The Bottom Line

LightStream is our choice as the best overall low interest rate lender. Its rates are not the lowest in our database, but they still are competitive with quick funding and don't require a prior relationship.

If you have an American Express credit card, it’s worth checking your account or calling the company to see if you’re pre-approved for a personal loan, as it offers low rates on loans and quick loan disbursements. But its best offer is limited to cardholders who receive a pre-approved offer. If your credit is less-than-stellar, other options like PenFed that allow you to apply with a co-signer may be a good option.

Whichever option you choose, make sure you take some time to get ready before you apply for a personal loan. This can help speed up your application so you can zero in on the best low-interest personal loans for your situation.

Guide to Choosing the Best Personal Loan

Loans and terms vary by lender, so it's wise to shop around and compare offers from several companies. The following guide will help you research and evaluate your options.

What’s a Low Interest Rate on a Personal Loan?

When considering your loan options, the annual percentage rate (APR) is one of the most significant factors. To put quotes into perspective, compare lenders' rates to the national average. As of November 2023—the latest available data as of the Fed's March 7, 2024, Consumer Credit report—the average rate for a personal loan with a 24-month repayment term was 12.35%.

If you have less-than-perfect credit, you may qualify for a loan with a higher rate. That rate may still be advantageous if you're using it to consolidate high-interest credit card debt.

Every lender weighs these factors differently, too, which is why it’s important to shop around with as many lenders as you can.

Comparing Personal Loans

There are several factors to consider besides the lender's APR, including: 

• Loan fees
• Customer reviews of the lender
• What level of credit the lender requires
• Available loan amounts and term lengths
• Perks and benefits, like unemployment protection programs
• Whether the lender lets you use collateral or a co-signer if you have poor credit

Shorter Repayment Terms Can Save You Money

Based on data from 18 lenders, the average personal loan interest rate is 23.88% for terms of about 48 months. However, the Fed reports that 24-month personal loans have an average rate of 12.35%.

If you can afford the higher monthly payments that come with a shorter term, it could save you a lot of money. The chart below shows the potential savings of a 24-month term as opposed to a 48-month term on a $10,000 personal loan:

$10,000 Personal Loan
Loan Term	APR*	Monthly Payment	Total Interest Paid
24 months	12.35%	$472.37	$1,336.90
48 months	23.88%	$325.36	$5,617.05

Average APR by Credit Score

Loan Cost Is the Top Consideration When Shopping for a Loan

In Investopedia's 2023 Personal Loan Borrower Survey, when we asked respondents to rank loan features on a scale from most important to least important, almost half of borrowers (48%) ranked the cost of the loan as the most important factor

Keep an Eye on the Fed's Target Federal Funds Rate

The Fed held rates steady at its most recent meeting March 19-20—the fifth consecutive meeting at which it has done so. From March 2022 through July 2023, the Fed increased its target rate range 11 times, from near zero to 5.25–5.50%. Before that rate-hiking campaign, the average APR for a 24-month personal loan from commercial banks was 9.38%. That number has risen along with the Fed's rate hikes to 12.35%.

Fed members indicated that they expect to cut rates later this year, but until that happens, lending rates are unlikely to get any lower. Because personal loans typically are fixed-rate products, the rate you get when take out your loan is the rate you'll have for the duration of that loan. Lending rates typically will rise or fall along with what the Fed does, so if you expect to have a longer repayment term, it might be a good idea to wait until later this year or next year to get a personal loan. The Fed is scheduled to meet again April 30–May 1.

Advantages and Disadvantages of Low-Interest Personal Loans

A low-interest personal loan is appealing because it's an inexpensive form of debt. You can finance a major purchase or consolidate debt at a low rate. However, not everyone is eligible for a low-interest loan, and there's potentially challenging terms of these types of loans. Let's look at the pros and the cons.

Pros of Low-Interest Personal Loans

The obvious primary advantage of low-interest personal loans is the potential for substantial cost savings over the life of the loan. With lower interest rates, borrowers pay less in interest expense. Lower interest also makes the monthly payments more manageable.

By extension, low-interest personal loans may make it easier to pay off the debt over time as a larger portion of each payment is going towards the principal balance as opposed to paying for interest.

Thinking broadly, low-interest loans are more likely to encourage economic activity. When borrowing costs are reduced, businesses and consumers are more inclined to invest and spend, meaning the economy is more likely to grow. This economic stimulation can have wide-ranging benefits including job creation.

