How to Get a Low APR Personal Loan

Four Methods:Displaying CreditworthinessImproving Your Credit ScoreGetting Better Loan TermsConsidering Other Lending Options

Many different people need personal loans for a wide variety of reasons, like to pay for continuing education, home improvements, vehicle financing, or any other kinds of routine costs that the household can't pay directly with cash. Others use consolidating personal loans to help decrease debt. Getting the best APR on a personal loan or any other kind of loan is a big money saver for borrowers. Securing a lower APR, or annual percentage rate, can cut a lot of interest from the loan payments that you make over time. Here are some of the top ways to get a low APR personal loan and avoid much of the cost on your debt.

Method 1
Displaying Creditworthiness

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    Understand why your credit score is important. Your credit score is a measure of your creditworthiness based on your debt history. That is, it measures how likely you are to repay loans based on how well you've payed them back before. Having a low credit score means that you are a risk to lenders, because they may not get their money back. To compensate themselves for taking this risk, lenders charge people with lower credit scores higher interest rates and sometimes also higher fees.[1]
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    Know your credit score. Go online to check your credit score. You can do so by searching for the any of the three major credit reporting bureaus, which are TransUnion, Experian, and Equifax. These websites can provide you with your credit score and a report that shows you what lenders see when you're being considered for a loan.
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    Evaluate your existing credit score to see how your risk appears to a lender. Credit scores can range from 300 to 850. The higher the score, the higher your creditworthiness. Generally, a score about 700 is considered a "good" score.[2] However, some lenders may consider scores about 650 or 680 to be "good," it just depends on the lender.
    • Having a low credit score will usually not prevent you from getting a loan (as long as it is not extremely low). In some cases, it may be best to take on an expensive loan to improve your credit score.
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    Determine whether or not you need to fix your credit score. If your credit score is particularly low, or simply not as high as you'd prefer, you'll need to seek out ways to improve it. This can help you get a better interest rate on your personal loan and save you money in the long run. However, your credit score cannot be improved quickly, and it may takes months or even years of careful budgeting to get your score where you want it.[3]
    • Think about how long you can wait before taking out your loan. If you have time, you should consider building up better credit before applying for the loan.

Method 2
Improving Your Credit Score

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    Consider different ways of improving your score. If you have a low credit score, you will have to improve it to get a good rate on your loan. Those with less than superb credit scores can negotiate with creditors, implement better spending habits, and use other tactics to boost their credit score in order to get a better APR for loans for which they are applying. Think about the options below and assess which ones will do the most to improve your credit situation.
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    Stop bad spending habits. The first and most important step to fixing a bad credit score is to pay your bills on time and pay them off as much as you can. Your outstanding and unpaid debt is the primary reason that you have a low credit score. The solution here is using careful budgeting to pay off your credit cards and other loans.[4] This may mean cutting back on everyday expenses and discretionary spending like entertainment and luxury items.
    • You may need to create a budget and a debt repayment schedule with due dates for your payments to achieve this goal, particularly if you have several credit cards or other loans.
    • On credit cards, you should also be spending a relatively small amount each month relative to your credit limit. Most experts recommend that you stick to less than 30% of your credit limit. That is, if your credit limit is $5,000, you should be using at most about $1,500 each month. This will lower your "credit-utilization ratio" and also help you be able to pay off your card each month.[5]
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    Repair your credit history. If you have particularly damaging debt on credit report, like a delinquency or a collections account, you may be able to negotiate with your creditors to eliminate or reduce it. Try contacting the creditor and offering to pay off the remaining balance if the creditor will agree to remove the reported debt issue or change it to "paid as agreed." Additionally, if the lapse in payments happened during a rough time in your life, like after you were fired, you can write your creditor and request a "good-will adjustment." They may adjust these accounts and remove the damaging entry on your credit report if you have otherwise been a reliable customer.[6]
    • Look over your credit report. You may be able to spot inaccuracies that are hurting your score. If you do, you can dispute them online through the reporting agency (TransUnion, Equifax, or Experian).[7]
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    Build new credit. As soon as you begin paying all of your debts off with the proper amount and at the right time, you begin building good credit. Remember, however, that there is no quick way to fix a bad credit history. You'll have to be consistent on your payments for years to really build up a great credit score.[8] The good news is you don't have to do anything new to build good credit. Just pay off your credit cards and other loans in full and on time and you'll slowly begin to see improvement.
    • A good way to increase your credit score is through the proper use of credit cards. See how to use a credit card to improve your credit score for more information.

