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Best Low-Interest Rate Loans
If you lack the funds to make a large purchase or need an extra monetary hand for an emergency or to consolidate debt, getting a low-interest-rate loan will make a huge difference and save you money. Now, it can be hard to know where to shop to find your best rate. Although excellent credit and high incomes can influence the likelihood of a low rate, there are plenty of banking options providing personal loans with different perks and incentives. To determine the best low interest rate loans of 2020, we compared various lender’s interest rates, loan terms, customer satisfaction, customer support and fees using our proprietary SimpleScore methodology.
The 6 best low-interest rate loans of 2020
- LightStream – Best overall choice
- Marcus – Best choice for no fees
- USAA – Best choice for military members
- SoFi – Best choice for its member perks
- TD Bank – Best choice for fast funding
- US Bank – Best choice for current customers
Best low-interest rate loans at a glance
|Lender||Lowest APR||Loan term||Loan range|
|LightStream||2.49%–19.99% w/Autopay||2 – 7 years||$5,000 – $100,000|
|Marcus||6.99%–19.99%||3 – 6 years||$3,500 – $40,000|
|USAA||up to 18.00%||1 – 7 years||$2,500 – $50,000|
|SoFi||5.99%–18.85% w/AutoPay||2 – 7 years||$5,000 – $100,000|
|TD Bank||6.99%–18.99%||1 – 6 years||$2,000 – $50,000|
|US Bank||6.49%–18.49%||1 – 5 years||$1,000 – $25,000|
What is a low-interest personal loan?
A low-interest personal loan is a short-term loan offered by banks, online lenders and credit unions, where the interest rate is charged at a much lower percentage (typically below 12 percent). These loans come with fixed amounts and a defined payoff timeline. Since these loans are often the most competitive to qualify for, expect to pay less over the life of the loan.
Due to their hiring borrowing limits, low-interest personal loans are helpful for large purchases such as buying a vehicle or renovating a home. Interest rates vary with each lender and they will be assessed on several different factors, including your credit score, the loan amount, your employment status and your income.
How low-interest personal loans work
Low-interest rate loans charge a low fee for the cost of taking out the loan. This cost is added as interest on top of the loan repayments each month. Therefore, whenever you search for a new loan, the interest rate is one of the main things to consider before making a final decision.
You can always shop around for better interest rates as each lender may offer a unique rate and fee structure. Here are some other things to consider:
APR stands for the annual percentage rate and consists of the loan’s annual cost with fees added on. This is slightly different from interest rates, which represent the yearly cost of taking out the loan. Therefore, APR is a broader figure that shows what you’ll be paying, which you can also use to make comparisons between lenders.
This means lenders will require repayment of the loan over different time limits. For example, some loans will have two to seven-year repayment terms. Repayment terms will be discussed with you while you are going through the loan application. Generally, the longer the loan term, the more interest you will need to pay overall.
Each lender will have minimum and maximum amounts that you can borrow from them, with most lenders requiring you to borrow at least $1,000. The maximum amounts will vary, but in some cases, they can be up to $100,000.
How much you can take out in a loan will depend on your credit score, employment status, requested amount and the purpose of the loan. Customers deemed as low risk by the lender will typically get more favorable rates and loan amounts.
What are the average personal loan interest rates?
The Federal Reserve reports that August 2020 brought a decrease to consumer credit, affecting seasonally adjusted annual rates by two percent. On the other hand, non-revolving credit increased at the annual rate of just 0.75%.
The overall decrease in the annual rate is a big change from recent months, with June at nearly 5% and 4.3% for June. The average rate for personal loans in August 2020 was 9.34%.
The personal loan interest rate that you receive will depend on a few different factors. Lenders will consider your credit history and your current credit score to determine what rate is most suitable for your loan. If you have bad credit, you will likely face higher rates on your loan.
How to qualify for a low interest rate on a personal loan
- Improve your credit. The kind of loan you get depends on your credit score, so take the time to pay off debt so you can present a more attractive debt-to-income ratio to lenders. Even borrowers with fair credit can take extra steps to improve their scores and snag better interest rates.
