Best Low-Interest Personal Loans Of January 2024 – Forbes Advisor

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Best Personal Loans With Low Interest Rates

The above personal loan rates and details are accurate as of January 2, 2024. While we update this information regularly, the annual percentage rates (APRs) and loan details may have changed since the page was last updated. Keep in mind, some lenders make specific rates and terms available only for certain loan purposes. Be sure to confirm available APR ranges and loan details, based on your desired loan purpose, with your lender before applying.

Best Low-Interest Personal Loans of January 2024

Methodology

We reviewed 18 popular lenders based on 14 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the six best lenders based on the weighting assigned to each category:

• Loan cost: 35%
• Loan details: 20%
• Eligibility and accessibility: 20%
• Customer experience: 15%
• Application process: 10%

Within each category, we also considered several characteristics, including loan amounts, repayment terms, APR ranges and applicable fees. We also looked at minimum credit score requirements, whether each lender accepts co-signers or joint applications and the geographic availability of the lender. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like prequalification and mobile apps.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

To learn more about how Forbes Advisor rates lenders, and our editorial process, check out our Loans Rating & Review Methodology.

Tips for Comparing Low-interest Personal Loans

Consider these tips when comparing low-interest personal loans:

• Look for autopay discounts. Not all providers offer interest rate discounts when you set up automatic payments, but most top providers do. When looking at different low-interest personal loans, take into consideration which ones offer an additional rate discount to help you receive the lowest rate possible.
• If possible, prequalify with a provider. Several providers offer the opportunity to prequalify you for a personal loan. This means you can submit details like your income, desired loan use, housing situation and other information to learn about potential loan limits, rates and repayment options. Prequalifying also only requires a soft credit check, which doesn’t hurt your credit score, so you can safely find the best rates.
• Check for additional fees. Some personal loan providers charge no origination fees, late payment fees or prepayment penalties. However, there are some that may charge all or a few of these fees. When comparing low-interest personal loans, be sure to look at the fee structure beyond the potential interest rate you can receive.
• Evaluate the lender’s customer support options. If you’ve found a lender, there’s one more thing to consider before signing the loan agreement. While customer support may not seem like a big deal, it can make a huge difference if you encounter issues with payments or face a financial hardship during your repayment period. Review the lender’s customer service resources and read reviews to make sure it’s a good fit.

Complete Guide To Low-Interest Personal Loans

What Is a Low Interest Rate for a Personal Loan?

The average personal loan interest rate was hovering around 11% in Q2 2023. While securing any interest rate below this average can be considered a low rate for a personal loan, some lenders advertise APRs as low as 6.99% for the highly qualified applicants.

Average Personal Loan Interest Rates

Having good credit saves you money. If you have poor credit, you’ll pay more than twice as much in interest as someone with an excellent credit score.

Factors That Affect Your Personal Loan Rate

Lenders calculate personal loan interest rates based on a number of variables ranging from the borrower’s creditworthiness and income to the size of the loan and repayment term. Factors that can impact personal loan interest rates include:

• Credit score. Borrowers with higher credit scores—ideally at least 720—are more likely to qualify for the lowest interest rates than applicants with low scores.
• Debt-to-income ratio. A borrower’s debt-to-income (DTI) ratio is the percentage of their income that goes toward their monthly debt obligations. The higher a borrower’s DTI, the riskier they are to the lender, and the higher the interest rate the lender will likely offer. Lenders prefer a DTI of 36% or less.
• Employment. Applicants who are employed in a salaried role generally qualify for lower interest rates than those who freelance, have a new small business or are otherwise self-employed. This is because lenders consider traditional employment more stable from an income and repayment standpoint.
• Income. Lenders also evaluate the sufficiency of an applicant’s income. Minimum income requirements are generally low—around $20,000 annually—but the lowest rates are reserved for those with higher incomes.
• Loan amount. The size of a loan can impact interest rates because the larger it is, the more risk to the lender. For that reason, high-principal loans often come with higher interest rates than smaller loans.
• Loan term. The length of a personal loan repayment period also may impact the interest rate. Generally speaking, the longer the loan term, the higher the interest rate. Borrowers also encounter greater costs with long-term loans because they pay interest over a longer period of time.
• Benchmark rates. Underlying benchmark rates like the Secured Overnight Financing Rate (SOFR) and its predecessor, the London Interbank Offered Rate (Libor), dictate the interest rates available to lenders. The SOFR is based on the interest rates paid among large financial institutions for overnight loans—essentially the costs of short-term borrowing.

The Importance of Low-interest Personal Loans

While personal loans are a handy way to access financing, they can be costly. In addition to repaying your loan amount, you’ll also owe interest every month—higher interest rates result in more expensive loans. This means low-interest personal loans can help reduce the total cost of your loan.

For example, let’s compare three interest rates on a 36-month, $10,000 loan to understand how rates impact the cost of a loan, according to the Forbes Advisor personal loan calculator.

Related: What Is A Good Interest Rate On A Personal Loan?

Pros and Cons of Low-interest Personal Loans

Low-interest loans aren’t right for everyone, but if you need them, they can really help you out. Here are some advantages and disadvantages to consider as you make a decision.