Method 3
Getting Better Loan Terms

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    Secure your loan with assets. Anyone who has valuable assets (like equity in or ownership of a home or car) can get a better APR on personal loans by securing them with owned property. These secured loans come with lower interest rates because the lender is protected from loss. This is because the loan agreement says that, if you are unable to repay the loan, the lender can possess the collateral property (your house, car, etc.). These loans are also typically easier to get, especially for those with bad credit.[9]
    • Know the downside to secured loans. The biggest risk with secured loans is that your property is tied to your loan. Whether it's a home or a vehicle, lenders can often take these assets if the loan is not paid off.
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    Consider a floating rate loan. Some lenders offer adjustable-rate loans, also called floating rate loans, where the interest rate can increase along with prime lending rates. This means that your loan's interest could all of a sudden spike, leaving you with higher payments. However, this type of interest rate reduces credit rate risk for the lender. This may make them more inclined to make a loan they would otherwise avoid.
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    Get a cosigner. Ask a friend or family member with good credit if they will cosign on your loan. This will allow you to essentially take out a loan using their creditworthiness. This makes the loan less risky to the bank and will result in lower interest rates for you.[10]
    • Keep in mind that if you fail to repay the loan, you will hurt your friend or family member's credit. Before entering into a loan with a cosigner, be sure that you can pay it back.
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    Shop around for loans. Get personal loan consultations or estimates at a variety of places, including banks, credit unions, and other sources you are able to find. Compare their rates, repayment schedules, and fees. You don't have to settle for the usual bank that you use; you can and should seek out other options in case better loan terms are out there.

Method 4
Considering Other Lending Options

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    Evaluate your lending options. Getting a standard personal loan from big, established lenders, like banks, is not your only choice when it comes to finding personal loans with low interest rates. Look into other options and make sure you're getting the lowest rate possible before signing for a loan.
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    Get a loan from a credit union. Credit unions are owned by their members, rather than by corporations, and therefore are able to offer loans at a fairer rate to those with medium to bad credit.[11] Search for a credit union in your area and meet with a lender there to check their rates.
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    Consider informal loans. In many cases, friends and family are willing to provide some smaller loans to those they know without any interest at all. Offering interest as a borrower might get you closer to your lending goals, but always make sure there is that critical trust between borrower and lender for any informal loans that occur.
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    Evaluate government programs. Some existing government programs will provide better interest rates to low income borrowers or those with poor credit scores. Make sure you check out these kinds of options for getting the best interest rates available for your personal situation. Try searching for a loan to meet your needs at


  • Before signing an eventual agreement, read over it to catch any excessive costs or fees that may apply. Be sure to closely investigate any fees or penalties listed. Ask your lender if you have any questions about any part of the agreement.
  • You are under no obligation to sign the loan if you don't agree with its terms.
  • Prepayment penalties, usually found in mortgage loan agreements, charge you a penalty for paying off a certain amount of your loan early.[12] You don't want to be locked into a loan that you can't repay early without penalties, so make sure these clauses are absent on your final loan agreement.


  • Avoid payday loans and auto title loans. These types of quick personal loans often involve the highest interest rates around. For an APR that you can deal with, steer clear of big interest lenders entirely, and focus your efforts on getting equitable loans that work for you.[13]

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Categories: Mortgages and Loans