Skip to main content
Advertiser Disclosure
We do receive compensation from some partners whose offers appear on this page. We have not reviewed all available products or offers. Compensation may impact the order in which offers appear on page, but our editorial opinions and ratings are not influenced by compensation.

The Ascent Logo The Ascent Logo - Blue circle with an A in it and the ascent a motley fool company to the right of that

  • Credit Cards
  • Banking
  • Brokerages
  • Loans
  • Mortgages
  • Knowledge
  • Latest Picks
  • Search Icon Click here to search

Credit Cards

Top Picks
  • Best of January 2021
  • Cash Back
  • Balance Transfer
  • Travel
  • 0% APR
  • Rewards
  • Bad Credit
Knowledge
  • Beginners Guide to Credit Cards
  • How to Rebuild Your Credit
  • Maximize Your Credit Card Rewards
  • Learn More About Credit Cards
Credit Card Tools
  • Compare Cards
Looking for a new credit card?

Explore the best credit cards in every category as of January 2021.

Get started!

Banking

Top Picks
  • Best Savings Accounts
  • Best Bank Accounts
  • Best Money Market Accounts
  • Best CDs
  • Best Checking Account Bonuses
Knowledge
  • Beginners Guide to Banking
  • Everything You Need to Know About Savings
  • Money Market Accounts Made Easy
  • Learn More About Banking
Looking for a place to park your cash?

Check out our top picks of the best online savings accounts for January 2021.

Get Started!

Brokerages

Top Picks
  • Best Brokers of January 2021
  • Best Online Brokers for Beginners
  • Best Options Brokers
  • Best IRA Accounts
  • Best Roth IRA Accounts
  • Best Robo Advisors
Knowledge
  • How to Open a Brokerage Account
  • Beginner's Guide to Brokerages
  • Learn More About Brokerage
Just getting started?

Explore our picks of the best brokerage accounts for beginners for January 2021.

Get Started!

Loans

Top Picks
  • Best Loans of January 2021
  • Best Personal Loans for Bad Credit
  • Best Loans for Debt Consolidation
  • Best Low-Interest Personal Loans
  • Best Personal Loans for Good Credit
  • Best Personal Loans for Fair Credit
Knowledge
  • Personal Loans Made Easy
  • Debt Consolidation Guide
  • How to Pay Off Debt
  • Learn More About Loans
Thinking about taking out a loan?

Before you apply for a personal loan, here's what you need to know.

Get Started!

Mortgages

Top Picks
  • Best Mortgage Lenders of January 2021
  • Best Mortgage Lenders for Poor Credit
  • Best Refinance Lenders
  • Best VA Mortgage Lenders
Knowledge
  • First Time Homebuyers Guide
  • Home Loans Made Easy
  • The Complete Guide to Refinancing
  • How to Get a Mortgage with Bad Credit
  • Learn More About Mortgages
Tools & Calculators
  • Mortgage Calculator
Compare Rates
  • Today's Mortgage Rates
  • Refinance Rates
  • 15-Year Mortgage Rates
  • 20-Year Mortgage Rates
  • 30-Year Mortgage Rates
  • Jumbo Mortgage Rates
  • VA Loan Rates
  • 5/1 ARM Rates
  • 7/1 ARM Rates
  • FHA Mortgage Rates

Knowledge

Knowledge Section
  • All Articles
  • Credit Card Articles
  • Banking Articles
  • Brokerage Articles
  • Personal Loan Articles
  • Mortgage Articles
  • Personal Finance Articles
Recent Articles
  • Today's Mortgage Rates -- January 18, 2021: Rates Continue Their Upward Trend

    Mortgages

    Today's Mortgage Rates -- January 18, 2021: Rates Continue Their Upward Trend
  • 4 Questions to Ask Before Cosigning a Loan

    Loans

    4 Questions to Ask Before Cosigning a Loan
  • Thinking of Buying Land? Be Sure to Get Answers to These Questions

    Mortgages

    Thinking of Buying Land? Be Sure to Get Answers to These Questions
  • 3 Bad Reasons to Take Out a Personal Loan in 2021

    Loans

    3 Bad Reasons to Take Out a Personal Loan in 2021
  • The Ascent
  • Knowledge
  • Loans

What’s a Good Interest Rate for a Personal Loan?

by Elizabeth Aldrich | June 25, 2019

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Calculator on top of money with a screen that says interest

Image source: Getty Images

Just like going into the grocery store with a shopping list ensures you'll come out with what you need, going into a personal loan knowing what to look for will help you avoid paying hidden fees and sky-high interest rates. Read on to find out more about low-interest personal loans and how to secure one.

