Getting a low interest rate on a loan comes down to three things: your credit profile, the type of lender you choose, and how you structure the loan itself. Borrowers with excellent credit (scores of 720 or above) received average personal loan rates of 11.81% in 2024, while those with fair credit (630 to 689) averaged 17.93%. That gap of more than six percentage points can mean thousands of dollars over the life of a loan. The good news is that even if your credit isn’t perfect, you have several levers to pull that can bring your rate down significantly.
Why Your Credit Score Matters Most
Your credit score is the single biggest factor lenders use to set your interest rate. A higher score signals lower risk, which translates directly into a lower rate. Here’s what the tiers looked like for personal loan borrowers in 2024:
- Excellent credit (720 to 850): average rate of 11.81%
- Good credit (690 to 719): average rate of 14.48%
- Fair credit (630 to 689): average rate of 17.93%
If you’re not in the excellent range yet, even a modest score improvement can save you real money. Paying down credit card balances is the fastest way to move the needle, since the amount of available credit you’re using (your utilization ratio) is one of the most heavily weighted scoring factors. Getting your utilization below 30% helps, and below 10% is even better. Correcting errors on your credit reports, which you can pull for free at AnnualCreditReport.com, is another quick win that many borrowers overlook.
If your loan isn’t urgent, spending a few months improving your score before you apply can pay off. Moving from fair credit to good credit could shave roughly three percentage points off your rate, which on a $15,000 loan repaid over five years would save you well over $1,000 in interest.
Choose the Right Type of Lender
Where you borrow matters almost as much as your credit score. The three main options for personal loans are credit unions, traditional banks, and online lenders, and they each price risk differently.
Credit Unions
Credit unions consistently offer the lowest personal loan rates. Because they’re nonprofit and member-owned, they pass savings along to borrowers rather than shareholders. Federal credit unions also have a legal cap on interest rates set by the National Credit Union Administration at 18%, which is half the maximum you’d see from many online lenders. The trade-off is that you need to be a member to apply, but joining is usually straightforward. Many credit unions are open to anyone who lives in a certain area or works in a particular industry, and some require only a small deposit of $5 or $25 to open a membership account.
Traditional Banks
Banks tend to have stricter eligibility requirements than online lenders, but that works in your favor if you qualify. Their maximum rates are typically lower because they’re lending to a more creditworthy borrower pool. If you already have a checking or savings account with a bank, you may get preferential treatment on rate or approval speed. Some banks explicitly offer relationship discounts for existing customers.
Online Lenders
Online lenders cast the widest net. They’ll often approve borrowers that banks and credit unions won’t, which makes them a good option if your credit is limited or imperfect. But that flexibility comes at a cost: rates can run as high as 36%. The floor for the best online lenders sits around 6% to 7% for the most qualified borrowers, so if your credit is strong, you can still find competitive rates here. The real advantage of online lenders is speed and convenience. Many fund loans within one to two business days.
The bottom line: start with credit unions, then check banks where you have an existing relationship, and use online lenders to round out your comparison shopping.
Consider a Secured Loan
A secured loan is backed by collateral, something of value that the lender can claim if you don’t repay. Common forms of collateral include a vehicle, a savings account, or a certificate of deposit. Because the lender faces less risk, they charge less for the loan. Best Egg, a lender that offers both secured and unsecured options, reports that its secured loan rates average about 20% lower than its unsecured rates. On a loan where you’d otherwise pay 12%, that discount could bring you closer to 9.5%.
The risk is straightforward: if you can’t make payments, you could lose whatever you pledged. Secured loans make the most sense when you have a stable income and high confidence you’ll repay on time, and you want to use collateral to unlock a meaningfully better rate than your credit score alone would get you.
Lower Your Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, is the percentage of your monthly gross income that goes toward debt payments. If you earn $5,000 a month and your combined loan and credit card minimum payments total $1,500, your DTI is 30%. Lenders use this number alongside your credit score to gauge whether you can comfortably handle another payment.
Most lenders prefer a DTI below 36%, and some will decline applicants or charge higher rates above that threshold. Mortgage guidelines from Fannie Mae, for instance, treat DTI ratios above 36% as a higher-risk category requiring additional compensating factors like higher credit scores or cash reserves. Personal loan lenders think similarly, even if their exact cutoffs vary.
You can lower your DTI before applying by paying off a credit card balance, paying down an existing loan, or increasing your income. Even small changes matter. If you can eliminate a $200 monthly car payment before applying for a new loan, that reduction alone might shift you into a more favorable pricing tier.
Use Autopay and Relationship Discounts
Once you’ve been approved, you can often shave a bit more off your rate with autopay enrollment. Many lenders offer a 0.25% discount on your APR (the annualized cost of borrowing, including interest and fees) when you set up automatic payments from a bank account. A few offer even more. LightStream, for example, gives a 0.50% autopay discount. These fractions might sound small, but on a $20,000 loan over five years, a 0.50% reduction saves roughly $300.
Some lenders stack additional discounts. SoFi, for instance, combines a 0.25% autopay discount with a 0.25% discount for using its broader financial platform. It’s worth asking any lender you’re considering whether they offer loyalty, membership, or product-bundling discounts, because these aren’t always advertised prominently.
Shop Multiple Lenders and Prequalify
The single most effective thing you can do is compare offers from at least three to five lenders. Rates vary widely even for borrowers with identical credit profiles. Many lenders offer prequalification, which shows you an estimated rate and loan terms based on a soft credit check. A soft check doesn’t affect your credit score, so you can shop around freely.
Once you’ve narrowed your list and formally apply, the resulting hard credit inquiries from multiple lenders within a short window (generally 14 to 45 days, depending on the scoring model) are typically counted as a single inquiry for scoring purposes. This means rate shopping won’t tank your score as long as you do it within a concentrated time frame.
When comparing offers, look beyond the interest rate to the APR, which includes origination fees. Some lenders charge origination fees of 1% to 10% of the loan amount, which gets deducted from your disbursement but factored into your APR. A loan advertised at 8% interest with a 5% origination fee costs more than a loan at 9% with no fee. The APR captures both, making it the better number to compare.
Pick the Right Loan Term
Shorter loan terms almost always come with lower interest rates. A three-year personal loan will typically carry a lower rate than a five-year loan from the same lender, because the lender’s money is at risk for less time. The monthly payment will be higher, but you’ll pay significantly less in total interest.
Run the math both ways before deciding. If a three-year term at a lower rate gives you a monthly payment you can handle comfortably, it’s usually the better deal. But stretching to a five-year term at a slightly higher rate might make sense if the shorter term would strain your budget and put you at risk of missing payments, which would damage your credit and potentially trigger late fees that dwarf the interest savings.
Borrow Only What You Need
It can be tempting to round up your loan amount for a cushion, but borrowing more than necessary costs you in two ways. You pay interest on money you didn’t need, and a larger loan may push your DTI higher, potentially affecting the rate you’re offered. Request the smallest amount that covers your actual need, and if your lender gives you a choice of loan amounts at different rates during prequalification, compare the total cost of each option rather than just the monthly payment.