How to get a good interest rate for a personal loan

Interest rates are on the rise as the Federal Reserve tries to fight record inflation. The central bank is doing this to make loans more expensive and they can try to slow the economy down, hopefully without sending it into a recession.

However, rising interest rates mean that loans are now becoming more expensive and less desirable, compared to record demand since the start of the pandemic.

But can you still get a reasonable interest rate on a personal loan?

Select is studying how you can get the best possible rate on all loans in the new future and how to improve the rates on your current outstanding loans.

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How to get a low interest rate on a personal loan

The average rate for a personal loan over 24 months is 8.73%, according to the latest Federal Reserve data. However, this average rate has been declining since 2018, when it was 10.32%. It is also important to remember that these are only average rates. There are currently personal loans with APRs below 4%.

Here are the three main components to getting the best possible interest rate.

1. A good credit score

Getting the best rate on a personal loan is no secret – the higher your credit score, the more likely you are to get a better interest rate. You generally need to have a very good or excellent credit score (740 and above) to qualify for the lowest rates. Additionally, a higher score can bring you other benefits like a longer repayment period and a bigger loan.

However, don’t let a less than perfect credit score deter you from applying. Even if you don’t have great credit, there are still ways to get a personal loan with a great interest rate. Other factors are considered by lenders to determine what you may qualify for, such as your work experience and educational background. In fact, there are personal loans specifically for those with poor credit scores, including:

Beginner personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, credit card refinancing, marriage, moving or medical

  • Loan amounts

  • Terms

  • Credit needed

    FICO or Vantage score of 600 (but will accept applicants whose credit history is so poor that they have no credit score)

  • Assembly costs

    0% to 8% of target amount

  • Prepayment penalty

  • Late charge

    Greater of 5% of monthly amount past due or $15

OneMain Financial Personal Loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, big expenses, emergency expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

    Flat fee from $25 to $1,000 or percentage ranging from 1% to 10% (depending on your state)

  • Prepayment penalty

  • Late charge

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

If you’re unsure of your credit score, you might consider signing up for a credit monitoring service like Chase Credit Journey or Capital One’s CreditWise®.

2. Your work history

The second part is the employment history. The lender will likely ask you for a work history to show that you can afford to repay the debt. To prove this, you’ll probably need to get a letter from your manager or the human resources department. Although more difficult, it is still possible to get approved for a personal loan if you are unemployed.

3. Verifiable income

Finally, you will need some type of verifiable income. As with work history, the lender will want to see your current income to ensure you can make the monthly loan payments. This is especially useful if you are still working to improve your credit score. Again, this may be a bit more difficult, but you can still get approved for a personal loan if you are self-employed and have irregular income.

Compare offers to find the best interest rate

Like anything else, you need to shop around for the best deal and the best loan terms. So if you’re looking for a personal loan to help pay off your credit card debt, starting a home renovation or just need a break — it’s best to start shopping for what you need.

Even if you don’t need the money for several months, it pays to know what the rates look like and what your monthly payment will be to pay off the debt.

If a personal loan is in your future, consider our top lender picks:

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.99% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Marcus by Goldman Sachs Personal Loans

  • Annual Percentage Rate (APR)

    6.99% to 24.99% APR when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, home improvement, wedding, moving and moving or vacation

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    7.99% to 23.43% when you sign up for autopay

  • Purpose of the loan

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

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Select also has a comparison tool and a loan market that allows you to easily view different loan offers. You’ll need to answer a few questions and Even Financial will determine the best deals for you. The service is free, secure and does not affect your credit score.

This tool is provided and powered by Even Financial, a search and comparison engine that connects you with third-party lenders. Any information you provide is given directly to Even Financial and it may use that information in accordance with its own Privacy policies and Terms of use. By submitting your information, you agree to receive emails from Even. Select does not control and is not responsible for the policies or practices of third parties, and Select does not have access to the data you provide. Select may earn an affiliate commission on partner offers in the Even Financial tool. The commission does not influence the selection in the order of the offers.

At the end of the line

Personal loans are a solid option for consumers to help pay off lingering debt or even get by for a while. unexpected job loss.

However, before applying, make sure you are familiar with the terms of the loan, including the interest rate, whether it is a fixed or variable APR, and how long you must repay the loan in full.

Check out Select’s in-depth coverage at personal finance, technology and tools, The well-being and more, and follow us on Facebook, instagram and Twitter to stay up to date.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

About Wanda Wall

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