Strategies to Secure a Lower Personal Loan Interest Rate

Personal loans can be a great option when you must cover a large expense or consolidate debt. But interest rates on personal loans can vary widely, from under 5% to over 35%. The interest rate you qualify for will depend on your income, credit score and debt-to-income ratio. While you can’t control all the factors, there are some strategies you can use to improve your chances of getting the lowest personal loan rate of interest possible.

1. Boost Your Credit Score

When lenders determine how much interest you’ll pay on a loan, they care about your credit score. It’s like a report card for your financial responsibility. Simply put, the better your score, the less interest you’ll have to pay. So, having a good credit score means you’ll save money on your loan. If you’re planning to get a loan, improving your credit score before applying is a great idea.

2. Lower Your Debt-to-Income Ratio

Lenders prefer it when your debts don’t exceed 40% of your monthly income. This includes all your monthly debt payments, including the new one for your personal loan. To ensure you’re in good shape, try to reduce your other debts, like credit cards and car loans, before applying for a personal loan. And it’s a good idea not to take on any new debts right before applying. Also, be ready to show documents that prove how much you earn.

3. Compare Loan Terms from Multiple Lenders

Start by checking rates with national lenders and banks where you have an existing relationship. Then expand your search to online lenders and peer-to-peer lending platforms. Companies use more customized underwriting models that focus less on your credit score and more on factors like your education, job history, and savings. Comparing loan quotes from multiple lenders can help you discover the most competitive rate and loan terms.

4. Ask About Discounts

Many lenders offer interest rate discounts for things like setting up automatic payments, using payroll direct deposit, or taking a financial literacy course. Ask lenders what discounts may be available to help secure a lower rate. Banks you have a previous relationship with may offer discounts of 0.25% to 1% off rates.

5. Get a Cosigner

If your credit score or debt-to-income ratio could be better, bringing on a cosigner with a higher score and lower DTI may help you qualify for the best personal loan rates. Just keep in mind that cosigning makes the other person equally responsible for repaying the loan. Approach someone with excellent credit and financial standing to cosign.


By taking some time to boost your credit, manage debts, shop at different lenders, and leverage discounts, you can put yourself in a great position to get approved for a personal loan with the lowest possible interest rate. Comparing loan offers and negotiating terms can help you maximize savings on interest costs over the life of your loan.

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