Best Low-Interest Personal Loans of March 2023

How Are Personal Loan Interest Rates Determined?

Each lender has its own algorithm to set interest rates for borrowers. However, this algorithm is designed to assess risk. The lender needs to create a risk profile for you as a borrower to determine the likelihood that you will repay the loan without any issues.

If you are deemed to be lower risk and therefore less work, you will be offered a lower rate. However, if you are high risk, the lender needs to cover any potential problems with a higher rate.

There are several common factors used by the specific lender algorithms to determine your interest rate. These include credit score, annual income, and debt to income (DTI) ratio. If your credit score and income are high and your DTI is low, you will be more likely to qualify for a lower rate and larger loan amounts.

However, some lenders will take other factors into account. This can include the length of time you’ve been with your current employer, your education, and your job history. These factors can suggest your reliability and financial responsibility.

How to Choose a Low-Interest Personal Loan Lender?

With so many lenders on the market, choosing a low-interest personal loan lender can be tricky. Fortunately, there are a few pointers to help you.

• Assess the Loan Packages: While you may have a personal loan in mind when looking for a lender, be open to other types of loans or finance deals. You may find that some lenders have finance products that better fit your circumstances and requirements.
• Review the Customer Experience: We’ve touched on customer service above, but there are other aspects to the of customer experience. Can you apply online? Can you access a physical location if you prefer? How will you manage your account?
• Availability of Other Products: Although you may be looking for a loan now, does the lender offer other types of products that could be helpful with your day-to-day finances? You may prefer to build a long-term relationship by moving your checking account or savings accounts over to this financial institution, particularly if they offer advantageous terms.

Choosing a low-interest personal loan need not be daunting. Even if this is your first personal loan, if you follow the guidance in our article, you should be able to make an informed decision to benefit your financial health in the long term.

Can I Get a Low-Interest Loan With a 700 Credit Score?

A 700 credit score is actually considered to be a good score, which means that you should be able to get a low-interest loan at a very reasonable rate. Although the best rates are reserved for those with excellent credit, a good rating should mean that you can still qualify for a rate of 12% or less.

Of course, this will also depend on your current financial circumstances. If you have maintained a 700 score, but your income has recently dropped or you’ve just changed employers, some lenders may consider you to be a higher risk.

This highlights the importance of shopping around for your loans, as some lenders may rely solely on your credit score, while others consider additional factors to determine your rate.

Tips to Get the Lowest Rates

Fortunately, regardless of your current credit, there are some tips that can help you to get the lowest rates. Some of these are long-term strategies, but you may be able to get some short-term benefits to help you with your loan shopping.

• Create a Stable Profile: Lenders look for stable borrowers that are financially responsible. So, it is important to focus on creating a stable profile for long-term success. You should try to stay with the same employer for at least two years and avoid frequent home moves. This will show that you are a stable person that can financially support yourself.
• Check Your Credit Report: If you’ve not had any financial problems in the past, you may assume that your credit report will reflect this. However, mistakes can occur, which could impact the rate you’ve offered when you apply for a loan. So, obtain a copy of your report and make sure that all the pertinent details are correct. If there is an error, report it to have it corrected by the appropriate financial institution or the credit bureau.
• Fix Negative Information on Your Credit File: If you have negative information on your report, try to take steps to fix it. You can quickly fix any unpaid collections, as you can make a payment and request the note be removed from your report. However, you can also make payments to bring down your debt to income ratio and your credit utilization ratio.
• Don’t Apply Too Often: If you’ve applied for credit frequently, it can be a sign that you are either casually shopping or that there is an underlying reason why other lenders have declined applications. It is possible to compare rates with only a soft credit pull, so be careful about how and when there is a hard pull on your credit report.
• Build a Good Relationship With Your Lender: Banks and other lenders tend to appreciate their client relationships, so rather than just applying for a loan, consider building a good relationship. You can do this by moving across your checking account, opening up a savings account, or using their insurance services. This can justify lenders giving you discounted rates.

Can I Get a Low-Interest Loan With Bad Credit?

By their very definition, low-interest loans are typically associated with low-risk customers. This means that low-interest loans are generally reserved for those with good to excellent credit. However, even if you have poor credit, it may be possible to obtain a rate of less than 36% under the right circumstances.

You will need to do some shopping around and focus your efforts on lenders specializing in those with bad or poor credit. These lenders tend to look at more than your credit rating, considering other factors such as your employment record.

You may also be able to access a low-interest loan if you are prepared to offer some form of security. Providing security, such as your home or vehicle provides lenders with the reassurance that if you fail to repay your loan they can recoup any losses by seizing your property and selling it.

The paperwork for a secured loan can take longer than an unsecured loan, since the lender needs to verify the value of your asset, but it can be a good way to access a lower rate even if your credit is less than ideal.

