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Personal loans can come in extremely handy when you're trying to pay off debt or finance a large purchase. But they can get you into deeper debt trouble if you obtain one with a high interest rate. Finding a personal loan with a low interest rate should be a top goal when you are seeking out a new loan product.
Successfully getting a personal loan with a low interest rate will depend on which lending partners you apply with and what your credit profile looks like. Loans vary from lending partner to lending partner, and interest rates often depend on your credit reports and scores.
Here are some things to consider if you are thinking about applying for a low interest personal loan.
Types of Personal Loans
There are two main types of personal loans: secured and unsecured.
Secured Loans
Similar to a secured credit card, a secured loan requires the borrower to provide the lending partner with some form of collateral. This collateral acts as a security deposit for the loan and protects the lending partner in case you fail to pay back your debt.
The most common types of secured loans are mortgages, home equity lines of credit (HELOCs) and auto loans. With a mortgage, the home is the collateral; with an auto loan, the car. Remember that loans like this typically restrict what you can use the borrowed money for: Mortgage loans can only be used to buy a home, and auto loans can only be used to purchase a car.
Unsecured Loans
Most personal loans are unsecured, which means they don't require any collateral from the borrower. With these loans, you can apply for the loan, be approved on the merits of your financial profile, and not have to worry about providing the lending partner with any collateral.
Approval for unsecured loans is based on your credit history and your past ability to pay back debt on time. Lending partners typically use your credit reports and scores to figure out how likely it is you will make your new payments punctually. With most unsecured personal loans, you have no restrictions on how you can use the money. Lending partners typically disburse personal loans in a lump sum, and then you're free to spend the money at your discretion. Understanding unsecured personal loans before you apply is important to getting the best interest rate and also determining whether this is the right solution for your cash needs.
First Step: Check Your Credit Reports and Scores
Credit reports and scores are used in almost all lending decisions, so a good first step before you apply for a personal loan is getting a free copy of your reports and scores so you can understand what the lending partners will be looking at when considering your application. Remember that checking your own credit does not affect your score, so you can check it as often as you need.
Once you've taken a look at your credit reports, you should have a better idea of what type of loan you may be eligible for. Some lending partners are pickier than others when it comes to approving applicants, so find out lending partners' credit score minimums—if they make them available—to know where you stand.
The lowest interest rates are usually given to people with top-tier credit scores, so if you have poor credit, it may be tricky to find a personal loan at a low rate. If you're in a lower credit tier, think about spending some time improving your credit scores before applying for a personal loan. This could increase your chances of getting a low interest rate and could help you save money over the life of your loan.
Things to Keep in Mind When Applying for a Low Interest Loan
When you pay back a loan, you are usually paying back more than just the principal amount you borrowed. Depending on the terms of your debt, a portion of your monthly payment will go to pay the interest and fees associated with the loan.
Paying attention to some of the common costs associated with new borrowing could mean saving thousands of dollars over the lifetime of your loan. Here are some things to take a close look at when shopping around for a new loan:
- Interest rate. Interest rates are one of the most important aspects of borrowing and should be weighed heavily when shopping for a new loan. While the rate you end up with is often based on your credit score, rate ranges vary depending on lending partner and type of loan, so it's important to understand how they can affect your borrowing.
- APR. Your annual percentage rate, or APR, includes your interest rate and other fees and costs associated with taking a loan. You can use this number to drill down to the exact cost of your loan. APRs are different from interest rates, and although in some cases they are used interchangeably, it's important to read the fine print when considering different loans.
- Fees. Your borrowing agreements can help you identify any fees or extra costs associated with your loan. These include origination fees, prepayment penalties, late fees and other costs. Fees can increase the overall cost of borrowing, so make sure you know the details associated with your loan.
- Term. The term—or the length of time over which you agree to repay your debt—is important because, in combination with your interest rate, it can tell you how much you will pay each month. Loans with longer terms often have lower monthly payments, while shorter terms typically come with higher payments. Remember, interest is charged on borrowed money over the life of the loan, so the longer it takes you to repay the debt, the more interest you'll end up paying.
