How to Avail of Low Personal Loan Rates in 2024 - NerdWallet

Personal loan interest rates have steadily climbed since early 2022, reflecting efforts by the Federal Reserve to combat inflation by raising its federal funds rate. Even anticipated Federal rate cuts before year’s end may not immediately bring personal loan rates down. “Generally speaking,” stated Jean Hopkins of WeStreet Credit Union in Tulsa, Oklahoma: “Rate changes don’t translate to loan rates dropping as quickly,” as changes to the federal funds rate can have more of an effect on variable-rate products like credit cards or home equity lines of credit, she stated. Personal loan rates tend to be determined by larger economic forces like inflation and unemployment; your specific personal loan rate, however, depends most heavily on factors like creditworthiness and income. If you’re planning to borrow this year, here are a few strategies you can follow to secure a lower personal loan interest rate: Keep a high credit score Lenders use credit scores extensively when assessing loan applicants; those with high scores typically get better rates. She advises borrowers to maintain low credit utilization levels – the ratio of how much of your available credit you’ve used on revolving accounts such as credit cards compared to how much is still available – for maximum financial health and growth. “Make sure that if you borrow money on credit cards that you do not borrow more than 30%-40% of your balance on each line of credit,” advises McLaughlin. To maintain an acceptable debt-to-income ratio when seeking personal loans from lenders. “To maintain financial health,” advises Jen Hemphill of Kansas-based accredited financial counselor Her Dinero Matters podcast fame. “Having low debt-to-income ratio is crucial as having one may help secure lower interest rates.” “Your Debt-to-Income Ratio (DTI), is calculated by dividing your monthly debt payments by your income for that month and multiplying that figure by 100 to get its percentage representation.” Hemphill suggests keeping your DTI below 30%; though some lenders accept higher ratios.If your DTI is high, consider paying down debt before applying for a personal loan for a better rate; Hopkins advises paying off smaller debts first to quickly eliminate monthly payments and consequently decrease DTI levels; raising income may prove challenging; in order to be considered when raising DTI levels more significantly on loan applications. Many lenders factor alimony, child support and Social Security payments when calculating DTI. Compare Offers To Secure the Finest Deal ItsWhen seeking personal loan, comparing offers from different lenders is paramount in finding the most competitive terms. To find your perfect personal loan deal. Each lender varies in its qualification requirements and underwriting processes, so your APR could differ significantly between lenders. You can easily compare costs by prequalifying online. Prequalifying allows you to view potential APR, monthly payment amounts and repayment terms without impacting your credit scores, giving an idea of the possible interest rates available based on your specific situation. According to Hemphill: Pre-qualifying gives “an idea of which interest rates might be available.” That will enable you to shop around. “She suggests paying particular attention to repayment terms you are offered and their impact on how much interest will accrue over the life of a loan. Long loan terms may seem attractive as they lower monthly payments while increasing total costs, Hemphill notes. A personal loan calculator can show how varying loan amount, term length and interest rate affect monthly repayment costs and monthly payment amounts; you should compare perks and features among competing offers before selecting which best meets your plans, Hemphill advises. Some lenders provide rate discounts if you set up autopay or allow them to directly pay off other debts when taking out a debt consolidation loan, while others may provide credit-building support, so your score can improve while repaying.