Oct 16, 2024
Have you ever wondered how to get the best interest rate for a personal loan? Or maybe you’ve searched online for “the best personal loan rates.” Each person’s financial situation is unique, so the answer may be different for you than it is for someone else.
A good personal loan rate for you may depend on several factors. Sometimes a loan with a lower rate may not be the best solution, for instance. if it includes fees and/or penalties. Because of this, it’s important to learn what goes into calculating your rate.
Knowing these details can help you find the loan that best meets your current needs. It may also help you reach your future financial goals.
To help you make an informed decision, we’ve outlined what you need to know when you apply for a personal loan. And to get a head start, use our personal loan calculator to see what your monthly payment might be.
An interest rate is the cost of borrowing money when you take out a loan. It is typically shown as a percentage.
Interest rates can be structured in two ways: A fixed interest rate remains the same throughout the duration of your loan, so you always know how much you’ll pay. A variable interest rate can change, meaning the amount you pay in interest may go up or down over time.
The cost of a personal loan can differ depending on several key elements. By knowing these, you may be able to borrow money more wisely and avoid high costs.
Your credit history provides key information for lenders about your financial past and present. The information comes from various sources, including banks, other lenders, government programs, and collection agencies. Your credit history is contained in your credit reports, which are used to determine your credit score.
Generally, your credit score is based on several factors, including how reliably you’ve borrowed money and repaid it in the past. Important data includes:
It helps to know your credit score, as it may influence whether you are approved for a loan and what interest rate you pay. For that reason, you should review your credit report before applying in order to avoid surprises.
Depending on your credit history and credit score, the interest rate for a personal loan may range from single digits to over 30%. At Discover® Personal Loans, current rates range from 7.99% to 24.99%.
Generally speaking, a higher income may help you qualify for a personal loan. It can affect the amount you are able to borrow and the interest rate you are charged.
Some lenders may have a minimum income requirement. For example, you must have an individual or household annual income of at least $25,000 to qualify for a Discover personal loan.
But income isn’t the only component. Even a high income might not be enough to obtain a loan if you have a lot of debt or expenses. Lenders may look at your debt-to-income ratio as one way to assess your eligibility; lenders prefer this number to be as small as possible.
Finding out what a good interest rate is for a personal loan makes sense. Your interest rate, though, isn’t the only thing that determines how much you’ll pay in the long run. Repayment terms matter too.
The stated interest rate only shows you the cost of borrowing the principal. A loan with a lower interest rate may not always be the least expensive option, especially if the lender charges additional fees or assesses penalties. Fees can add up, and you could owe more over the life of your loan.
So, you may want to look at the annual percentage rate (APR), which includes the base interest rate and other expenses or fees.
There are several things you can do to help get the best personal loan rates for your financial situation.
Remember, if you qualify for a loan, the interest rate you receive could be anywhere within the range that the lender offers. In addition, each lender has its own underwriting criteria.
Some online lenders let you preview your rate and monthly payment before you apply. Discover Personal Loans has a feature that lets you check your rate with no impact to your credit score.* That way, you can get a better idea of the total cost of the personal loan before you apply.
If you find that your interest rate is higher than you expected, you can always come back and check again after you’ve had time to improve your credit health. Or you could look into other elements that might be affecting your interest rate.
To compare lenders and APRs, you could start with a simple internet search.
As you do your research, you may want to compare more than just interest rates. For example, consider each lender’s reputation and whether you have a relationship with them. You might also look to see if you’ll be able to rely on the lender's customer service to answer all your questions.
Rates are important, but borrowing money is a serious commitment. You should have confidence that the lender you choose will assist you from the beginning to the end of the life of the loan.
If you’re more comfortable sitting down with someone in person, a local bank or credit union might be a good fit. But you can get the same level of personal attention when applying online. When you apply for a Discover personal loan, for example, you can talk with a U.S.-based loan specialist who will explain your options and help you complete your application.
As you search for a lender and an interest rate that's right for you, don’t forget about possible added costs, such as origination fees and prepayment penalties.
These fees can chip away at other cost-saving benefits and are typically taken out of your total loan amount. For example, if you apply for a $15,000 loan with a 4% origination fee, you’ll receive only $14,400. That’s because the lender keeps $600 in origination fees—4% of the loan—but you still pay interest on the total amount of your loan.
Keep in mind, with a Discover personal loan there are no fees at all as long as you pay on time. That means if you borrow $15,000, you’ll get a lump sum of $15,000 for your personal loan or debt consolidation needs.
The bottom line is that it pays to focus on the total cost of borrowing, instead of deciding based only on the lowest interest rate.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
