How to get a lower interest rate on personal loans in 2026
Personal loans offer a way to get money when you need it fast. But there is often a high price to pay for that privilege.
Because there is no collateral to secure these loans, interest rates tend to be higher. That can make these loans more expensive. In fact, balances on such unsecured loans recently hit a record high, according to TransUnion’s Credit Industry Insights Report.
If you have a personal loan, you might be paying more than you should. Fortunately, you can take specific, actionable steps to secure lower interest rates on personal loans, potentially saving you thousands of dollars.
Wondering how to get a lower interest rate? Here are seven strategies that financially savvy borrowers use to get the lowest rate on their loan.
Understanding personal loan interest rates
Prevailing market conditions play a big role in setting personal loan rates. When the Federal Reserve cuts its target federal funds rate, personal loan rates tend to fall. On the other hand, Fed rate hikes usually cause personal loan rates to climb. In addition, a host of other factors affect the rate you pay as an individual.
What determines your interest rate?
What is a good interest rate for a loan? Unfortunately, there is no answer here that works for everybody. Your own financial situation plays a big role in your personal loan rate.
Your credit score is one of the biggest factors influencing the rate you pay. The most used credit score for personal loans is the FICO score.
If you have a FICO score of 670 — which is the threshold of a “good” score — you will likely pay lower rates than someone with a score of less than 580, which is considered to be a “poor” score.
The amount of debt that you carry also plays a role in your personal loan rate. Your debt-to-income ratio measures the amount of your monthly debt against your total monthly income. A higher ratio likely will result in a higher personal loan interest rate.
In addition, the more you borrow and the longer your loan term, the higher your personal loan rate is likely to be.
By contrast, a solid history of employment and steady income should result in a lower personal loan rate.
As you can see, there is no typical personal loan interest rate that applies to everyone. Instead, rates are highly individual.
Why lowering your rate matters
The bottom line is simple: the lower your personal loan rate is, the less money you will pay in interest charges on your loan.
For example, a 2% rate reduction on a $20,000 personal loan could save you $1,100 over five years.
The extra money you save can be applied to other financial goals, such as paying off debts or building an emergency fund.
Here are seven key rate-lowering strategies worth considering.
Strategy 1: Improve your credit score before applying
Your credit score is likely the most important factor in determining your personal loan rate. Fortunately, there are many things you can do to improve your credit score and enhance your odds of getting a lower personal loan rate.
Check and correct your credit report
Before shopping for a personal loan, request credit reports from each of the three main credit reporting agencies: Equifax, Experian, and TransUnion.
You can obtain one free report weekly from each of these agencies on the official AnnualCreditReport.com website.
Once you have your reports, look them over to see whether there are any errors. This may include things like duplicate accounts and incorrect notations of late payments.
Reporting such errors and getting them fixed can raise your credit score. Once you report an error, the credit bureau typically has between 30 to 45 days to complete its investigation.
Quick credit score boosters
Paying down your credit card balance can also help boost your score. Generally, you want to keep credit cards below a 30% utilization rate. This means you are using less than 30% of the total credit available to you.
Another way to boost your credit score is to become an authorized user on a family member’s account. This works best if the family member has a long credit history and is responsible for making payments on time every time.
You can also look into tools that might help you lift your score. For example, if you sign up for Experian Boost, the credit-reporting agency will add utility payments to your credit history, which can in turn improve your credit score.
Strategy 2: Shop and compare multiple lenders
One of the best ways to get a great rate on a personal loan — or just about anything else — is to shop around and compare lenders.
Why rate shopping is critical
Interest rates can vary considerably from lender to lender. For that reason, it is important to get quotes from multiple lenders so you can compare and get a better sense of your options. Just remember that when you shop, lenders typically will perform hard credit inquiries that can temporarily damage your credit score.
Lender types to consider
Many different types of lenders offer personal loans. If you keep your money with a traditional bank, that institution may be willing to give you a better deal because of your relationship with the bank.
On the other hand, online lenders often offer competitive rates and quick approval and may give you a better deal than a traditional bank.
Credit unions can also be good places to shop, as they often offer lower rates than banks. Finally, peer-to-peer platforms may offer rates on personal loans that are especially competitive.
The key is to shop at all these places so you can discover which one offers the best deal.
Create a comparison table with at least three quotes, noting the annual percentage rate (APR), origination fees, and total loan cost.
Strategy 3: Negotiate directly with your lender
In some cases, you might be able to negotiate a rate better than your lender’s original offer. You will never know for sure until you try.
When negotiation works best
Your odds of negotiating a rate may be better if you have an existing relationship with the lender. Existing customer relationships can result in loyalty discounts that lower the interest rate you pay.
You are more likely to qualify for such a loyalty discount if you have been a good customer and can demonstrate a strong payment history on your current loans.
Finally, getting competitive offers from other lenders may give you extra leverage when you try to negotiate a better rate.
The negotiation script
When you negotiate for a better rate, remain professional and polite. Try to avoid coming off as demanding or snarky. Just keep it simple.
Say something like, “I’ve been offered X% by [competitor]. I prefer to stay with you due to [relationship history]. Can you match or beat this rate?”
