The rate you'll get depends on your credit score, income, liabilities and other factors. The lowest personal loan rates are for borrowers with excellent credit scores taking out secured personal loans.
But whatever your personal situation is, there are ways to get a lower rate and save money on a personal loan.
Not every borrower will qualify the absolute lowest loan rate on offer, but there are things you can do to get a lower rate. Here are our six tips:
The best thing you can do to get a lower rate is improve your credit score. This means making regular payments on existing debts, and making sure you don't have any missed payments or defaults. You could also lower your credit card limit and make sure you only have one card. Get more tips to improve your credit score.
Having an asset to back your loan (like a car or house) can get you a lower rate. If you are have an asset you can and are willing to secure, it's worth checking if you can use it even when applying for a loan advertised as unsecured. Just make sure you can comfortably afford the repayments so you don't risk losing that asset.
A smaller loan amount makes you a less risky borrower in a lender's eyes. And it may get you a slightly lower rate. Keep in mind that some lenders might reject a small loan application if the loan is under its minimum loan amount.
Don't just go to your bank, and don't apply with the first lender you see. Compare personal loan rates, fees and features from multiple lenders. The market is competitive and there is little difference between banks and online lenders these days. Make sure you're getting a good deal.
Before you apply for a loan, check the loan's terms and conditions carefully. Make sure you as a borrower meet the lender's requirements. Otherwise you'll get rejected, or end up on a higher rate.
You can sometimes ask the lender for a lower interest rate. If you find a lower rate elsewhere you could ask them to match, for example. This works if you already have a personal loan too.
The above point about negotiating with your lender applies to people who already have loans too. Let's say you've significantly improved your credit score since you took out the loan. Tell your lender and see if they can give you a lower rate.
And you can also refinance to a new low-rate personal loan. This is a good option if you find a better rate but your lender won't negotiate.
While fees are important too, it's the interest rate that has the biggest impact on most personal loans.
A lower rate means lower monthly repayments and means you pay less interest over the life of the loan.
Here are some simple examples of the same loan with a different interest rate:
|Loan amount||Loan term||Interest rate (p.a.)||Monthly repayments||Total loan cost*|
*For this simple example we've ignored loan fees, but it's important to factor in any upfront and ongoing fees.
Graham heads Finder's insights team and specialises in a variety of financial topics, including credit cards, loans, insurance and investing. He regularly appears on TV including ABC News, Sunrise and Today, and edits Finder's Insights column.
Most personal loans use risk-based pricing. This means your individual rate is determined by your credit score, your income, your outstanding debts and the type of loan you're applying for. You can spot these loans as they advertise an interest rate range, for example:
This means the lowest possible rate you can get is 8.49% p.a., if you have an excellent credit score and meet the lender's criteria. But if your credit score falls in a lower range, your rate will be higher. As high as 27.9% p.a.
Before applying for any personal loan you should know what your credit score is. You can check your credit score for free through Finder in just minutes.
The type of personal loan you're looking for has an impact on the rate you can get.
If you don't have anything to offer as security you can still find unsecured personal loans with low interest rates. Often, there's only a couple of percentage points between a lender's lowest secured rate and lowest unsecured rate. Sometimes less than that.
If you search for low rate personal loans you might have seen rates under 6% p.a.. These are often green personal loans or loans secured by homes or term deposits. If you aren’t using your loan for green initiatives, or can’t secure your loan in that specific way, you won’t qualify for a rate this low.
Even a low rate personal loan becomes pretty expensive if it has high fees, a long loan term and isn't the right loan for your needs.
These are the key things to look at in your comparison:
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