Lastly, low-interest loans promote increased access to credit. If you're able to stay on top of making your low-interest loan payments, you can build your credit, quality for bigger loans in the future, and ultimately end up with high credit.

Cons of Low-Interest Personal Loans

While low-interest personal loans come with a bunch of advantages, there are also some surprising downsides to be aware of. One significant drawback is these types of loans may be difficult to get. Lenders offering low-interest rates often impose stringent requirements, especially regarding creditworthiness. Individuals with bad credit scores may find it challenging if not impossible to get low-interest loans.

Another potential downside to low-interest loans is the potentially shorter repayment terms. Banks want to minimize the risk they take on loans; they may be willing to offer very low interest rates, but only if the borrower pays the loan off in a relatively shorter time. For example, a 15-year mortgage often has a lower interest rate compared to a 30-year mortgage. Borrowers may have to choose between having a low rate but shorter payoff period, or vice versa.

When thinking about the economy, low-interest rates may not be the best for the economy. When interest rates are low, it may be cheaper and easier for people to get loans. This means it may be easier for people to fall into financial troubles by taking out too much debt, regardless of how low the interest rate. Be diligent on your spending, and try not to be lured into taking unnecessary debt even if it is low-interest.

How to Qualify For and Apply For a Personal Loan

Personal loans are relatively easy to apply for and in many cases, you can complete the entire process online by following these steps: 

1. Review your credit: Check your credit reports so you can fix any errors that you find. It’s also a good idea to look up your credit score so you know which type of lenders might be more likely to approve you. You wouldn’t want to apply with a lender that only offers personal loans to people with excellent credit if your own credit score still needs some work, for example.
2. Gather documentation: It’s also a good idea to gather up some financial documents that lenders may ask for, such as your recent tax returns, pay stubs, and bank statements. If you have this ready in advance, it’ll speed up your loan application. 
3. Shop around: Next, get pre-qualified with as many personal loan lenders as you can. This will give you a good baseline for what each lender can offer you, individually, versus the advertised loan rates.
4. Fill out the application: Finally, when you’re ready to make a decision, choose the best lender and complete your loan application. Generally, you’ll need to hand over copies of the financial documents you rounded up earlier.

Your lender will make a decision, and if you’re approved, it’ll send you a final loan agreement to sign. Once you sign, the lender will issue your loan funds, and you’ll begin repaying the loan according to schedule.

Should You Apply For a Low-Interest Personal Loan?

Before applying for a loan, think about why you want to take one out. Although some personal loans can have relatively low rates, they are still a form of debt, and you should only use them when you really need the funds.

Alternatives to Low Interest Personal Loans

A personal loan may not be the best choice in every situation. In some instances, these alternatives may be a better option:

• Savings: If the intended use of a personal loan isn't for an emergency, you may be better off delaying the purchase or project until you can save the money yourself. By using your savings, you avoid paying any interest or fees. 
• Balance transfers: If you want to consolidate high-interest credit card debt, completing a balance transfer to a card with an introductory 0% APR will give you time to pay off debt without paying interest. 
• Debt counseling: A personal loan doesn't solve the root causes of your debt. If you're having trouble staying on top of your debt, meeting with a counselor from a nonprofit credit counseling agency can help you develop a budget and a debt repayment plan. 

Why You Should Trust Us

Investopedia collected and analyzed hundreds of key data points from over 70 companies across three months to identify the most important factors for readers choosing a low-income loan company. We used this data to review each company for fees, repayment terms, income requirements, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right decision for their needs. Investopedia launched in 1999 and has helped millions of readers around the world become more educated with personal finances.

How We Pick the Best Low-Interest Loans

To evaluate and rank personal loan providers we collected hundreds of data points across 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a survey we conducted. We grouped those factors into four broad areas:

• Loan costs (advertised APR, fees, and six other factors): 29.25%
• Loan terms (loan amount, repayment term, and three other factors): 22.25%
• Borrowing requirements (credit score, membership requirement, and six other factors): 28.5%
• Additional features (online application, pre-qualification, and eight other factors): 20%

Learn more about how we evaluated personal loans in our complete methodology.

Guide to Low-Interest Personal Loans

Learn more about personal loans:

• What Is a Personal Loan?
• How Do Personal Loans Work?
• When Are Personal Loans a Good Idea?
• How to Get a Personal Loan
• How to Apply for a Personal Loan
• How to Use a Personal Loan
• Where to Get a Personal Loan
• Personal Loans Vs. Credit Cards
• Alternatives to Personal Loans
• Personal Loan Calculator
• Personal Loans Methodology