How To Negotiate a Low Interest on Your Personal Loan

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Oct 16, 2024

How To Negotiate a Low Interest on Your Personal Loan

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When you’re looking for any type of loan, whether that be a personal loan, or a home loan, having a lower interest rate is paramount. After all, the lower your interest rate is, the less expensive it is to borrow money in the long term. However, getting a low annual percentage rate on a personal loan isn’t the simplest thing. There are quite a few factors that influence the interest rates that banks quote you for a loan, such as your credit history, creditworthiness, and debt-to-income ratio.

In this article, we’ll go through these terms and everything else you need to know to secure a low interest personal loan and minimize the amount of money you pay in pesky interest.

In this article

How do personal loan interest rates work?

Before we talk about how to negotiate a better rate, it’s important to understand exactly how interest rates are determined in the first place. Lenders will look at a few things when setting the borrower's loan interest rate, such as:

Credit score. Your credit score tells a lender how likely you are to pay back your loan. Those with good credit scores (i.e. high credit scores) are much less risky to loan money to, so banks are willing to loan them money at a lower rate. Those with bad credit may end up paying higher interest.
Debt-to-income ratio (DTI). This is the percentage of your income that goes toward debt repayment every month. People with lower DTI’s are seen as less risky, as they have a larger portion of their income to spend on a new loan payment than those with a higher DTI.
Loan amount. Generally speaking, the more money that a bank is lending you, the higher the interest rate they will charge, regardless of your credit history.
Loan term. Also known as the repayment period, the loan term will affect your interest rate. Longer-term loans come with higher interest rates, as these loans pose a higher risk to a lender than shorter-term loans.
Unsecured vs. secured. Secured personal loans are personal loans where the bank can repossess a specific item (typically a car) if you don’t pay the loan back. Since there is an underlying asset that they can then sell, should you stop paying the loan. Secured personal loans often come with lower interest rates.

When quoting you an interest rate for your personal loan, lenders will look at your credit profile as well as all of the factors listed above.

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With personal loan interest rates rising, now could be a great time to find a personal loan. Through our partner AmONE, you could get matched to a lender who could offer as much as a $50k loan with rates as low as 5.99% APR.
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Negotiating a lower personal loan interest rate

Now that we know what lenders look at when determining your personal loan’s interest rate, we can now put this to work alongside traditional negotiation techniques. Below is the perfect recipe for securing a low-interest-rate personal loan.

Improve your credit score

Your credit score is quite possibly one of the most important things that lenders will look at when evaluating your creditworthiness. Having a good credit score is key to ensuring that you’ll get the lowest rate on your personal loan.

You can improve your credit score by making all of your payments on time and in full, reducing your credit utilization (having as close to $0 statement balances as possible on all of your credit cards), carefully reviewing your credit report, and disputing any errors.

Shop around for the best personal loan offers

If you were buying a car, you wouldn’t just buy one from the first dealership you find, so why would you do so with a loan? When you’re in the market for a personal loan, be sure to check eligibility, get rate quotes from different online lenders, credit unions, banks, and other loan providers. The more rate quotes you have, the better your chances you’ll score a low rate and monthly payment.

Leverage existing relationships

In the business world, people love to work with people they have done business with before. The same is true in the banking world! If you have a savings account or brokerage account with a sizeable sum of money, you might want to ask that bank for a rate quote. Chances are they will give you a better rate if you’re a great customer!

Consider a co-signer

If your credit score is less than ideal, having a co-signer can be a great way to lower your interest rate. However, if you use a co-signer, it’s important that they have a great credit score. If your co-signer also has less than ideal credit, they’re probably not going to help you lower the rate by much.

Shorten the loan term

Although shortening your loan term will increase your monthly payment, it’s a great way to lower your interest rate. As we said before, lenders often give interest rate discounts for shorter-term loans, so shortening your loan’s term is a quick and easy way to save some money on interest.

Read the fine print

Lastly, reading the fine print is key. There are a lot of predatory lenders out there, and some may entice you with a low interest rate, but hit you over the head with origination fees or prepayment penalties. These, of course, aren’t the same as interest payments, but they’re still a cost to you, so be sure you understand what you’re signing up for before taking out a personal loan.

Get a Personal Loan Even If You Have Bad Credit with AmONE

Use AmONE to Get a Personal Loan

If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
With personal loan interest rates rising, now could be a great time to find a personal loan. Through our partner AmONE, you could get matched to a lender who could offer as much as a $50k loan with rates as low as 5.99% APR.
Approval and loan terms vary based on applicant qualifications. Not all applicants will qualify for the full amount or lowest available rates. It takes minutes to see your results. And don't worry- filling out the form won't hurt your credit score and is free, so why not give it a try?

See How Much You Can Get Through AmONE Loans

The bottom line

Negotiating a low interest rate on a personal loan is a relatively easy process, so long as you know the steps! When you do everything that we’ve outlined above, you can save thousands of dollars in interest (or potentially more) over the course of your loan’s life. That means you’ll have more of your hard-earned money in your pocket, instead of the banks.

It’s important to keep in mind though that just because a personal loan has a low interest rate doesn’t mean it’s a good deal. Before you sign on the dotted line, make sure you know what you’re signing up for by reading the fine print, and looking out for any pesky fees! A low interest rate doesn’t matter if you’re paying exorbitant fees!

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Zach Hewke is a personal finance writer specializing in mortgages, homeownership, and real estate investing. He is passionate about teaching personal finance principles and guiding people along their financial journeys.

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