What is a low-interest personal loan?

A low-interest personal loan can be defined as one that has a rate lower than the national average. That said, what’s considered low might vary. “What’s a ‘low rate’ for one person might not be considered low for another person, though a rate of around 7% is about as low as is available right now,” says Kyle Enright, president of lending at Achieve.

To qualify for the lowest personal loan rate, your credit needs to be in excellent shape, and you may need a higher income. You can use a low-interest personal loan for any purpose — so long as it’s legal — including consolidating debt, home improvements and major purposes. Before you fully apply, compare low-interest personal loan rates to see which lenders will give you the most competitive offer.

Impact of fees and discounts on APR

Watch how fees, such as origination fees, affect your APR. Getting a low interest rate offer may not be such a good deal if it comes with high fees. “Note that some lenders may not charge a separate origination fee. But that doesn’t mean the lender isn’t charging for its costs,” Enright says. “Consumers should make sure to ask about, and understand, how the lender will handle the fee, and look at the overall cost of the loan over its term.”

Ask about autopay discounts and any other incentives, especially if you apply with a bank or credit union. You may be eligible for more discounts than you realize, which could result in significant interest savings over the term of your loan.

• LightStream. No fees; 0.50% autopay discount.
• Discover. No fees.
• SoFi. No mandatory fees; 0.25% autopay and direct deposit discounts.

A $10,000, 60-month loan with different fees and incentives can work out to different monthly payments and overall interest costs.

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Factors that affect your personal loan interest rate

When you apply for a personal loan, lenders usually consider these factors to determine whether you qualify and what rate to give you.

• Credit score. The higher your credit score, the better your chances of securing a competitive personal loan rate.
• Credit reports. Lenders also review your credit history to see if you have recent bankruptcies listed or meet their minimum credit history requirements.
• DTI ratio. DTI — or debt-to-income — is a measure of how much debt you have versus your income. The less debt you have in relation to your income, the higher your chances of getting a lower rate.
• Collateral. Secured personal loans require you to provide the lender with collateral, such as a bank account, to secure the loan. Because these loans are less risky for lenders, they may be willing to give you a lower rate. The downside is that a lender can take your collateral to satisfy the debt if you default on the loan.

Requirements for low-interest personal loans

Before you apply for any type of loan, check the lender’s website for any specific requirements. Lenders that offer low-interest loans may:

1. Set higher income limits. You may have to document a certain income even if your credit scores are very high.
2. Require lower debt limits. Lenders may set a lower DTI limit for low-interest loans to ensure that you can repay the loan easily.
3. Restrict how you can use the money. Low-interest loans may be earmarked for home improvement or debt consolidation.
4. Limit co-borrower or cosigning options. You’re less likely to be able to add someone else to the loan to qualify for a higher amount at low-interest lenders.

Where to get a low-interest personal loan

You can get a low-interest personal loan from various financial institutions, including online lenders, banks and credit unions. Shop with at least three lenders to get the best deal for your financial circumstances.

Online lenders

Online lenders may offer quick digital applications and funding within one business day for qualified borrowers. You may notice much higher APR ranges — as high as 35.99 percent — which means their products may be tailored more for fair or bad credit borrowers. Some examples of online lenders that offer personal loans with low competitive starting rates include SoFi, LightStream and Upstart.

Watch out for fees as well, which can be as high as 12 percent at some online lenders. Also check if there are any restrictions on what you can use the funds for, such as secondary-education costs.

Banks

Banks often advertise some of the lowest rates for personal loans, if they offer them. Those that do may offer a relationship discount if you already have a checking or savings account. The lowest rates typically require very high credit scores and terms of more than three years.

Both local and national banks offer low rates to customers with excellent credit scores, and qualifying standards may be more stringent than online lenders. Banks that offer personal loans include Citizens Bank, Wells Fargo and Discover. They typically don’t charge any origination fees, which means you take home the full amount you borrow without any deductions.

Credit unions

Credit unions are owned by their members, so many can offer low rates with less strict eligibility criteria. Unfortunately, it also means you must qualify for membership, and may be subject to a waiting period before you can apply for a loan.

Overall, credit unions will likely offer rates similar to those of banks and online lenders. The major difference is for borrowers who need a fair credit loan with a good rate. If you qualify, you could borrow a small personal loan that has its rate capped at 18 percent at federal credit unions — which is much lower than lenders that have a maximum APR stretching up to almost 36 percent.

Marketplace matching sites

Daily Tech Finance is an example of a marketplace matching site. You can check out details on several different lenders with all the basic information about fees, APR ranges, minimum credit score and available terms in one place.

That could save you time when compared to trying to find all of that information in the small print sections of online lender, bank and credit union pages. With one application, you can get several offers.

Get a low-interest personal loan

Learn how to get a low-interest personal loan in 7 steps

Learn how to get a low-interest personal loan

Bottom line

Low-interest personal loans can be a great tool to pay less than you borrow. Ultimately, a high credit score and income will give you access to the lowest rates. If you can afford a short term, you could even snag one of those “as-low-as” rates.