan?

The good news is that you can find low-interest loans and that the average rate for all personal loans is about 12%. That’s particularly helpful if you need to pay off high-interest debt.

You’ll pay down debt faster than on credit cards with APRs of 20% or higher, says David Bakke, personal finance expert at Dollar Sanity, a financial education website.

Getting a good personal loan rate, though, depends on your credit profile. This often includes your credit history and score, income, and debt.

All lenders have their own criteria to set applicants’ interest rates and terms.

Which Factors Affect Your Personal Loan Rate?

Here are a few key areas that lenders look at to determine personal loan approvals and interest rates:

Creditworthiness
Your credit score is one of the major factors lenders consider for personal loan eligibility, says Lauren Anastasio, certified financial planner at SoFi, a personal finance company. “Lenders don’t always disclose whether they have a minimum credit score for applicants, but often they prefer to see a good or excellent credit history,” she says.

A FICO credit score in the mid-700s or higher is considered very good to exceptional and generally earns you a competitive interest rate.

Co-Signers
A co-signer, ideally one with strong credit, is held liable for repaying your loan if you can’t. Lenders may approve a loan at a lower rate when you have a co-signer.

“If you don’t have a stellar credit score or don’t make very much, adding a co-borrower to your loan might increase your chances of approval,” Anastasio says. “They might also help you get a better interest rate and repayment terms.”

Debt-to-Income Ratio
Lenders will evaluate your income to ensure that you earn enough to repay the loan. A part of this assessment involves your debt-to-income ratio.

Your debt-to-income ratio, or DTI, is the percentage of your monthly income you put toward debt. It helps lenders gauge whether you can manage a personal loan payment without financial hardship.

“And, in a nutshell, the maximum debt-to-income ratio you want if you’re looking for a personal loan is right around 35%,” Bakke says. “Anything higher than that and the lender will be thinking twice about whether or not to extend the loan.”

Type of Personal Loan
Whether your personal loan is secured or unsecured can influence your interest rate. With a secured loan, you’re providing collateral that the lender can claim if you default on your loan.

“Secured loans, backed by assets owned by the borrower, like a car or house, are less risky to the lender and therefore often come with much lower interest rates, reducing the cost of borrowing over the life of the loan,” Anastasio says.

Before jumping on a secured personal loan, factor in the risk of losing your collateral, such as your home, if you can’t make the payments.

Discounts
Some lenders offer a small APR percentage point reduction for existing customers or for signing up for automatic payments.

How Can I Get a Low Interest Rate on Personal Loans?

Take these steps to find the lowest rates on personal loans.

1. Check Your Rate
Lenders may advertise a range of APRs, but you won’t find out your rate until a lender checks your credit. Prequalification can tell you whether you could be approved for a low-interest personal loan using only a soft credit inquiry, which doesn’t affect your credit score.

“Many lenders allow potential borrowers to see if they prequalify for a loan before applying,” Anastasio says. “This process shows how much the loan would potentially be approved for, what your repayment terms and your interest rate could possibly be.”

Not all lenders offer prequalification options, but online lenders generally do. You’ll submit basic information, such as how much you want to borrow and your income, and the lender will perform a soft credit check.

This option gives you great insight into whether you might meet borrower criteria and what terms you could get without committing to the loan or hurting your credit.

Plus, the process can be quick. Some lenders let you check whether you prequalify online, which can take just minutes.

2. Check With Your Bank or Credit Union
When you’re rate shopping, getting a quote from a financial institution you have a relationship with could pay off. “Your bank or credit union would be a great place to start,” Bakke says. “However, rates and fees do vary, so it’s recommended that you get quotes from at least three lenders.”

Your bank or credit union might be able to offer a more competitive rate than rivals because it has a window into your finances that the others don’t. If you have deposit accounts, for example, the bank may consider your wages, spending patterns and savings.

3. Be a More Attractive Borrower and Try Again
If you can’t get approved for a competitive rate on a personal loan, you might want to wait. Take time to focus on raising your credit score and reapply.

Advertising Disclosure: Some of the loan offers on this site are from companies
who are advertising clients of U.S. News. Advertising considerations may impact
where offers appear on the site but do not affect any editorial decisions,
such as which loan products we write about and how we evaluate them. This site
does not include all loan companies or all loan offers available in the marketplace.

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