Best Personal Loans With Low Interest
What Are Low-Interest Personal Loans?
A low-interest personal loan is an installment loan with a fixed interest rate and repayment term, typically ranging from months to a few years. These loans often have an APR of 10% or less, making them different from standard personal loans that can have up to a 36% interest rate.
While some low-interest personal loans may have lender fees like origination or late fees, they are versatile and can be used for various purposes. You can obtain them from banks, credit unions, or online lenders, with some offering quick funding within 24 to 72 hours of approval. The best personal loans have competitive rates, favorable terms, and minimal fees, resulting in potential savings of hundreds or even thousands of dollars.
Low-Interest Personal Loan Example
Shopping around for low-interest personal loans can go a long way to getting you the best rate and term available. By taking the time to compare loan options, you could end up saving a lot of money.
Here’s an example of what the same personal loan might look like with different interest rates:
Loan Amount
|
Annual percentage rate (APR)
|
Repayment Term
|
Monthly Payment
|
Total interest
|
Total loan cost
|
$15,000
|
15%
|
48 months
|
$417
|
$5,038.14
|
$20,038.14
|
$15,000
|
10%
|
48 months
|
$380
|
$3,261.06
|
$18,261.06
|
$15,000
|
5%
|
48 months
|
$345
|
$1,581.09
|
$16,581.09
|
Use a personal loan calculator to determine how much you’ll end up paying each month and in total interest charges over the life of the loan. This can also help you figure out whether you can afford the loan payment.
How to Get a Low-Interest Personal Loan
Here’s what you’ll typically need to do to get a low-interest personal loan:
- Make sure you qualify: Low-interest loans are typically only available to borrowers with very good credit — that is 740 FICO or above. If you have a low credit score or spotty credit history, you might end up with a higher interest rate. You may also need to meet a stricter DTI ratio and income requirements.
- Determine your needs: Along with making sure you qualify, figure out exactly how much you need to borrow and why.
- Compare different lenders: Check out several lenders to see which one offers the best rates and terms, as well as the lowest fees. Check their eligibility requirements, online reviews, and licensing status, too.
- Get prequalified: Some lenders have a prequalification option that lets you check your rates without affecting your credit score. This can be a great way to see what you might qualify for without committing to anything. It can also help you narrow down lenders.
- Formally apply: Once you’ve chosen a lender and personal loan with the lowest interest rate, submit the application. This can typically be done online, but some lenders require in-person or phone applications. Be prepared to submit any required documents — e.g., income, employment, or identity verification documents.
Getting a Low-Interest Personal Loan With Bad Credit
Even if you have bad credit, it may be possible to get a low-interest loan. If your credit score isn’t high enough, consider getting a cosigner. Having a cosigner could help improve your approval odds and lower your interest rate.
Alternatively, take some time to improve your credit score. Here are some ways to do that:
- Make on-time payments on any debts you currently owe: Payment history accounts for 35% of your FICO credit score.
- Try to pay down your existing debts: Approximately 30% of your credit score is based on how much you owe across all open accounts.
- Keep older accounts open: The average age of history across all of your accounts makes up 15% of your FICO score. Even if you don’t currently owe anything on a credit card, for example, keeping it open can help your credit score.
- Avoid applying for new forms of credit: When you apply for a new loan or credit card, the lender will usually perform a hard credit inquiry. This can bring down your credit score by a few points. Try not to apply for or open any new accounts while building your credit.
Low-Interest Personal Loans: Major Factors to Consider
If you’re trying to get the best rate on a personal loan, here are the biggest factors that could be affecting your rate:
- Credit score: You’ll usually need a 740+ credit score to get the best rates.
- Income: The better your income, the better your rates tend to be. You may also have to provide proof of employment — ideally stable employment. This can give lenders a better idea of how likely you are to repay the loan.
- DTI ratio: This is a percentage of how much you pay each month versus how much you bring home. For example, if your monthly income is $4,000 and your total debt payments amount to $3,000, then your DTI ratio is 75%. Most lenders prefer a DTI of 40% or less (excluding mortgages).
- Loan amount: Generally, a larger loan will come with a higher interest rate than a smaller loan.
- Repayment term: A longer repayment term usually means you’ll pay more in interest charges over the life of the loan. A shorter-term loan could reduce your total interest charges, but it will typically result in a higher monthly payment.
- Lender’s base rate: Some lenders have a base interest rate, meaning your loan’s rate will never drop below whatever their base is.
- Other fees: Interest rate refers to how much a lender charges in interest — this is generally represented as a percentage. APR is a combination of the interest rate plus any lender fees that get added to the loan. It’s also represented as a percentage.
Pros and Cons of Low-Interest Personal Loans
If you’re ready to take out a loan, getting one with a low-interest rate can be highly beneficial. Here are the biggest benefits and drawbacks of taking out such a loan.
Pros |
Cons |
Smaller monthly payments (depending on repayment term) |
Making monthly payments means fewer available funds each month |
Fewer total interest charges |
Taking on new debt could temporarily hurt your credit score |
Potentially quick approval and funding times |
Stricter requirements than personal loans with higher interest rates |
Can give your credit score a boost with on-time payments |
Could delay other financial goals — like building an emergency fund or saving up for a down payment |
Should You Get a Low-Interest Personal Loan?
You might want to get a low-interest personal loan if you:
- Have an excellent credit score, low DTI ratio, and reliable income
- Can easily budget the monthly payments and pay back the loan on time
- Don’t have the cash on hand and need financing to pay for something
- Are prepared for any additional lender fees
- Need funds quickly and don’t have time to save up
- Want to consolidate high-interest debt into a lower overall interest rate
Low-Interest Personal Loan Alternatives
While useful, a low-interest personal loan may not be right for everyone. In that case, here are two alternatives to consider:
- Home equity loan or home equity line of credit (HELOC): If you own your home and have substantial equity in it, you could take out a HELOC or home equity loan. These options usually have lower interest rates than credit cards or other loans. They are secured by your home, however, meaning you could lose your home if you fail to pay back what you owe.
- 0% APR credit card: If you have good credit, you might qualify for a 0% APR introductory credit card. As long as you pay back what you owe before the introductory period is over, you won’t be charged interest on the card.
Average Low-interest Personal Loan Rates
Here are the best lenders offering low-interest rate personal loans and their typical rates. Keep in mind that rates, terms, and requirements may change over time:
Lender
|
APR Range (Fixed)
|
Loan Term
|
Loan Amount
|
Origination Fee
|
Recommended Minimum Credit Score
|
Best Egg
|
8.99% to 35.99%
|
36 to 60 months
|
$2,000 to $50,000 (in most states)
|
0.99% to 8.99%
|
700
|
Upgrade
|
8.49% to 35.99%
|
24 to 84 months
|
$1,000 to $50,000
|
1.85% to 9.99%
|
720
|
LightStream
|
7.49% to 24.49%
|
24 to 144 months
|
$5,000 to $100,000
|
No fees
|
670
|
LendingClub
|
9.57% to 36.00%
|
24 to 60 months
|
$1,000 to $40,000
|
3.00% to 6.00%
|
740
|
SoFi
|
8.99% to 25.81%
|
24 to 84 months
|
$5,000 to $100,000
|
0% to 6% origination fee
|
670
|