How to Get a Low-Interest Personal Loan

The FED is holding interest rates at a level we haven’t seen in over a decade, it’s no wonder consumers would be looking for ways to save and explore low-interest personal loans. A lower interest rate on any type of lending product could potentially help you save thousands over the long haul.

If you’re wondering how to get a low-interest personal loan, you’ve come to the right place. We’re going over the ins and outs of how to get a low-interest personal loan and tips for finding one the best deals.

Before we get into it – it’s worth noting that MoneyLion makes it easy to find personal loan offers based on the info you provide, you can get matched with offers for up to $50,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you. You can also use the loan funds to pay off other existing debts. MoneyLion is here to help.

What are low-interest personal loans?

Personal loans can be used for various purposes such as consolidating debt, funding home improvements, or covering unexpected expenses. With a low-interest personal loan, interest rates may be significantly lower than the average personal loan interest rates available in the market.

Interest rates play a crucial role in determining the total cost of borrowing. A lower interest rate can mean that borrowers may pay less money in interest over the duration of the loan. This benefit can result in significant savings, especially for long-term loans. 

Let’s say an individual borrows $10,000 with a 5% interest rate over a 5-year period. The total interest paid would be $1,322. On the other hand, if the interest rate was 10%, the total interest paid would increase to $2,646. In addition to the total cost of borrowing, payments will also be higher with the higher interest rate loan, highlighting how interest rates can directly impact affordability.

It’s important to note that interest rates are only one component of the total cost of a personal loan. There are also fees to consider. While it’s true that, all else being equal, a lower interest rate will correlate with a less expensive personal loan, the reality can be a bit more nuanced. 

You generally want to read through all the information in a loan offer, taking into account fees and repayment terms, to dissect the true cost of borrowing.

Factors that affect personal loan interest rates

Interest rates are determined by the broader market, lenders, as well as your own personal financial qualifications. If you’re looking to secure a low-interest-rate personal loan, you’ll want to focus on improving your financial eligibility. 

Take a look at some of the factors that will influence your interest rate on a personal loan. 

Credit score

Lenders will heavily weigh your credit score when deciding on your interest rate. A higher credit score typically correlates with a lower interest rate, all else being equal. To help improve your credit score, make sure you pay your bills on time, keep your credit card balances low, and avoid applying for new credit unnecessarily. It’s also important to monitor your credit report for errors and dispute them as necessary.

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Income

Income is generally seen as an indicator of your ability to repay your loan. A higher income often translates to a lower risk for the lenders, thus leading to a more favorable interest rate. Lower income can result in higher interest rates or even loan rejection altogether, as it could potentially raise concerns about your financial stability.

Loan amount 

Generally, some loans with smaller amounts may have slightly higher interest rates to compensate the lender for approving and managing the loan. While this may prompt some people to believe taking out a larger loan could be more cost-effective, it’s not always the case.

Loans also typically come with fees that are generally based as a percentage of the total loan amount. Make sure you’re borrowing responsibly and don’t take on more than you can manage to pay back comfortably. 

How to get a low-interest personal loan

Let’s explore some key steps you can take to help you improve your odds of securing a low-interest personal loan.

Assess your financial situation

Understanding your financial position will help you determine how much money you can realistically borrow, how comfortable you will be making payments, and whether you’re even eligible for a loan at all. 

Start by calculating your monthly income from all sources and compare it to your monthly expenses. This calculation will give you a clear picture of your cash flow and whether you have enough surplus income to comfortably make loan repayments. 

Your credit score will also matter. If you don’t know your credit score, make sure to get in touch with one of the three credit bureaus, Equifax, Experian, and TransUnion, for a free copy. 

Research and compare lenders

Shopping around and comparing loan offers from various lenders is vital. Different lenders may offer different interest rates and terms, so it’s important to do your research. Look for lenders that offer competitive rates and favorable repayment terms. Read customer reviews to gauge a lender’s reputation and customer service quality.

Gather required documents

Common documents required for a personal loan application generally include proof of income (such as pay stubs or tax returns), identification documents (such as a driver’s license or passport), and bank statements. 