How interest rates work on personal loans

Put simply, the interest rate on a personal loan is the cost of borrowing money. Interest accumulates as a percentage of your overall loan balance. You make payments on the interest each month with your monthly payment, and as your remaining balance decreases, your interest charges should as well. Interest rates on personal loans are usually fixed, meaning they stay the same for the entire life of the loan.

How interest rates impact the cost of a personal loan

When shopping around for a loan, you'll usually see the interest rate expressed as an annual percentage with any other fees included, otherwise known as the APR. The table below shows you how much you end up spending over the life of a $10,000 personal loan depending on the APR.

Loan Loan amount Loan term APR Monthly payments Total amount paid Total interest paid
Loan A $10,000 5 years 7% $198 $11,881 $1,881
Loan B $10,000 5 years 13% $228 $13,652 $3,652
Loan C $10,000 5 years 18% $254 $15,236 $5,236

Source: Author

As you can see, the interest rate you pay is immensely important. If you end up with Loan C, the 18% APR increases the cost of the loan by over 50%.

The Ascent's picks of the best personal loans

The Ascent's picks of the best personal loans

Looking for a personal loan but don't know where to start? The Ascent's picks of the best personal loans help you demystify the offers out there so you can pick the best one for your needs.

See the picks

Average interest rate on personal loans

The interest rate on a personal loan is largely determined by your credit score, although your income and employment can also be used to determine your interest rate. Average interest rates on personal loans for consumers with fair or good credit tend to range from 6% to 36%, according to credit reporting company Experian, with the most creditworthy borrowers qualifying for rates on the lower end of that range.

Good interest rate on personal loans

If you take a look at the best personal loans for 2019, you'll see that most lenders offer rates within the 6% to 36% range. A good interest rate on a personal loan is anything within the lower end of that range. Lenders that cater to consumers with good credit -- such as Barclays, SoFi, Marcus, and Freedom Plus -- will typically offer the best rates on personal loans.

Credit score requirements for personal loans

The primary factor in determining your interest rate is your credit score. The higher your credit score, the lower the interest rate you'll qualify for. But exactly how high does your credit score have to be?

Anyone with excellent credit, which is considered to be a FICO® Score of 800 or above, will have no trouble qualifying for the lowest interest rate available at any given lender. In fact, as long as your FICO® Score is at least 740, you'll probably be able to get the best deals on personal loans.

People with credit scores between 700 and 740 will still qualify for the best personal loans, but may receive a slightly higher interest rate than folks with excellent credit. If your credit score is in the 600s, there are still online lenders who will give you a personal loan, but you're likely going to get offers with mediocre interest rates at best. Once your score is in the low 600s or below 600, you'll find it hard to get approved for a personal loan from any lender aside from those with extremely high, predatory interest rates.

How to improve your credit score

If you don't have good or excellent credit, improving your credit score before you apply will get you a good interest rate on a personal loan. Here are some tips to up your score quickly.

Pull your credit report -- It's hard to improve your credit score if you don't know what's bringing it down. The first step is to pull your credit report from the three major credit bureaus -- Equifax, Experian, and TransUnion. You can do this for free once each year at AnnualCreditReport.com, and it won't hurt your credit.

The Ascent's picks for the best debt consolidation loans

Want to pay off debt faster? Check out our shortlist of the best personal loans for debt consolidation and cut your monthly payment with a lower rate.

Pay off debt faster

Pay off existing debt -- One of the best ways to increase your credit score (and save money) is to pay off your existing debt. Payment history is the most important factor in determining your credit score, so making a series of on-time payments gives you a good boost. On top of that, paying off credit card debt will help improve your credit utilization, the second most important factor in your credit score, by decreasing your debt-to-credit ratio.

Get a credit card and pay it off monthly -- If your credit is sub-par, it's often because you either don't have a robust payment history, or you have a negative payment history. Both of these problems can be improved by building up a positive payment history. If you aren't currently in debt, consider opening a credit card, using it for a few necessary purchases each month, and paying it off in full when the bill comes to avoid interest fees.