- Shop loan options. Personal loan rates, amounts and terms can vary quite a bit, depending on your lender. This can mean everything from how much you can receive and the loan terms, in addition to whether you can qualify at all. When shopping for loans, be careful to only receive pre-approvals from lenders that will not affect your credit score until you are ready to apply.
- Borrow optimal amounts. Your credit score isn’t the only thing that affects your interest rate on a personal loan. If you request large amounts — about $20,000 and more – then your interest rate may be higher due to the risk in lending more money.
- Request shorter terms. While paying off large amounts in a short time period may not be optimal for your finances, agreeing to pay off a loan in 24 to 36 months is favorable to the lender. That means you may secure a better interest rate.
How to choose the best low-interest personal loan for you
When it comes to choosing the best low-interest personal loan, there are many factors to consider.
1. Credit requirements
Your credit score will determine whether you qualify for a loan or not and the interest rates you will be offered. It’s a good idea to check the credit requirements of various loans and providers to see if you are eligible.
2. Look at borrowing limits
Different lenders will have different borrowing limits and minimum loan amounts. This is a good way to narrow down your search and you’ll quickly find that some lenders will be better suited to you than others.
3. Check loan terms
The length of time you can repay your loan over is another important factor to help you choose the best low-interest loans. Some lenders will be flexible and let you repay over 7 years, whereas others will have shorter loan terms. It’s also important to check the additional interest rates for longer-term loans.
4. Choose either a secure or unsecured loan
Many lenders will offer a choice of secured or unsecured loans. Secured loans require an asset as collateral, which acts as security for the lender if you can’t pay back the loan.
Unsecured loans don’t require collateral. Therefore, your preference here will determine which lenders are best to look at. Some lenders will only supply secured loans, while others will offer both.
5. Look for hidden fees
Some lenders promise no hidden fees, making them a preferable option that could save you money. Make sure you always check whether there will be additional fees before you sign up for a loan.
Why is a low-interest personal loan important?
A personal loan can help you handle any sort of financial obligations, whether it is making a big purchase or simply paying off debt. Many personal loans offer lower interest rates than the ones you pay on credit cards, so a low-interest personal loan could be an excellent solution to consolidate existing debt.
A personal loan can be used to finance any number of large expenses. You could use it to pay off any remaining education or medical bills or to finally consolidate a bunch of unresolved debt. It can also be a great way to build up your credit; by tackling large debt with smaller, on-time purchases, you can improve your credit score, making you eligible for lower rates on your loan.
What factors affect your personal loan rate?
When you shop for a loan, you will quickly notice that not all loans are the same. Although there are still loans for bad credit, you will likely pay much more in interest than other loans.
These factors will impact how much your loan will cost you.
- Credit score: Your credit score is a kind of rating that is used by the main reporting agencies, Equifax, Experian and TransUnion. Expressed in numeric form between 300 and 850, this shows lenders how trustworthy you are when it comes to repaying what you owe. Your credit score is based on things like your payment history, how much debt you currently have and what kind of debt you have.
- Debt-to-income ratio: Your debt-to-income ratio is another factor that lenders will take into consideration. It compares how much debt you have to how much available credit is left, using your current loans to determine how many financial obligations you have on your plate.
- Employment: Before approving your loan, lenders will look to your employment history to see what kind of income you earn. Your ability to hold a steady job shows that you will have the money to pay back your loan each month, so banks typically look at your job history for the last 24 months.
- Income: How much you earn at your job can also determine your interest rate on your loan. Minimum income requirements vary from lender to lender, but generally, the more you earn, the lower your interest rate will be.
- Borrowing history: Banks want to know that you are steady and reliable, so they will pull your credit report to analyze your borrowing history. If you have a lot of loan inquiries or late payments on your report, lenders may worry that you won’t pay their loan on-time, either.
We welcome your feedback on this article and would love to hear about your experience with the personal loans we recommend. Contact us at firstname.lastname@example.org with comments or questions.