Pros of Low-interest Personal Loans

• Offers access to more affordable debt
• Fewer interest charges over the life of your loan
• Quick funding within a matter of a few business days
• Can help you build credit if you make all your payments on time

Cons of Low-interest Personal Loans

• Reduces flexibility in your monthly budget
• You could be sued if you default
• Causes a small temporary dip in credit score when you apply
• Diverts money that you could use elsewhere, like building an emergency fund

Where To Get Low-Interest Personal Loans

You can find low-interest personal loans from many different lenders, so shop around before you apply for a loan.  

Typically, credit unions and online lenders offer the lowest personal loan interest rates. Getting pre-approval from various lenders can allow you to see which rates you qualify for without impacting your credit score. 

You can then compare your offers and submit an application where you are offered the lowest interest rates on a personal loan.

How To Qualify for a Low-Interest Personal Loan

The best rates on personal loans go to applicants who can demonstrate they’ll be able to easily repay a loan. Here’s how you can boost your odds of getting the lowest possible rate on a loan:

• Build your credit. The lowest-rate personal loans go to applicants with excellent credit scores, often 800 or higher. Building your credit history can take time, but it can pay off with lower interest rates.
• Pay off high-interest debt. Lenders often charge higher rates for applicants with higher debt-to-income ratios, which shows how much of your income goes to debt payments each month. If you pay off some of your debt—especially credit card debt—you can lower this number and increase your odds of getting a lower rate.
• Increase your income. You can also lower your debt-to-income ratio by increasing your income, which shows lenders you can fit debt payments into your budget.
• Use collateral. Collateral, or something of value your lender can repossess if you default on the loan, can help you qualify for a lower rate on your loan if you’re applying for a secured loan.
• Find a creditworthy cosigner. A quick way to become a more attractive borrower is to ask someone with good credit to co-sign your loan. Keep in mind, if you fail to repay the loan, your co-signer will be expected to repay the debt.
• Shop around. Each lender offers different rates. The more lenders you check your rate with, the better your odds of finding the lowest-cost loan.
• Choose a shorter term length. Shorter-term loans come with higher monthly payments, but lower overall loan costs. Shorter-term loans are less risky for the lender, so they often come with lower interest rates.

How to Get a Low-interest Personal Loan

While the process varies by lender, follow these general steps to apply for a personal loan:

1. Check your credit score. Check your credit score for free through your credit card issuer or another website that offers free scores. This will give you an understanding of your creditworthiness and your qualification chances. While you can qualify for a low-interest personal loan with a credit score as low as 650, you won’t receive the lowest possible rates; a score of at least 720 will yield the most favorable terms.

2. If necessary, take steps to improve your credit score. If your score falls below 650 or you want to boost your score to receive the best terms possible, take time to improve your score before applying, such as lowering your credit usage or paying off unpaid debts.

3. Determine how much you need to borrow. Once you check your credit score, calculate how much money you want to borrow. Remember, though, you’ll receive your money as a lump sum, and you’ll have to pay interest on the entire amount—so only borrow what you need.

4. Shop around for the best terms and interest rates. Many lenders will let you prequalify prior to submitting your application, which lets you see the terms you would receive with just a soft credit inquiry. Prequalifying lets you shop around for the best rates without hurting your credit score.

5. Submit a formal application and await a lending decision. After you find a lender that offers you the best terms for your situation, submit your application online or in person. Depending on the lender, this process can take a few hours to a few days.

Related: 5 Personal Loan Requirements To Know Before Applying

How to Get Low-interest Personal Loans With Bad Credit

The best low-interest personal loans require a minimum credit score of 650. However, a bad credit score, according to FICO, is between 350 and 579. Applicants with bad credit scores shouldn’t expect to qualify for low-interest personal loans, or even the lowest rates on bad credit loans. The best rates, regardless of the type of loan, are reserved for highly qualified applicants.

If you have bad credit but want to get a low-interest personal loan, take time to improve your credit score before applying. This extra step can lower the cost of your loan and make your repayment easier to handle.

Related: How To Build Credit Fast: 7 Simple Strategies

Alternatives to Low-interest Personal Loans

If you need to borrow money to consolidate debt or make other purchases, a low-interest personal loan is one of the best tools for the job. However, if it doesn’t seem right for your situation, consider other alternatives.

1. 0% APR Credit Card

Some credit cards have special 0% annual percentage rate (APR) introductory offers for up to nearly two years. If you pay off your balance before the introductory period ends, it’s essentially a free loan. However, any unpaid balances once the introductory period closes will be charged with the normal interest rate.

2. Home Equity Loan or Line of Credit

If you’re a homeowner, one option might be a home equity loan or line of credit. If you have substantial equity in your home, these allow you to borrow against that equity at a relatively low interest rate. However, if you default on the loan, you risk losing your home because it serves as the collateral that backs the transaction.

3. Friends and Family

If you’re not able to take out any debt at all and you absolutely need some cash to tide you over, consider turning to your social system for support. Reach out to family and friends and ask to borrow some cash. You can even offer to write and sign a loan agreement to show you’re serious about paying it back in a timely manner.

4. Cash-Out Refinance

A cash-out refinance involves replacing your existing mortgage with a new, larger mortgage. You then pocket the difference between the two mortgages, and you can use that money for any expense. 

This can be a good option if you can qualify for lower interest rates on the cash-out refinance and have sufficient equity in your home. Keep in mind, even if interest rates are lower, you’ll pay closing costs of 2% to 6% of the total amount.

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