How to Secure the Best Personal Loan Rates

Personal loans are one of the most flexible types of loans because they can be used for anything. From remodeling your home to buying a new car, personal loans are a relatively easy way to access additional cash when you need it. They also tend to offer much more attractive interest rates compared to using credit cards for these types of expenses. Currently, the average personal loan rate is 9.76% APR, well below the 14.89% APR average on interest-charging credit card accounts, according to the most recent consumer credit report from the Federal Reserve Bank. Savvy borrowers can employ a few different tips to get the best personal loan rates.

Fortunately, the process can be simple and painless. Here’s how you can get started with these 6 easy steps:

1. Improve your credit score

Your credit score is one of the most important factors in getting the best personal loan rates. If your credit isn’t where you’d like to be, you can easily improve it by completing two steps:

Pay off any smaller debts

How much you owe affects your credit score and your debt-to-income ratio. Paying off accounts with small balances before applying for a personal loan can be a smart move. If you have two credit cards, one with a $1,500 balance and another with a $50 balance, you may be able to boost your score and improve your debt to income ratio by paying off the $50 debt before applying. This isn’t a quick fix, since it might take a month before your credit report reflects the payment. However, it can help you secure a lower rate on a personal loan.

Check your credit report

As many as one in twenty Americans have an error on their credit report that affects their credit score by 25 points or more. Check your credit report for free at, a service mandated by the U.S. Government. If there are any errors on your credit report, you can dispute them with a few clicks. Make sure you dispute your errors before you apply for a loan.

2. Maximize your income

All personal loan applications will ask for your income, but how lenders want you to measure your income can vary. Typically, a lender will want to know how much you earn on a gross basis (before taxes), but some ask for your personal income only, while others will ask for your household income to make a lending decision.

If you have side income from freelancing, for example, include that on your application. This should improve your chances at getting approved for the best personal loan. Additional recurrent income from a side job can have a big impact on a lender’s underwriting decision. It goes without saying that people who have more money left over at the end of each month to pay a loan are less risky borrowers.

3. Consider a secured personal loan

The term “personal loan” often refers to an unsecured personal loan that doesn’t require collateral. However, you might be able to get a better interest rate by applying for a secured loan. Secured loans are backed by collateral, making them less risky for the lender, resulting in a lower interest rate. You can get a secured loan against assets you own, like a home or car. If you default on payments, the lender can repossess the home or car.

Of course, you should consider your personal risk when deciding how to borrow money, not just the lender’s risk. Carefully weigh the trade-off of putting your assets at risk in exchange for a lower interest rate. This is a very personal decision -- there is no “one size fits all” solution.

4. Consider a cosigner

If you can’t qualify for the best personal loan rates with your income and credit score, a cosigner may help. A cosigner is a person who agrees to pay a borrower’s debt if he or she defaults on the loan. As a result, a loan application with a cosigner provides a layer of insurance for the lender.

However, finding a good cosigner can be challenging. A cosigner takes on a lot of responsibility and risk in agreeing to put their name on the dotted line. However, if this option is available to you, it’s worth exploring.

5. Shop around

Some lenders only make small loans to people with excellent credit, while others specialize in making larger loans to people with bad credit. This means you may be a good fit for one lender, but a bad fit for another one, which is why it’s important to shop around.

6. Look for discounts

You may qualify for a discount on a personal loan because you have an existing relationship with a lender, or because you select a lender’s preferred repayment option. If you have a checking or savings account with a bank or credit union, that institution may be able to give you a lower rate because they know more about your finances, and would like to keep you as a customer.

Similarly, some personal loans offer lower interest rates if you agree to make payments by automatic bank drafts from your checking account. By opting in to have your payments automatically deducted from your checking account once or twice per month, a lender may be willing to reduce your rate by 0.25% to 0.5%. It won’t save you a lot of money, but every bit of savings counts, and such discounts may make one loan better than another.

Final Thoughts

Remember that a loan is a product just like any other. Just as you might shop between dealers before purchasing a car, you should shop around for the best terms on a personal loan. If you tell a lender that you’re doing some comparison shopping, they may be willing to cut your rate to match or beat the competition.

* Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your circumstances. The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. The information or opinions contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.

The information contained herein was prepared for general information and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. Eloan a Division of Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advice. Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances.