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Whether trying to consolidate debt with a personal loan or thinking about a loan to pay for a major life event (like a wedding), taking on debt is a financial move that warrants some consideration.
It’s important to recognize the financial commitment that taking on a personal loan — or any other debt — entails. This includes understanding interest rates you might qualify for, how a loan term affects the total interest charged, fees that might be charged by different lenders, and, finally, comparing offers you might receive.
Shopping around and comparing loans can increase your confidence that you’re getting the best interest rate on a loan. Learn more here.
Key Points
• Shop around to compare loan rates without impacting your credit.
• Higher credit scores often qualify for better interest rates.
• Consider loan details beyond the rate, like fees and hardship policies.
• A cosigner may improve your approval odds and rate.
• Make sure the loan fits comfortably in your budget and financial plan.
What’s a Good Interest Rate on a Loan?
You may see advertisements for loan interest rates, but when you get around to checking your personal loan interest rate, what you’re offered may be different than rates you’ve seen. Why is that? A lender may have interest rate ranges, but the lowest, most competitive rates may only be available to people who have excellent credit, as well as other factors.
When shopping around for a loan, you can generally check your rate without affecting your credit score. This loan prequalification rate is just an estimate of the interest rate you would likely be offered if you were to apply for a loan, but it can give you a good estimate of what sort of rate you might be offered. You can compare rates to begin to filter potential companies to use to apply for a loan.
Getting a Favorable Interest Rate on a Loan
The potential interest rate on a loan depends on a few factors. These may include:
• The amount of money borrowed.
• The length of the loan.
• The type of interest on your loan. Some loans may have variable interest (interest rates can fluctuate throughout the life of the loan) or a fixed interest rate. Typically, starting interest rates may be lower on a variable-rate loan.
• Your credit score, which consists of several components.
• Being a current customer of the company.
For example, your credit history, reflected in your credit score, can give a lender an idea of how much a risk you may be. Late payments, a high balance, or recently opened lines of credit or existing loans may make it seem like you could be a risky potential borrower.
If your credit score is not where you’d like it to be, it may make sense to take some time to focus on building your credit score. Some ways to do this are:
• Analyzing your credit report and correcting any errors. If you haven’t checked your credit report, doing so before you apply for a loan is a good first step to making sure your credit information is correct. Then you’ll have a chance to correct any errors that may be bringing down your credit score.
• Work on building your credit score, if necessary. Making sure you pay bills on time and keeping your credit utilization ratio at a healthy level can help positively impact your credit score.
• Minimize opening new accounts. Opening new accounts may temporarily decrease your credit score. If you’re planning to apply for a loan, it may be good to hold off on opening any new accounts for a few months leading up to your application.
• Consider a cosigner or co-applicant for a loan. If you have someone close to you — a parent or a partner — with excellent credit, having a loan cosigner may strengthen your application. Keep in mind, though, that a cosigner will be responsible for the loan if the main borrower does not make payments.
Recommended: Personal Loan Calculator
Comparing Interest Rates on Personal Loans
When you compare personal loan options, it can be easy to focus exclusively on interest rates, choosing the company that may potentially offer you the lowest rate. But it can also be important to look at some other factors. Here are some to consider.
• What are the fees? Some companies may charge fees such as origination fees or prepayment penalties. Before you commit to a loan, know what fees may be applicable so you won’t be surprised.
• What sort of hardship terms do they have? Life happens, and it’s helpful to know if there are any alternative payment options if you were not able to make a payment during a month. It can be helpful to know in advance the steps one would take if they were experiencing financial hardship.
• What is customer service like? If you have questions, how do you access the company?
• Does your current bank offer “bundled” options? Current customers with active accounts may be offered lower personal loan interest rates than brand-new customers.
💡 Quick Tip: Fixed-interest-rate personal loans from SoFi make payments easy to track and give you a target payoff date to work toward.
Choosing a Personal Loan For Your Financial Situation
Interest rates and terms aside, before you apply for a personal loan, it’s a good idea to understand how the loan will fit into your life and how you’ll budget for loan payments in the future. The best personal loan is one that feels like it can comfortably mesh with your budget.
But it also may be a good idea to assess whether you need a personal loan or whether there may be another financial option that fits your goals. For example:
• Using a buy now, pay later service to cover the cost of a purchase. These services may offer 0% interest for a set amount of time.
• Transferring high-interest credit card debt to a 0% or low-interest credit and making a plan to pay the balance before the end of the promotional rate.
• Taking on a side hustle or decreasing monthly expenses to be able to cover the cost of a major purchase or renovation.
• Researching other loan options, such as a home equity loan, depending on your needs.
Recommended: Avoiding Loan Origination Fees
The Takeaway
A loan is likely to play a big part in your financial life for months or years, so it’s important to take your time and figure out which loan option is right for you. And it’s also important to remember that interest rate is just one aspect of the loan. Paying attention to details like potential fees, hardship clauses, and other factors you may find in the small print may save you money and stress over time.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
How to get a loan at a low interest rate?
Ways to get a loan at a low interest rate include positively impacting your credit score, applying with a cosigner who has a strong credit score, or choosing a shorter loan term (though that may increase your monthly payment).
How can I get a low rate on a personal loan?
To get a low rate on a personal loan, consider building your credit score, having a cosigner with a strong score, comparing lenders, looking for discounts, and seeing if the financial institution where you currently bank can offer you favorable terms.
Can you ask a lender for a lower interest rate than offered?
Yes, you can ask your lender if they can offer a lower rate. While there’s no guarantee that they will lower the rate, they might do so to get or retain your business. It can be wise to have other offers, so you can let them know if you were offered a better rate elsewhere.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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