How can you benefit from the lowest interest rates on personal loans?

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Personal loans are a convenient way to borrow small or large amounts of money. They can be used to cover a variety of expenses – like a wedding, funeral, vacation, surprise medical bill, home repairs and more. And the money is usually paid directly to your bank account in just one day, so you can start spending when you need it. Personal loans have also gained a reputation for lower interest rates than credit cards.

APRs for personal loans average 9.09%, according to the The most recent data from the Fed. In contrast, the average credit card interest rate is around 16.44%. Some lenders, however, like LightStream offer rates as low as 2.49% and offer additional annual percentage yield rebates for signing up for autopay so your monthly payments are automatically deducted from your bank account.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    2.49% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

A lower interest rate can save you hundreds or even thousands of dollars when paying off a loan. This is why it is beneficial to benefit from an interest rate that is as low as possible.

Generally, the best way to get some of the lowest interest rates on a personal loan is to make sure you apply with a great credit rating. The better your credit score, the more favorable the terms of your personal loan will be.

This is because lenders consider applicants with higher credit scores to be more creditworthy, i.e., more likely to make all payments on time and repay the loan amount in full. Thus, they are considered less risky borrowers and lenders will be more inclined to collect lower interest charges from them.

That doesn’t mean you won’t be approved for a personal loan if you don’t have great credit (in fact, we’ve rounded up the lenders who will always accept applicants with lower credit scores). You might not get the best rates and terms.

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If you have time to plan ahead before taking out a personal loan and you’re not too confident about your credit score, you can try taking steps to raise your credit score before submitting your request.

Continue to pay down your credit card balances to reduce your credit utilization rate. Credit usage is the ratio of the amount of credit you use to the total amount of credit you have. Your credit usage is the second most important factor in your credit score (behind payment history).

The general rule is to keep your credit utilization rate below 30%, but a FICO study found that consumers with credit scores of 750 and above use less than 10% of their total available credit limit.

It may also be worth checking your credit report for any errors that could lower your credit score. You can use Experian to register for a free account and check your credit report and receive credit scores from the three bureaus: Experian, Equifax and TransUnion. Experian also offers a credit monitoring service (also free) that can help you detect possible cases of identity theft, which can affect your ability to get approved for new lines of credit.

Also, be sure not to ask for too many new lines of credit at once. Too many serious new inquiries around the same time can also lower your credit score and make it even harder for you to get approved for your desired personal loan interest rate.

While it may seem like a lot of work, especially if you’re totally new to personal loans, it can also be beneficial to shop around with different lenders to find the lowest rate you qualify for.

With this comparison tool, all you need to do is answer a few questions and Even Financial will determine the best offers for you. The service is free, secure and does not affect your credit score.

Editorial note: The tool is provided and powered by Even Financial, a search and comparison engine that connects you with third-party lenders. Any information you provide is transmitted directly to Even Financial. Select does not have access to any data you provide. Select may earn an affiliate commission on partner offers in the Even Financial tool. The commission does not influence the selection in the order of the offers.

And if, despite these steps, your credit rating is still not where you think it should be, you might consider using a co-applicant for your personal loan application. A co-applicant is someone who applies for the loan with you and is also responsible for repaying the full amount of the loan. Co-applicants are often referred to as co-borrowers and can usually be added to your personal loan application form.

Applying with a co-applicant who has a higher credit score than yours can help you get approved for a lower interest rate and other more favorable loan terms. Remember that not all personal lenders accept co-applicants, so you will need to check with the lender before submitting your application. SoFi and OneMain Financialfor example, are two lenders that allow co-applicants, and borrowers can request up to $100,000 and $20,000 respectively.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 20.28% when you sign up for autopay

  • Purpose of the loan

    Debt consolidation/refinance, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

OneMain Financial Personal Loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, big expenses, emergency expenses

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

    Flat fee from $25 to $1,000 or percentage ranging from 1% to 10% (depending on your state)

  • Prepayment penalty

  • Late charge

    Up to $30 per late payment or up to 15% (depending on your state)

At the end of the line

Lower interest rates make personal loans an attractive way to borrow money for major expenses. However, to ensure you get some of the lowest rates offered by a lender, you will need to apply with a very good credit score. Reducing your credit usage and checking your credit report for errors are just a few steps you can take to boost your credit score just in time to submit an application. But if you’re short on time or these actions aren’t as effective as you thought, you might consider finding a co-applicant with a higher credit score.

Check out Select’s in-depth coverage at personal finance, technology and tools, The well-being and more, and follow us on Facebook, instagram and Twitter to stay up to date.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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