What is a Good Interest Rate on a Personal Loan?

The rates for personal loans can be anywhere from 6 or 7%, all the way to 36% or more. However, at the midpoint of this range is not necessarily considered to be a good rate. If the rate is below 12%, it is considered a low-interest loan, but the average rate is typically approximately 10%. This means that if you can secure a rate under 10%, it is likely to be considered a good rate.

Just bear in mind that this level of rate is appropriate for those with good to excellent credit. If you have poor or average credit, a good interest rate for you is likely to be on or around 12%. So, you will need to tailor your expectations to your particular financial circumstances.

How to Negotiate a Lower Interest Rate on a Personal Loan?

There are many lenders, particularly traditional banks that will not negotiate their rates. You’ll be offered a rate according to your application and they will not negotiate at all.

However, there may be some circumstances where you may be able to create a little wiggle room and convince your lender to drop your rate if only a little.

These include:

• Highlight Your Relationship History With the Lender: If your checking and savings accounts are with the bank or you’ve been banking with them for years, you should highlight this to them during the application process. You can also point out if you’ve had a loan in the past and repaid it with no problems.
• Emphasize Your Financial Stability: If you have secure employment, you need to emphasize this on your application. Don’t just guess how long you’ve been with your current employer, but be specific about when you joined the company. You can also point out that the job is very secure, so the lender can be reassured that you are not likely to be laid off in tougher times.
• Explain Your Loan Reasons: One of the things that lenders will look at when considering your application is your debt-to-income ratio and credit utilization ratio. So, if you let the lender know that you will be using the proceeds of this new loan to pay off some existing debt, it may convince the lender to offer a more attractive rate.
• Price Matching: Some lenders have a price matching policy. So, if you’ve had a loan offer from another lender at a lower rate, present this to your bank. They may be willing to match the rate, which means that you can enjoy preferential terms and still remain with a financial institution that you know and trust.

Will the Interest Rate on a Personal Loan Go Up After a Loan is Taken Out?

Most lenders offer personal loans with a fixed interest rate. You’ll have a payment schedule detailing your monthly payments over the entire term of the loan. This includes the date of the first and last payments. This means that regardless of the situation in the current financial market, once you’ve taken out the loan, the rate is set.

However, in some circumstances, lenders may offer a variable rate. This is typically set a little lower than the fixed rate as an enticement to new borrowers, but it does mean that if the base rate increases, your loan payment will also increase.

There are some exceptions to this, which means that you can see your rate increase even if you’ve agreed to a fixed-rate loan. Some lenders may impose a late penalty if you fail to meet your regular payment schedule.

For example, if you miss a payment or make more than a specified number of late payments, a higher rate of interest will be applied to your loan account. Any such penalties will be detailed in the loan terms and conditions, which you can check before you agree to the agreement and take out your new loan.

APR vs Interest Rate on a Personal Loan

While the APR (Annual Percentage Rate) and interest rate on personal loans are related, they are not actually the same thing.

The interest rate for your personal loan is simply a percentage of the principal loan amount which reflects the amount you will pay for borrowing the funds. The APR is a little different as it combines the interest with any fees that are associated with the loan. If the loan has no fees, the APR will be the same as the interest rate. However, lenders often add upfront charges or origination fees to personal loans.

If you had a five-year loan with a 9% interest rate, but the loan has a 3% origination fee, it would increase the APR to 10.31%. Since differing fees, rates, and loan lifespans can make it difficult to compare personal loan offers, the APR can be a helpful tool.

However, the same standards apply for interest rates; a higher APR will cost you more over the loan lifetime compared to one with a lower APR, even if the monthly payments are similar.

What Else Should I Consider Other Than a Low Rate?

While getting a low rate is a great first step towards a good loan deal, it should not be the only consideration. There are other factors that you should look at before you agree to a loan deal. These include:

• The Loan Term: This is the number of months or years you will be repaying the loan sum. Most personal loans have a term of three to five years, but there are some lenders that offer a longer term. However, if you’re comparing loan packages, bear in mind that even if the rate is lower, if the term is longer, you will pay more interest over the entire lifespan of the loan.
• Origination Fees: An origination fee is charged by lenders to process new applications. The fee is typically percentage based, so you can pay 1% to 8% of the loan amount. The fee can depend on the length of the loan term, your credit score and other factors. However, there are some lenders that do not impose an origination fee.
• Other Fees and Charges: You should also scan the terms and conditions document to check what other fees or charges may be applied to your account. This can include late payment fees, but you should watch out for prepayment penalties. These apply if you decide to repay the loan early, which means if you have a financial windfall or want to switch to another lender, you could get stung.
• The Customer Service: This is often overlooked, but you should also evaluate the customer service offered by a potential lender. You may feel more reassured to pay a little extra on the rate if you’re dealing with a lender that you know and trust.