How to get a good personal loan interest rate

07/29/2022

Having excellent credit is key to getting a good interest rate on a personal loan. Find out how to achieve it. (Shutterstock)

Compared to credit cards, personal loans typically have lower interest rates. The average credit card interest rate in the first quarter of 2022 was 16.17%, compared to 9.41% for a 24-month personal loan, according to Federal Reserve data.

Having an excellent credit score is the best way to get the lowest available interest rates. Here’s how to lock in a good interest rate on a personal loan.

Visit Credible to see your prequalified personal loan interest rates from various lenders, all in one place.

Factors that affect your personal loan interest rate
5 ways to improve your credit score
How to get the best interest rate

Factors that affect your personal loan interest rate

A number of factors can affect the interest rate you get on a personal loan, including:

Credit score — Your credit score is a three-digit number that helps lenders assess risk. It’s based on your payment history, credit mix, account length, and more. Credit scores typically range from 300 to 850, with a higher score being better.
Debt-to-income ratio — Debt-to-income (DTI) ratio refers to all your monthly debt payments divided by your gross monthly income. A good rule of thumb is to keep your DTI ratio at 43% or lower.
Employment history and income — Most lenders look at your past 24 months of employment to determine if you’ll have the means to repay your loan. They hope to see stable employment or a reliable source of income.
Loan term and amount — Longer term loans and larger loan amounts typically come with higher rates than smaller, shorter-term loans. This is because longer and larger loans require lenders to take on more risk.
Collateral — While personal loans are usually unsecured, you may be able to get a secured personal loan by providing collateral (something valuable you own). Since lenders can seize the collateral if you fail to make your payments, secured personal loans tend to have lower interest rates.

5 ways to improve your credit score

If you’re unhappy with your credit score, these strategies may help you improve it:

How to get the best interest rate

To ensure you lock in the lowest interest rate on a personal loan, follow these steps:

If you’re ready to see what interest rates you might qualify for, visit Credible to quickly and easily compare personal loan rates.

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