What is a Low-interest Rate Personal Loan?
A low-interest-rate personal loan is a type of installment loan that features lower than average interest rates. Most personal loans also feature fixed interest rates. That means that if you can secure an attractive interest rate, it should be locked in for the life of your loan.
The Importance of Low-interest Personal Loans
It’s important to keep your credit in good shape so that low-interest personal loans may be an option for you when you need to borrow money. Of course, it’s wise to build an emergency fund that you can use when unexpected expenses arise. Yet knowing that you’re in a good position to qualify for a competitive personal loan if and when you need one can give you another layer of financial security and peace of mind.
Factors That Affect Your Personal Loan Rate
Since a lender doesn’t know you personally, it examines details about your finances and credit history to determine whether loaning money to you is a good investment. If a lender considers you to be a low-risk borrower (i.e., someone who’s likely to repay their debt as promised), it may be willing to offer you a lower interest rate in an effort to win your business.
Below are a few of the factors that a lender may consider when deciding whether to approve your personal loan application and what interest rate to offer you.
- Credit History: Most lenders will review your credit history from at least one of the major credit bureaus—Equifax, TransUnion, and Experian. If there are any red flags present (e.g., late payments, charge-offs, collection accounts, etc.), such issues could increase your interest rate offer and might even disqualify you from financing.
- Credit Score: A credit score is a rating that tells a lender how likely you are to pay a credit obligation 90+ days late in the next 24 months. A high credit score means that there’s less risk of this problem happening, and a lender may offer you a lower interest rate as a result.
- Debt-to-Income (DTI) Ratio: Your DTI ratio helps a lender determine whether you can afford to repay a new debt. A lower DTI ratio can work in your favor when you apply for a personal loan or other financing.
- Collateral: Many personal loans are unsecured. Yet with some lenders, you might be able to lock in a lower interest rate if you’re willing to pledge assets to back the loan. Putting up collateral can reduce the risk for the lender.
- Loan Purpose: The way you intend to use the money you borrow can affect the rate that a lender charges you for a personal loan.
- Education: Non-traditional lenders may consider your level of education during the application review process. If you have a professional degree that could afford you good job prospects, the lender might consider you to be a low-risk borrower.
How to Get a Personal Loan With Low Interest Rates
No matter which lender you work with, the process of getting a personal loan should be similar. Below are five basic steps you may need to complete to take out a personal loan.
- Make sure you can afford to borrow.
- Review your credit
- Review your credit
- Apply for the loan
- Review and accept your loan offer.
How to Get Low-interest Personal Loans With Bad Credit
Having bad credit can make it more difficult to qualify for personal loans. Some lenders may not be willing to work with you until you take steps to improve your credit situation.
Other lenders may consider approving you for a personal loan with bad credit. However, the interest rates that those companies offer you will likely be higher in order to offset the added risk that a bad credit score poses to the lender.
Final Thoughts
A low interest rate personal loan can help solve a variety of financial needs. Whether you want to consolidate high-interest debt, cover the cost of a major expense or repair, or pay for home improvements, a low interest personal loan might be beneficial.
Just remember to shop around and find the best deal for your situation. The interest rate on your personal loan matters, of course. But be sure to compare fees, repayment terms, and other features that might impact you as well. The more information you have up front, the better prepared you should be to make a good loan decision.