If you're in the market for a new loan, limiting the number of applications you send out can help keep your credit score intact. Usually, when a lending partner requests your credit report for a loan application, a hard inquiry is recorded in your credit file. Hard inquiries remain a part of your credit file for up to two years and can have a negative impact on your score if you rack up too many in a short period of time.
Personal Loan Calculator
†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.
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Other Factors That Could Impact Your Interest Rate
If you're having trouble getting approved for a low interest loan, consider looking at different types of lending partners known to offer loans at lower rates.
- See if you can borrow from a credit union. Credit unions are known for making lower-interest loans available to their members. Because credit unions are not-for-profit, they are able to offer loans with lower rates than their for-profit competitors, making them a good option if you qualify. Eligibility for credit union membership usually depends on your employer, industry or residence. To find out whether you are eligible for a credit union membership, check with your employer or any professional group you are a member of or call your local credit union to see if you qualify.
- Check out online lending partners. Compared with brick-and-mortar banks, some online lending partners are able to offer lower interest rates because they don't have to pay the overhead costs of having a physical location. In addition, online lending partners can be convenient and quick, allowing people to apply and get approved for a loan without ever leaving home.
- Consider a lending circle. Lending circles offer alternatives to conventional borrowing and are based on private agreements you make with friends and family. These arrangements source the loan funds from your "circle"—or group of friends and family participating—and as you repay your loan, your investors recoup their contribution. These loans are also typically free of interest and fees, and give financial opportunities to people who otherwise might not have borrowing options. Some third-party companies, such as Mission Asset Fund, help to officiate lending circles and may be a good option if you are trying to use your lending circle debt to build your credit. Click here to get more information about Mission Asset Fund.
Personal Loan Options
LendingClub
Est. APR
Term
Amount
Available loan amounts: $1,000 to $40,000
Est. monthly payment: $30 to $1,742
Grace period: 15 days
Application fee: $0
Loan Details
- Check your rate with no impact to your credit score1
- Fast Funding2
- We offer flexible amounts and terms, with no pre-payment penalties
LendingClub allows you to borrow up to $40,000 and offers personal loans in addition to other loan products. LendingClub can also tell you which interest rate you may qualify for without generating a hard inquiry on your credit reports. According to LendingClub: "Your actual rate depends upon credit score, loan amount, loan term, and credit usage and history." Getting a LendingClub loan can take as little as 44 hours. LendingClub does not charge prepayment fees.
Prosper
Est. APR
Term
Amount
Available loan amounts: $2,000 to $50,000
Est. monthly payment: $41 to $1,775
Grace period: 0 days
Application fee: $0
Loan Details
- More than $25 billion loans funded
- Join America's first personal loan marketplace with over 1 million members
- Next Day Funding - In as Little as One Business Day**
- Get fixed monthly payments with no prepayment penalties
Prosper offers personal loans of up to $50,000, has a simple online application process, and allows you to find out your interest rate without your credit scores being affected. Prosper accepts applicants with a FICO® Score☉ of 560 or above and offers fixed interest rates ranging from 8.99% to 35.99%, depending on your creditworthiness. There are no prepayment penalties associated with a Prosper loan, and if you are approved, your money is deposited in your account in as little as three days.
Upstart
Est. APR
Term
Amount
Available loan amounts: $1,000 to $50,000
Est. monthly payment: $31 to $2,262
Grace period: 15 days
Application fee: $0
Loan Details
- Loan amounts from $1,000 - $50,000
- APRs from 7.8% - 35.99% with loan terms of 3 or 5 years
- Won't affect your credit score
- You can have funds in as fast as 1 day
- You are more than your credit score. On Upstart your education and experience help you get the rate you deserve.
Upstart offers loans between $1,000 and $50,000 and has several borrowing options, including personal loans.
Upstart is a newer lending partner that works with applicants who have less developed credit files. When considering applicants, Upstart looks at alternative aspects of a borrower's profile, such as education and job history, rather than basing their decision solely on credit scores. Upstart offers an easy application process: There is no hard credit check involved to check your interest rate, and they fund loans in as quickly as one day.
To check out additional personal loan offers, you can use Experian's CreditMatch tool to be paired with loan offers based on your FICO® Score. Once you find the low interest personal loan you need, remember to use the proceeds responsibly and make all your payments on time.