How to get a good interest rate on a personal loan

People with excellent credit often qualify for the best interest rates on personal loans. However, other factors can affect your interest rate like your total debt, how much you borrow, and the lender’s eligibility criteria.^[1] Here’s a closer look at how to get the best rate for a personal loan.  

Effective tips to get low-interest personal loans 

A high interest rate can make it more expensive to borrow money with a personal loan. Consider these tips to get the best interest rate when applying for a personal loan. 

Boost your credit score 

Your creditworthiness is a major factor in determining your interest rates. Most lenders consider your FICO^® score when determining your interest rate.^[2] FICO scores above 670 are considered  good to exceptional and qualify for the best rates. The average FICO score in the U.S. reached 715, but most people have scores between 600 and 750.   

If your score is under 670, you may still be approved for a personal loan. However, your rates likely will be higher.  Consider taking steps to improve your score to qualify for a better interest rate.^[3]   

Pay off your debt 

Your debt-to-income ratio (DTI)—or the sum of your debts divided by your income—helps determine your interest rate. Lenders want to see that you can comfortably afford to meet the monthly payments on your loan after you meet all other debt obligations. A DTI below 40% is ideal. Anything above this can signal to a lender that you might not be able to repay your loan. 

Paying down debt is one of the fastest ways you can improve your DTI. If you have lots of high-interest credit card debt, consider a debt consolidation loan. A debt consolidation loan consolidates all your debts under one loan, freeing up your utilization ratio and boosting your score.^[3]  

Cut down your expenses 

In addition to debts, lenders also consider your expenses when deciding if you can afford a loan. Before you apply for a personal loan, look at your budget. While you may not be able to move to a cheaper apartment, you might be able to cut down on other expenses to lower your overall monthly costs and free up more room in your income. 

Sign up for automatic payments  

Some lenders offer discounts on interest when you sign up for auto pay. However, your interest rate may go up if you miss a payment. Be sure to read the fine print and make sure you have funds in the account used for the monthly deduction.  

Choose a shorter loan term 

Personal loans with short loan terms often have lower interest rates. If you can afford a higher monthly payment, opt for a shorter loan term. Some lenders tend to view shorter repayment periods as less risk. So, you may be able to pay less in interest if you choose a 24-month repayment period over a 60-month loan.  

Borrow a smaller loan amount  

Applying for a lower loan amount can often help land a better interest rate. This strategy may help you qualify for a loan you wouldn’t receive otherwise. It can also help you avoid borrowing at a higher-than-expected rate. 

Apply with a co-signer or co-borrower 

You may find it difficult to qualify for a personal loan if you’re working to improve your credit or you’re still building a credit history. Or, you may be offered a loan at a higher interest rate than you’d like. Ask a parent, family member, or trusted friend to cosign the loan or act as a co-borrower.  

A co-signer acts as a backer on your loan. They won’t have access to the funds, but they do agree to make payments or pay off the loan in full if you default. A co-borrower, on the other hand, shares access to the funds and is equally responsible to make payments. To get the best interest rate, look for a co-signer or co-borrower with a high credit score, low debt, and a good income history.^[5] 

How do personal loan interest rates work and what affects them? 

You can think of an interest rate as the primary price of borrowing money. Interest rates are shown as a percentage of the principal loan amount and are commonly found on installment loans like personal loans.^[1]  

Having a low interest rate can decrease the overall cost of borrowing money with the lender and product you choose. For example, if you borrow $5,000 with a three-year term, you save around $432 over the life of the loan with a 10% interest rate versus a 15% rate.

What is the average personal loan interest rate? 

Personal loan interest rates are often less than credit card interest rates. As of May 2024, the average interest rate for a 24-month personal loan is 11.92%, according to data from the Federal Reserve. Rates fluctuate, so it’s always a good idea to check on the latest average rates when loan shopping. Keep in mind that loan rates also vary widely by lender.^[6]  

Banks and credit unions offer personal loans at competitive rates. However, you may find lower rates through online lenders specializing in personal loans.

What to consider when comparing personal loan interest rates 

To get the best interest rate, it’s important to shop around for a personal loan. Here’s a closer look at what to compare when looking at different loan offers.  

• Interest rate: This is what you’ll be charged to borrow money with a personal loan. Ideally, choose a loan with the lowest interest rate to save the most on interest.^[1]  

• Interest type: Loans can have a fixed or variable interest rate. The interest rate on a fixed-rate loan stays the same during the entire loan term, while rates fluctuate with a variable-rate loan.^[1] 

• Annual percentage rate: The APR represents the total cost of borrowing, including the interest rate plus any lender fees. Compare APRs across different loan offers to make sure you’re getting the best deal.^[1]  

• Principal: This is the amount of money you plan to borrow when you take out a personal loan. Sometimes borrowing a smaller amount can help you qualify for a lower interest rate.^[1]  

• Fees: Some loans come with fees, like origination fees, prepayment penalties, administrative fees, or closing costs. Be sure to compare fees when looking at different lenders and read the fine print before accepting a loan offer.^[7]  

• Loan term: The amount of time you have to repay the loan, or loan term, can affect your interest rate and monthly payment. Shorter loan terms, for instance, offer lower interest rates, but come with higher monthly payments.^[1]  

The bottom line 

When you use a personal loan to borrow money, you’ll have to pay interest. Finding a loan with the lowest interest rate is the best way to save money. Remember, compare loan offers across several lenders to ensure you’re getting the best rates and terms—and paying the least overall to borrow the funds you need.   

If you don’t qualify for a low enough interest rate, consider borrowing less money, working on your credit, or asking a trusted family member or friend to sign on as a co-signer or co-borrower. Or, if you do take out a loan at an interest rate that’s higher than you’d like, you can consider refinancing when your financial situation changes or average interest rates drop.

1. Consumer Financial Protection Bureau. “What is the difference between a loan interest rate and the APR?” 

2. myFICO. “FICO Score Remains the Most Widely Used Credit Score in the Securitization Market, Keeping Lender Confidence.”  

3. Experian. “What Is a Good Credit Score?” 

4. Consumer Financial Protection Bureau.“What is a debt-to-income ratio?” 

5. Federal Trade Commission Consumer Advice.“Cosigning a Loan FAQs.” 

6. Board of Governors of the Federal Reserve System. “Consumer Credit - G.19.” 

7. Consumer Financial Protection Bureau. “Do personal installment loans have fees?”