Additional terms to negotiate
In addition to negotiating a better rate, you may be able to convince your lender to give you other perks, such as:
- Origination fee waivers
- Flexible repayment terms
- A rate reduction for agreeing to autopay enrollment
Once again, this is a situation where it can’t hurt to ask for such breaks. You never know what your lender is willing to do until you ask.
Strategy 4: Consider a secured personal loan
Agreeing to a secured personal loan is likely one of the surest ways to get a lower interest rate. This type of loan is secured by collateral, and such loans are much less risky for lenders.
Secured vs. unsecured loans
With a secured loan, you put up collateral that makes the loan less risky for the lender. If you fail to make your loan payments, the lender can turn to your collateral to recoup its losses. Because a lender has this option, it is likely to offer you a lower rate.
Collateral options
Collateral for a personal loan may come in any of several forms. These might include:
- A savings account or CD
- A vehicle
- Stock investments
Important considerations
While a secured personal loan is likely to get you a lower rate, it also comes with risks.
The biggest risk is the potential loss of the asset you use for collateral. If you fail to make payments, the lender may seize the collateral.
In addition, if you use a savings account or CD as collateral, those accounts may be locked until you repay your loan.
Finally, the amount of collateral you need to put up can be high. For example, some lenders may have collateral value requirements of 100% to 110% of the loan amount.
Strategy 5: Opt for a shorter loan term
As with most types of borrowing, if you agree to a shorter loan term on a personal loan, you likely will get a lower rate.
The term-rate tradeoff
For example, if you opt for a three-year term instead of a five-year term, your interest rate could be up to a couple of points lower.
However, because the period for you to pay back the loan is shorter, it is likely that your monthly payment will be higher. This is similar to how a 15-year mortgage has a lower rate but a higher monthly payment than a 30-year mortgage.
Calculating your best option
Here is an example of how your payments and the total interest you pay could differ in two different scenarios:
- $20,000 loan at 8% for five years = $405/month, $4,274 total interest
- $20,000 loan at 6.5% for three years = $615/month, $2,140 total interest
Over the lifetime of a three-year loan, you will save $2,134 in interest costs.
Before you agree to a shorter loan period, make sure you can afford a higher monthly payment.
Also, it is wise to make sure you have enough money in savings to cover any financial emergencies that might arise.
Strategy 6: Add a creditworthy co-signer
Lenders typically look at the risk you pose as a borrower before assigning an interest rate to your loan. Adding the right co-signer can reduce the risk to the lender, which in turn can result in getting a lower interest rate.
How co-signers reduce rates
When you add a co-signer to your loan, that person’s income is taken into account. When combined with your income, this can lower the debt-to-income ratio.
In addition, a co-signer with a solid credit history can reassure the lender, making it more comfortable with giving you a lower rate.
Responsibilities and risks
Before you agree to add a co-signer, make sure both parties understand the potential risks.
As a co-signer, you are legally responsible for the other person’s debt. That means if the borrower does not make payments, you could be forced to do so. Also, if the borrower fails to make payments or is late in doing so, it could end up hurting your own credit score.
It is possible in some cases to get the lender to agree to a clause that lets you opt out of your co-signer agreement. However, you should not expect the lender to agree to this in most cases, as doing so would increase the risk that the lender faces.
More often, the only way to get out of the loan is to pay it off or to get the borrower to agree to a refinance.
Strategy 7: Time your application strategically
In some situations, you can save money simply by using the right timing to apply for a personal loan.
Market rate cycles
For example, if rates are falling, waiting until they sink lower will likely help you secure a lower rate.
As a general rule, when the Federal Reserve lowers its target federal funds rate, you can expect personal loan rates to head in the same direction.
Personal financial timing
You can also wait until things have improved in your own financial life before applying for a personal loan.
If you wait until your credit score has improved, you will have a better chance of landing a lower rate. You also should not apply for new debt in the weeks and months before you apply for a personal loan.
Bonus strategy: Refinance your existing personal loan
If you already have a personal loan with a high rate, it’s possible that refinancing will get you a loan with a better rate.
There are some general circumstances where refinancing might make sense. If your credit score has improved significantly or market rates have dropped quite a bit, it’s worth looking into a refinance.
Just remember that when you refinance, there might be costs and fees associated with the transaction. Make sure a refinance makes financial sense considering these expenses.
Also, check to make sure that your current loan does not have prepayment penalties that might outweigh the savings of a refinance.
If after doing your homework you find that a refinance is a good option, compare loan offers from several providers. This will help you to score the best possible deal.
Key takeaways: How to get a lower interest rate on a personal loan
These strategies can help you get a lower interest rate on a personal loan. In particular, improving your credit score, shopping around for the best deal, and negotiating with your lender can all help you secure the lowest possible rate.
Just make sure you have realistic expectations. Some people with exceptional credit and solid finances might qualify for a rock-bottom rate. However, for many folks, simply lowering their rate by a point or two might be more achievable.
If you would like to get the lowest possible personal loan rate, here are some steps you can take right away.
- Check your credit score today
- Create a rate comparison spreadsheet
- Identify three to five lenders to approach within the next 30 days