Wait six months after your most recent inquiry -- Although it's not as important as payment history and credit utilization, recent inquiries on your credit report do impact your credit score. An inquiry occurs when you apply for credit, (be it a loan, financing, or a credit card), and the lender performs a hard pull on your credit report. While one or two are no big deal, having more than a few in the past couple years can drag down your score.

Luckily, inquiries fall off your report entirely after two years, and they don't really impact your credit score after one year. If you have a lot of recent inquiries, consider waiting until they've hit the one year mark to apply for a loan, as your score might go up.

Dispute any errors on your credit report -- It's possible that the mark bringing down your credit score doesn't even belong to you. If you notice any errors on your credit report, or negative marks you don't recognize, report them immediately to all three credit bureaus. Here's what to do if you find errors on your credit report.

Wait for negative marks to fall off your credit report -- Finally, if you have a negative account on your credit report that's keeping your score down, you can also simply wait for the account to disappear from your credit report. It takes seven years for most negative information to fall off of your credit report, although some bankruptcies stay on your credit report for 10 years.

Banks with the lowest interest rates on personal loans

While your credit score will determine which loans you qualify for, some places offer better rates on personal loans than others.

Traditional banks

When most people think about applying for a loan, they think about traditional banks. While many traditional banks offer good low-interest personal loans, they can be tricky to qualify for. Unless you have excellent credit and steady income you might find it difficult to get approved for a personal loan from a traditional bank.

Credit unions

Credit unions are not-for-profit, member-owned financial institutions that pass off profits to their members in the form of lower interest rates and higher returns. In many cases, credit unions offer even lower interest rates on personal loans than traditional banks. You'll still need good credit in order to qualify for most of these loans, and you'll also need to be a credit union member in order to apply. Some credit unions make it easy to join while others require that you be affiliated with certain organizations or live in a certain area.

Online lenders

Online banks and lenders are becoming more popular, in large part due to their flexibility and attractive rates. By avoiding the overhead costs of operating brick-and-mortar locations, many online lenders are able to offer interest rates that can compete with those offered by traditional banks. On top of that, they tend to be a little less strict when it comes to credit score requirements, and some online lenders are willing to look at factors beyond your credit score. The approval and funding process tends to be faster with online lenders as well.

From big national banks to online lenders and credit unions, know that you have a variety of options, and be sure to shop around before making a decision. By spending a little extra time seeking out the best interest rate on a personal loan, you could save hundreds, sometimes thousands, of dollars on interest fees.

Our Picks of the Best Personal Loans for 2021

We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.

About the Author

Elizabeth Aldrich
Elizabeth Aldrich icon-button-linkedin-2x icon-button-twitter-2x

Elizabeth is a writer specializing in credit cards, debt repayment, and small business. Her work has also appeared on MSN Money, Yahoo! Finance, and Business Insider.

Share This Page
Blue Facebook Icon Share this website with Facebook
Blue Twitter Icon Share this website with Twitter
Blue LinkedIn Icon Share this website with LinkedIn
Blue Mail Icon Share this website by email

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Featured Offer

Logo for Upstart loans

1K-50K - Min. 580 Credit Score

Check Rate

Related Articles

Man holding cash image for Best Personal Loans for 2021

Best Personal Loans for 2021

Girl holding credit card image for Balance Transfer vs. Personal Loan: Which Should I Choose?

Balance Transfer vs. Personal Loan: Which Should I Choose?

cap one image for 3 Times When You Should Take Out a Personal Loan

3 Times When You Should Take Out a Personal Loan

Man sitting at a desk celebrating with a fist pump image for How to Get Approved for a Personal Loan

How to Get Approved for a Personal Loan

Featured Articles

Best Personal Loans for 2021

Balance Transfer vs. Personal Loan: Which Should I Choose?

3 Times When You Should Take Out a Personal Loan

How to Get Approved for a Personal Loan


We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The Ascent Logo

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

btn_facebook-yellow btn_twitter-yellow btn_instagram-yellow

Copyright © 2018 - 2021 The Ascent. All rights reserved.

About The Ascent
About Us Contact Us Newsroom How We Make Money Editorial Integrity Ratings Methodology
Legal
Terms of Use Privacy Policy Accessibility Policy Terms and Conditions Copyright, Trademark and Patent Information
Learn
Credit Cards Banking Brokerage Loans Recent Articles

By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

Back to The Motley Fool