9 strategies to pay less for your debt

You can use a personal loan to cover many costs, including home improvements, medical bills, auto repairs, and debt consolidation. While these loans offer flexibility, they also have costs associated with them.

Lenders charge interest when you take out a personal loan, just as they do with other types of financing. The interest rate you get will depend on several factors, some of which are within your control and others that aren’t, such as broader economic policy.

Here’s what to know about personal loan rates, how lenders determine them, and how to get the best possible rate on a personal loan.

If you’re looking for a low-rate personal loan, it can be helpful to understand average loan rates first. Understanding the average can help you determine if you’re getting a competitive rate from a particular lender, or if it makes sense to keep shopping around.

The average rate for a personal loan with a two-year term was 11.57% in May 2025, according to the Federal Reserve. Keep in mind that this is just an average, and you could get a higher or lower rate depending on your situation.

Here’s a quick look at how interest rates can impact your total loan costs. For this example, we’ll assume a $10,000 personal loan with a five-year term.

There are several things within your control that impact your personal loan rates, including your:

Your credit score will have a big impact on your personal loan rates. Lenders typically offer the lowest rates to borrowers with the best credit, as a high credit score signals a lower lending risk.

If your credit isn’t great and you don’t have an urgent cost to cover, it may make sense to work on building your credit before you apply for a personal loan. Taking this step could result in significantly lower borrowing costs.

Lenders also look at your current debt relative to your income to help determine your repayment terms. Your debt-to-income (DTI) ratio provides insight into what percentage of your monthly gross income goes toward your debt. For instance, if you make $6,000 per month and your monthly debt payments total $1,400, your DTI is about 23%.

Most personal loan lenders require a DTI below 50% to qualify, though the less debt you have relative to your income, the better. A low DTI could earn you an equally low personal loan rate.

Loan term and amount

The loan term you choose and the amount you borrow can also impact your personal loan rate. Generally, small, shorter-term loans have lower rates than large, longer-term loans.

This is because a lender has more insight into your ability to afford payments over the short term. It’s harder to predict whether you’ll be able to afford your monthly payments over a longer term.

Read more: How much can I borrow with a personal loan?

If you want a personal loan with a low interest rate, taking the following steps could help you find one.

Mistakes on your credit reports could harm your credit scores and impede your ability to qualify for a low-rate loan. If you haven’t reviewed your credit reports recently, read them over before applying for a loan. You can access them for free at AnnualCreditReport.com.

If you want to dispute a credit report error, contact Equifax, Experian, or TransUnion. Each credit bureau lets you file disputes online.

Better credit leads to lower rates. In the months before you apply for a new loan, be sure to make timely payments on all your bills, pay down your existing debt, and keep older credit accounts open to help boost your credit scores.

Note that improving your credit will take some time, but focusing on high-impact factors can speed up the process.

Read more: Can you raise your credit score by 100 points overnight?

Paying down any existing debt will also help your DTI, which could translate to lower personal loan rates. That’s because a lower DTI will make you less of a risk in the eyes of your lender.

If you’re not sure how to tackle high debt balances, consider strategies such as the debt avalanche or debt snowball methods.

Alternatively, you could increase your income to lower your DTI and improve your loan application. If you have an upcoming performance review, talk to your manager about a potential raise or consider picking up some work on the side to boost your earnings.

Opting for a smaller, shorter-term personal loan can increase your likelihood of getting a lower rate. A small, short-term loan generally carries less risk for a lender than a large, long-term loan, as it’s harder for lenders to evaluate your ability to repay over a long time period.

Read more: How to choose the right personal loan term length

Don’t apply for the first personal loan you find. Loan rates vary by lender, so ensure you compare options. You could find that the third lender you’ve researched offers rates a full percentage point lower than the first.

If you’re at a loss regarding which lenders to compare, check out our picks for the best personal loans.

Lenders often offer rate discounts or guarantees to beat competitor rates.

For instance, SoFi offers a 0.25% discount when you enroll in autopay, and another 0.25% discount if you set up a payroll direct deposit of at least $1,000 a month into a SoFi Checking and Savings account.

Similarly, LightStream offers a 0.50% autopay discount and also pledges to beat competitors’ personal loan rates by 0.10%, provided you apply within a certain window.

Some lenders offer secured personal loans, which require you to pledge a valuable asset as collateral. Because your collateral offsets some of the lender’s risk, opting for a secured loan can help you qualify for a lower rate.

However, be sure you can afford to repay the loan as agreed. If you miss enough payments, the lender can seize your asset to pay off the debt.

If you need a personal loan to cover an urgent cost, you could also consider applying with a co-borrower or co-signer who has great credit. By adding a second person to your application, the odds that you will repay the loan are higher. Many lenders allow this, and it could mean a lower rate.

Your loan’s interest rate isn’t the only factor that can impact your borrowing costs. Personal loans may also have fees, including origination fees or prepayment penalties.

Origination fees can be as high as 10% of the loan amount, depending on the lender, and these fees are often taken out of your loan before funds are disbursed to you. If a lender charges a 10% origination fee for your $10,000 loan, the lender would keep $1,000 up front, and you’d only receive $9,000 in loan funds. However, you’re still required to pay interest on the full $10,000 as you repay the debt.

This article was edited by Alicia Hahn.