How to get the best personal loan rate

Maybe you’re driving to work and your car sputters and dies. Maybe your roof springs a major leak during a heavy rainstorm.

Whatever the reason, sometimes you simply need some money. Thankfully there is a way to get needed funds: a personal loan. This can be a helpful source of money in an emergency, or just a much-needed infusion of funds.

But just as there is no such thing as a free lunch, personal loans come with some catches. One of the major caveats is the interest rate, which is the percentage of the loan that you must pay on top of the primary amount, known as the principal.

The interest rate varies dramatically based on many different factors, such as:

• Your credit score
• The length of the loan
• The lender type
• The current economy

The average personal loan interest rate varies dramatically — it can be as low as below 10% or as high as 32%. As of March, 2025, the average unsecured fixed-rate loan with a term of 36 months is 10.75% at credit unions and 12.03% at banks, according to the National Credit Union Administration.

In this article, we’ll discuss ways to help you secure a favorable personal loan interest rate, examine how average rates differ by credit score, explore term options and calculate potential monthly payments.

A good credit score, consistent income and a low debt-to-income ratio are key to securing a favorable low-interest personal loan. If your finances are less than optimal, you can boost your chances of getting positive loan terms by improving your credit score and lowering your credit utilization rate.

Compare lenders

When you’re looking for the best interest rate for a personal loan, it can be tempting to go with the first one that comes up from a search. Resist this temptation and instead, shop around. Do your legwork and check out credit unions, traditional banks, and online lenders and lending platforms to see who’s got the lowest rates and most reasonable origination fees.

Each of these outlets offer distinct benefits:

• Credit unions often provide very low rates for members
• Traditional banks may offer saving opportunities for existing members
• Online lenders allow users to explore loans with various platforms

One avenue to explore here is prequalification, which allows you to see personalized loan offers without affecting your credit score. By prequalifying with several lenders, you can accurately compare interest rates, terms and any potential promotions that could save you money.

The prequalification process also involves a “soft credit check,” meaning your credit score won’t be affected by the process. But here’s the best part: you can get prequalified for a loan within minutes, giving you near-immediate insight into your options.

Improve your credit score

As you may have picked up, a good credit score is a critical part of getting a lower interest rate. The higher your credit score, the lower your interest rate. While this might seem unfair, there are ways to improve your credit score, such as disputing errors on your report, negotiating with creditors, or paying off old debts. If your low credit score is simply a result of not having enough of a credit history yet, you could also consider a credit-builder loan, which will help you establish credit.

Lower your debt-to-income ratio

When you’re trying to take out a personal loan, positive numbers work in your favor. A crucial factor here is the debt-to-income ratio (DTI), which is basically the percentage of your gross monthly income that goes toward paying debts.

In an ideal situation, your debt-to-income ratio would be under 36%, with housing costs accounting for less than 28% of that figure. When your DTI climbs above 36%, lenders may be more hesitant to approve a loan or offer you competitive terms. And once your DTI approaches 43%, you'll likely have a difficult time acquiring a new loan.

Another figure that lenders consider is income, and — for obvious reasons — they tend to favor higher-income borrowers. That said, the minimum income requirement for personal loan eligibility is typically only $20,000 a year. It helps if you have a steady job with an employer, but it is also possible to get a personal loan when you are self-employed.

Some lenders allow you to have co-signer for your loan, which brings someone into the equation who agrees to be legally responsible if you can’t pay off the loan. If you have a friend or family member with a strong credit profile and low DTI (and who is willing to co-sign your loan — not a small thing!), it can improve your chances of securing a lower interest rate.

A co-borrower is similar in that someone else guarantees the money will be paid back, but this person also has access to the loan money (unlike in a co-signing situation).

Explore repayment options

The repayment term, or loan length, for a personal loan has a significant impact on the interest rate of a personal loan. Repayment terms for personal loans usually range from 12 to 60 months.

Longer terms typically result in higher interest rates because lenders see extended repayment periods as riskier. On the other hand, shorter terms often come with lower interest rates — but the monthly payments will be higher.

Another way to save on your loan here is to set up an automatic payment, as some lenders offer a discount for that method. Opting for a shorter term, closer to 12 months, can help secure a lower interest rate. Additionally, some lenders may offer a small discount on your interest rate if you set up automatic payments.

Only apply for the amount you need

The size of your loan also impacts your interest rate, because a larger loan presents more of a risk for a lender. In other words, the more you borrow, the higher your interest rate will likely be.

FAQs

How does my credit score affect my loan rate?

There’s typically a direct relationship between your credit score and your loan rate. The higher your credit score, the lower your interest rate. That’s because lenders view your credit score as indicative of your financial reliability. A difference of roughly 100 points in your score could potentially save — or cost you — thousands of dollars over the life of a personal loan, depending on the size of the loan.

Is it better to use a bank or an online lender?

Banks offer the convenience of an in-person interaction — even in an increasingly digital world, it can be comforting to engage with people one-on-one, especially about financial issues. While banks tend to favor borrowers with higher credit scores, they also offer the advantage of amassing all your accounts in one place, which can help those who are less meticulous about their financial record-keeping. For their part, online lenders offer the benefit of showing multiple lenders in one place, thereby increasing your chances of finding a lower rate.

Can I negotiate my loan rate or terms?

Yes, loan rates and terms can be negotiable, especially if you have strong credit or multiple loan offers. For instance, you might want to make your lender aware of competing offers, which can give you leverage and help you arrive at better terms.

Can I improve my rate after getting a loan?

Yes, you can refinance your loan if you’ve improved your credit score or market rates have dropped. Other actions that might help you get a lower rate is the usage of automatic payments, or you've established a strong history of paying your loan on-time.

Final thoughts

Securing the best personal loan rate requires work and research. You can start by trying to make sure you have a good credit score, then compare rates across credit unions, banks and online lenders to find your best option.

Consider getting preapproved to strengthen your negotiating position and work on lowering your debt-to-income ratio to qualify for better rates. Additionally, setting up automatic payments could get you a discount while ensuring you never miss a payment deadline.

And don’t forget to check for standard fees, such as origination fees, late fees, and prepayment penalties, because they can lead to unexpected costs that increase the total loan expense.