How Do You Qualify For The Lowest Personal Loan Interest Rates?

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Personal loans are a convenient way to borrow small or large amounts of money. They can be used to cover a variety of expenses — like a wedding, funeral, vacation, surprise medical bill, home repair and more. And the money is typically disbursed straight into your bank account in as little as one day, so you can start spending as soon as you need. Personal loans have also garnered a reputation for their lower interest rates compared to that of credit cards.

Personal loan APRs average 9.09%, according to the Fed’s most recent data. By contrast though, the average credit card interest rate is around 16.44%. Some lenders, though, like LightStream offer rates as low as 2.49% and offer additional Annual Percentage Yield discounts for enrolling in autopay to have your monthly payments automatically deducted from your bank account.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    2.49% to 19.99%* when you sign up for autopay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, wedding and others

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early pay-off penalty

  • late fee

A lower interest rate can save you hundreds or even thousands of dollars when you’re paying back a loan. This is why it’s beneficial to receive an interest rate that’s as low as possible.

Generally, the best way to secure some of the lowest interest rates on a personal loan is to make sure you’re applying with an excellent credit score. The better your credit score, the more favorable your personal loan terms will be.

This is because lenders view applicants with higher credit scores as more creditworthy — aka, more likely to make all on-time payments and pay back the loan amount in full. Thus, they’re seen as less risky borrowers and lenders will be more inclined to collect lower interest charges from them.

This doesn’t mean that you won’t be approved for a personal loan if you don’t have an excellent credit score (in fact, we’ve rounded up lenders that will still approve applicants with lower credit scores). You just might not get the best rates and terms.

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If you have some time to plan ahead before taking on a personal loan and you aren’t feeling too confident about your credit score, you might try taking steps to increase your credit score before submitting your application.

Continue paying down your credit card balances to lower your credit utilization rate. Credit utilization is the ratio between the amount of credit you’re using and the total amount of credit available to you. Your credit utilization is the second-most important factor of your credit score (behind payment history).

The general rule of thumb is to keep your credit utilization rate below 30%, but a FICO study found that consumers with credit scores 750 and above use less than 10% of their total available credit limit.

It can also be worth checking your credit report for any errors that may be dragging your credit score down. You can use Experian to sign up for a free account and check your credit report and receive credit scores from all three bureaus: Experian, Equifax and TransUnion. Experian also has a credit monitoring service service (also free) that can help you detect possible instances of identity fraud, which can hurt your ability to get approved for new lines of credit.

Also, make sure that you don’t apply for too many new lines of credit all at once. Too many new hard inquiries around the same time can also lower your credit score and make it even harder for you to get approved for your desired personal loan interest rate.

While it may feel like a lot of work, especially if you’re totally new to personal loans, it can also be beneficial to shop around to different lenders to find the lowest rate you qualify for.

With this comparison tool, you’ll just need to answer a handful of questions in order for Even Financial to determine the top offers for you. The service is free, secure and does not affect your credit score.

Editorial note: The tool is provided and powered by Even Financial, a search and comparison engine that matches you with third-party lenders. Any information you provide is given directly to Even Financial. Select does not have access to any data you provide. Select may receive an affiliate commission from partner offers in the Even Financial tool. The commission does not influence the selection in order of offers.

And if, despite these steps, your credit score still isn’t quite where you feel it needs to be, you might consider getting a co-applicant for your personal loan application. A co-applicant is someone who applies for the loan with you and is equally responsible for paying back the full loan amount. Co-applicants are often also known as co-borrowers, and they can usually be added onto your personal loan application form.

Applying with a co-applicant who has a higher credit score than you can help you get approved for a lower interest rate and other more favorable loan terms. Just keep in mind that not all personal loan lenders accept co-applicants, so you’ll want to double check with the lender before you submit your application. SoFi and OneMain Financial, for example, are two lenders that do allow co-applicants, and borrowers can apply for up to $100,000 and $20,000 respectively.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 20.28% when you sign up for autopay

  • Loan purpose

    Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early pay-off penalty

  • late fee

OneMain Financial Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation, major expenses, emergency costs

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

    Flat fee starting at $25 to $onem00 or percentage ranging from 1% to 10% (depends on your state)

  • Early pay-off penalty

  • late fee

    Up to $30 per late payment or up to 15% (depends on your state)

Bottom line

Lower interest rates make personal loans an attractive way to borrow money for large expenses. However, to make sure you’re getting some of the lowest rates a lender offers, you’ll need to apply with a really good credit score. Lowering your credit utilization and checking your credit report for mistakes are just a few steps you can take to raise your credit score just in time to submit an application. But if you’re short on time or these actions ended up not being as effective as you thought, you might consider getting a co-applicant with a higher credit score.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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