There are several things you can do that may help you find the best personal loan rates for you, including:
- Maintain a good credit history
- Have sufficient income to repay the loan
- Choose as short a term (length) of your loan repayment that fits in your budget
- Find a lender that allows you to preview your potential interest
rate without affecting your credit score before applying for a
- Compare online lenders
It’s important to understand that everyone’s financial background and credit history is unique, so those that qualify for a personal loan can receive varying interest rates within the range that a lender offers. Not only that, but each lender has its own underwriting criteria, so to say for certain how to get the best personal loan rate is impossible. And there are other factors to consider in a lender beyond the APR that, quite honestly, may make them the best option in your eyes, such as not charging origination fees or closing costs.
That being said, while you can’t ensure a specific rate, there are some things you can do as you prepare to apply for a loan to put yourself in a good position to make the right choice for you, and better understand the rate you may be offered.
- Have a good understanding of your credit history
- Figure out exactly how much money you’ll need to borrow
- Estimate what kind of monthly payment you can afford and how long it will take to pay back the loan
The Role of Credit History
Credit history is usually a primary factor in determining your annual percentage rate on a personal loan.
Generally speaking, credit scores are based off of your track record on borrowing money and repaying it. A few factors include:
- the length of your credit history,
- how much you owe in credit,
- payment history (including missed payments), and
- the number of accounts you have open and how you use them
At least being aware of where you stand (do you have good credit or excellent credit?) will give you an idea of why you may be getting a higher or lower rate on a personal loan. It may help to review your credit report before applying, so there are no surprises.
The Role of Income
At Discover Personal Loans, you must have an annual household income of at least $25,000 to qualify.
Generally speaking, a higher income may help, but for Discover Personal Loans and other lenders, there are multiple factors that go into determining an interest rate, so being at a particular income level does not guarantee anything.
As they say, it’s not what you make, it’s what you save, so your income – even if it’s relatively high – might not carry as much weight on your financial standing if you have a lot of debt or expenses.
Related topic: Get more information on household debt ratio here.
Length of Loan Term and Rates
While you obviously want to get the best rate you can, it’s important to understand that your interest rate is not the only thing that determines how much you’ll pay in the long run. Repayment terms matter too.
Let’s take an example using our personal loan calculator. If you want to borrow a loan amount of $20,000 for some home improvements, and you estimate that your credit is very good.
For the sake of this example, let’s say your rate is 13.99%. With a repayment term of 36 months, your monthly payments would approximately be $683, for a total of $24,588. At 84 months, you’d pay $375 per month, for a total of $31,500.*
Remember this is just an estimate, but the point is the longer you take to pay back a loan, the more you’ll pay in interest. The rate isn’t the only thing you should take into consideration.
Preview Your Interest Rate Online
Some online lenders these days provide tools for those interested in a personal loan to preview their interest rate before applying. Discover Personal Loans has a Check Your Rate feature that allows you to find out your interest rate, with no impact to your credit score. By checking your rate on a personal loan, you can get a better idea of the total cost of the personal loan, without fully submitting a hard pull application.
If you find your interest rate is a lot higher than you expected, you can always come back and check your rate when you’ve had time to work on improving your credit profile or look into other factors that may be affecting interest rate.
Comparing Lenders and Preview Your Interest Rate Online
A simple Google search could allow you to compare personal loan rates of various lenders online. However, you’ll want to keep in mind that the rates you see initially are just estimates and may not reflect your individual situation.
You may also want to consider the reputation of the lender, whether you have a pre-existing relationship with them, and whether or not they have the customer service available to answer all your questions. Consider looking into a local bank or credit union if you are more comfortable with sitting down with someone in person and talking through options.
Rates are important, but borrowing money is a serious commitment, and you want to be confident the lender you choose can see you through from the beginning to the end of the life of the loan.
Who Has the Best Personal Loan Rates?
It’s hard to say who has the best personal loan rates, because so much depends on your specific credit profile. However, a couple of other important factors to consider in your search for the right lender and rate are origination fees and prepayment penalties.
These are additional costs some lenders charge, either when you first take out the loan (origination fee), or if you decide to pay it back early (prepayment penalty). (Discover Personal Loans doesn’t charge either of these fees, for example.)
You want to benefit from a personal loan – whether it’s for consolidation of credit card debt, home improvement or some other major purchase. These fees can add to the total cost of the loan and take away some of those benefits.
So focus on the full offer that a personal lender has for you before making a decision solely on rate.