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Best Low-Interest Personal Loans of February 2024
The average personal loan rate is 11.94% as of Feb. 7, according to a Bankrate survey. Personal loan interest rates are trending higher in 2024 so far, up nearly a full percentage point from July 2023:
Personal loan rates vary widely based on creditworthiness. Borrowers with very good or excellent credit scores will see much lower interest rates than those with fair or poor credit. Often, borrowers with bad credit will apply for a secured personal loan that uses an asset as collateral in order to achieve lower rates:
Bankrate Averages
The lower your personal loan interest rate, the less you’ll pay to borrow money. This scenario shows how interest rates affect 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 would pay $1,007 in interest alone.
Now assume that you were approved for a $5,000 personal loan with a 6.75% APR and the same four-year term. Your total interest charges on this loan would be $719, resulting in interest savings of $288.
But getting approved for a low-interest personal loan depends on your credit profile, including credit history and score, income, and debt. All lenders have their own criteria for setting borrowers’ personal loan interest rates and terms.
Consider these questions to help you choose the best low-interest personal loan:
- What terms can I expect? You will want to lock down not only a low interest rate but also the loan repayment length you need. Use these factors to calculate your monthly payment and make sure you can afford it.
- What fees does the lender charge? Some lenders charge an origination fee that can vary from 1% to 10% of the loan amount, which greatly affects the payout. Also, check for prepayment penalties, late payment fees and any other lender fees.
- What loan amounts does the lender offer? Note minimums and maximums. If a lender’s maximum amount is less than you need, don’t bother. If the minimum amount is more than you need, don’t be driven to overborrow.
- What are the repayment options? Make sure at least one option, such as online, check or automatic payments, will work for you. Automatic payments might come with a discount. Check that the lender provides flexibility with your payment date in case you need to change it.
- Do loans have use restrictions? Some lenders have restrictions on how you can use your loan. Be honest about how you’ll use the money. Lying on your loan application can be deemed loan fraud and result in extra charges.
- How is the lender’s customer service? Check online reviews, such as the Better Business Bureau, Trustpilot or Consumer Financial Protection Bureau. Reach out to family members and friends about their experiences with lenders.
- Save money. Low-interest personal loans may help borrowers consolidate high-interest credit card debt and pay it off more quickly at a lower interest rate.
- Access cash quickly. You could receive same-day funding, depending on the lender.
- Provide no collateral. Low-interest personal loans are typically unsecured, so you won’t need to use your home or car for collateral.
- Lenders may charge fees. Look out for origination, prepayment and late payment fees.
- Restrictions may apply. Some lenders may restrict how you can use the money. For example, you may not be able to use it to pay for college tuition.
- You may not qualify. If you don’t have stellar credit, you likely won’t qualify for a low-interest personal loan.
Here are a few key areas that lenders look at to determine personal loan approvals and interest rates:
Your credit score is one of the major factors lenders consider for personal loan eligibility, says Lauren Anastasio, a certified financial planner.
“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.
Meeting the minimum credit score doesn’t mean you’ll qualify for the lowest loan rates advertised. A FICO credit score in the mid-700s or higher is considered very good to exceptional and generally earns you a competitive interest rate.
Borrowers with fair or bad credit shouldn’t expect low interest rates on personal loans.
A co-signer, ideally one with strong credit, agrees to make payments if you can’t or don’t. Lenders may be more willing to approve a loan at a lower interest 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.”
Your debt-to-income ratio is the percentage of your gross monthly income – earnings before taxes or other deductions – you put toward debt. It helps lenders gauge whether you can manage a personal loan payment without financial hardship.
“In a nutshell, the maximum debt-to-income ratio you want if you’re looking for a personal loan is right around 35%,” says David Bakke, personal finance expert at Dollar Sanity, a financial education website. “Anything higher than that and the lender will be thinking twice about whether or not to extend the loan.”
Additionally, some lenders may have a minimum annual income requirement.
Whether your personal loan is secured or unsecured can influence your interest rate. With a secured loan, you provide 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.
But before jumping on a secured personal loan, factor in the risk of losing whatever you used as collateral if you can’t make the monthly payments.
Some lenders offer a small APR percentage point reduction for existing customers or who already have a bank account with them, or for choosing automatic payments. Some lenders list interest rates that include autopay discounts.
Take these steps to find the lowest rates on personal loans.
Lenders may advertise an APR range, but you won’t find out your rate until a lender checks your credit. Prequalification uses a soft credit inquiry, which doesn’t hurt your credit score, to determine your chances of approval and estimate loan terms. Prequalifying doesn’t guarantee approval, though, because you still have to apply and provide additional information to the lender.
Not all lenders offer prequalification, but online lenders generally do in a process that can take just a few minutes. The information you will need to prequalify can vary by lender but may include your desired loan amount and your income.
2. Check With Your Bank or Credit Union
Your bank or credit union could offer a more competitive rate or origination fee than rivals because it has a window into your finances that the others don’t. If you have deposit accounts, for example, your bank may consider your wages, savings and spending patterns.
“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.”
3. Work on Your Credit and Try Again
If you can’t get approved for a competitive interest rate on a personal loan, you might want to pause and focus on raising your credit score. Check your credit reports for errors to dispute, pay down debt, make on-time payments, and take other steps to improve your credit before you reapply for a personal loan.
If you can’t qualify for a personal loan, consider one of these alternatives:
- Look at other types of loans. A home equity loan or line of credit may be an option for home repairs and an auto loan for a new or used car purchase. Compare other types of loans to see if they offer better rates than personal loans.
- Make payment arrangements. Always work with medical providers to set up payment plans before taking out a personal loan for medical expenses.
- Tap into your 401(k). Although traditional advice would strongly dissuade you from taking money out of your retirement account, a 401(k) loan is a valid option in certain circumstances. As long as you pay back the loan within about a year, the impact on your long-term gains should be minimal.
- Borrow from a family member. Asking for money may be difficult, but if someone can help, this may be a better option than a low-interest personal loan. Be sure to weigh the pros and cons of borrowing from friends or family members.
If you have bad credit, you likely won’t be able to qualify for a low-interest loan. Borrowers with bad credit often end up with high interest rates and other less-than-ideal terms for personal loans. Take some time to compare lenders and choose a loan with the lowest overall cost, factoring in APRs, account fees, repayment terms, collateral requirements and lender reviews.
Carefully review personal loan options before you commit to a loan. Read full reviews of the best lenders for the lowest interest rate personal loans.
Loan terms vary. In addition to interest rate, you can learn about each lender’s:
- Loan amount range.
- Minimum credit score requirement.
- Minimum income requirement.
- Loan terms, or time to pay off the loan.
- Customer service ratings, such as from the Better Business Bureau.
A good interest rate on a personal loan is lower than the national average, according to the credit bureau Experian. The average rate for a 24-month personal loan in November 2021 was 9.09%, according to the Federal Reserve.
That could be good news if you need to pay off high-interest credit card debt. You’ll pay down debt faster on a personal loan than on credit cards with higher interest rates, Bakke says.
But getting approved for a low-interest personal loan depends on your credit profile, including credit history and score, income, and debt. All lenders have their own criteria for setting borrowers’ personal loan interest rates and terms.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. Personal loan companies are evaluated based on customer service ratings, interest rates, maximum loan term, minimum and maximum loan amounts, minimum FICO score, online features, and origination fees.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
To recap, here are the picks:
Best Low-Interest Personal Loans of February 2024