The lender you’re working with will provide you with a more accurate understanding of what you’ll be required to provide. Make sure to create a checklist to ensure you have all the documents readily available to streamline the loan application process and help you avoid delays or missing information. 

Apply for a low-interest personal loan

Make sure to follow the lender’s instructions when it comes to completing and submitting the personal loan application. You want to ensure you’re providing the correct documentation and that you’re representing your business accurately. Mistakes or overlooked details could delay your loan approval process. Misrepresentations could result in your application being denied altogether. 

Negotiate loan terms

Ultimately, you want to use your strongest qualifications to your advantage, which could be your credit history, income level, or debt-to-income ratio. 

Start by researching current market rates for the type of loan you’re seeking to generate a comparative benchmark to compare a lender’s offer which can be useful during negotiations. You’ll also want to get a prequalification. 

Prequalification involves providing your basic financial information to the lender to get an estimate of the loan amount and interest rate you could qualify for. This process can help you assess your borrowing capacity and give you a starting point for negotiations. 

Compare loan offers

By comparing the rates, fees, and terms of different loans, you can put yourself in a stronger position to negotiate a better deal. Having multiple offers may allow you to play lenders against each other, leveraging their offers to negotiate for even better terms.

Online lending marketplaces can be a useful tool for comparing multiple offers all at once. They may help you identify the ones that offer the lowest interest rates and the best terms. Remember that you’ll also need to thoroughly consider the fees and repayment terms since they will also affect your total cost of borrowing. 

Finalize the loan

After receiving a personal loan offer that works for you, you’ll need to review and sign the loan documents. Take the time to read through all the paperwork to fully understand the terms and conditions, interest rates, repayment period, and applicable fees. 

If anything is unclear, don’t hesitate to ask questions before signing the documents. Make sure to also double-check everything to ensure that the terms you agreed upon during negotiation are accurately reflected in the finalized loan agreement.

Pros and cons of low-interest-rate personal loans

Low-interest-rate personal loans are sought after for a variety of different reasons but ultimately because of the numerous benefits they could potentially offer borrowers. Take a look at some of the most common. 

• Potentially save money on interest payments
• Opportunity to potentially improve credit score
• Opportunity to access budget-friendly payments
• May allow for easier debt management
• Flexible funding for a variety of use cases

On the other hand, it’s also important to be aware of the possible cons associated with this funding type: 

• Strict requirements for qualifying
• Fees can make the overall cost of borrowing more expensive
• Potentially negative credit impact if payments aren’t made

While low-interest-rate personal loans offer numerous advantages, it’s worthwhile to remember that no financial product is entirely without trade-offs. Falling behind on payments, borrowing more than you can afford to repay, or ignoring the loan’s fees could negatively impact your finances. 

How to use low-interest personal loans responsibly

One of the most important things you can do to borrow responsibly is to avoid taking on more than you can comfortably repay. To get an understanding of your borrowing limits, consider your income and expenses to determine how much you can allocate towards loan payments.

One way to do this is by creating a monthly budget that includes all your expenses, such as rent/mortgage, bills, groceries, transportation, and discretionary spending. Deduct these expenses from your monthly income to better understand how much you can afford to make in monthly payments. 

Another helpful tip is to set up automatic payments to avoid missing any due dates. This can make it easier to stay on track and maintain a positive payment history, which could translate to an improved credit profile.

The last thing you want to do is to fall too far behind on your loan payments or default on your loan. Defaulting on a loan can have severe consequences. Unpaid loans can lead to increasing interest charges, late payment penalties, and even legal action. They can also significantly harm your credit score, making it challenging to secure financing in the future.

Choosing Your Low-Interest Personal Loan Wisely

Low-interest personal loans can be a valuable resource in giving you the flexibility to cover a wide range of personal expenses, whether that’s consolidating debt, financing a home improvement project, covering sudden costs, or something else. 

Nevertheless, it’s critical to ensure you’re borrowing responsibly, especially when it comes to assessing your financial situation and understanding the terms and conditions of a loan offer. By following the tips outlined above, you’ll be in a stronger position to enjoy the benefits of low-interest personal loans and protect your financial well-being. 

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