You’ve probably seen the low personal loan rates advertised recently, and you might be wondering: how can I get this? personal loan for 5-6%, or could I even get that? Or maybe you’re just curious: what exactly is a personal loan? (Answer: A personal loan is a loan from an online lender, bank, or credit union, usually for a lump sum ranging from around $1,000 to $100,000.) Here’s what you need to know to determine if a personal loan might be right for you, and if so, how to get a low rate on one.
Advantages and disadvantages of personal loans
The first thing to remember, before even talking about how to get a low rate, is that these loans have advantages and disadvantages. A big advantage of personal loans is that they are often funded quickly, sometimes within a day or two, and can have lower interest rates than a credit card. But they also typically have higher rates than home equity loans or home equity lines of credit, and for those with poor credit, rates can be as high as 30%. This MarketWatch Picks guide will give you the 101s on personal loans and who they do and don’t make sense for.
How to get the best rate on a personal loan
In general, a credit score of 740 or higher will help you get the best rates and terms for a personal loan, says Ted Rossman, senior industry analyst at Bankrate. “It’s sometimes a little lower and sometimes a little higher, but we’re usually talking mid-700s and up for the best terms, which for a personal loan is between 5% and 6%,” Rossman says.
And that’s not all: “Lenders do not limit themselves to your credit score when deciding the rate of your personal loan. Your income, other existing debts, cash flow, and employment are all common factors that help a lender decide if you qualify and what rate to give you,” says Annie Millerbernd, personal loan expert at NerdWallet.
As a general rule, the absolute lowest rates are often reserved for the most qualified borrowers, which means not everyone will get a super low rate. “Personal loan rates are tailored to a borrower’s specific situation and what lenders consider worthy of a low rate can vary, which is why comparing is so important,” says loan expert Annie Millerbernd. personal at NerdWallet.
How to apply for a personal loan
Compare several offers from online financial institutions and local banks or credit unions, says Rossman. “Often the best deals tend to come from web-focused fintechs. That said, you might find better terms at a local bank or credit union, so it’s always a good idea to shop around. I would wager that a credit union or community bank is more likely to offer a lower rate than a large national bank,” Rossman says.
For personalized comparisons, Millerbernd recommends pre-qualifying with multiple lenders to see what each can offer. “Pre-qualifying doesn’t hurt your credit score and can show you which lender can get you the lowest personal loan rate,” says Millerbernd.
With several lenders offering mid-digit personal loan rates, finding one advertised isn’t necessarily difficult. “What is more difficult is qualifying. Just because lenders offer these low rates to certain customers doesn’t mean everyone will qualify – for example, if your credit score is lower or your income isn’t as high as they’d like, you you may be refused or offered a higher rate. rate,” says Rossman.