How to Receive a Low-Interest Loan

To find the best personal loans for your needs, you must first understand what these loans are and how they work. It is also helpful to determine how you will use the money, since loans for eligible expenses such as college tuition may qualify for special terms and rates.

It is important to be familiar with personal loan rates so that you can shop around for the lender that best suits your needs and financial situation. Read the sections below for more information on how to get a low-interest loan and the different types of loans that are available to you, such as personal loans and student loans.

What is a personal loan?

A personal loan is money that you borrow from a bank, credit union or other financial institution and agree to repay over a set period of time at a fixed interest rate. These loans differ from other loans in that you do not have to provide any form of collateral, or material possession such as a house or vehicle, as backing or insurance to receive the money.

Most such loans must be repaid in relatively short windows of time, such as three or five years. The best personal loan rates are typically based on your:

  • Credit score.
  • Credit report.
  • Debt-to-income ratio, or the amount of money you already owe to all lenders compared to the amount of money you regularly make.

Lenders offer the most attractive terms to borrowers with credit histories that suggest they are low-risk and very likely to make their payments on time.

Learn About the Benefits of a Low-Interest Personal Loan

Low interest personal loans have many benefits:

  • They allow you to borrow money that you can use to pay for immediate needs, healthcare expenses, housing, vehicles and other bills or purchases.
  • They allow no risk of losing your home or vehicle if you fail to repay your debt in a timely manner, because they do not require collateral.
  • They are available from local, regional, and national creditors, as well as online providers, making them readily available no matter where you live.
  • They often carry lower interest rates than credit cards and other funding alternatives.
  • They can improve your credit score over time if you make your payments consistently and on time.

Learn About the Personal Loans Available

You can apply for a personal loan in person at any bank or credit union in your community. Alternatively, you may apply to any financial institution offering such loans online.

Before applying, compare the terms and conditions being offered by a few different institutions to see how they compare. For example, you might decide to compare Capital One personal loans to similar loans from Wells Fargo and USAA.

In doing so, you would find that:

  • Capital One does not offer personal loans at all.
  • Wells Fargo personal loan rates can be as low as 5.24 percent.
  • USAA personal loan rates start at 9.49 percent.

With that information, you would easily be able to see that your best option is to begin by applying to Wells Fargo, and move on to USAA only if you do not qualify for a loan from Wells Fargo or cannot negotiate terms that meet your needs.

Can you get a low-interest personal loan with bad credit?

Low interest loans for bad credit are available. Typically, loans for applicants with bad credit will carry restrictions that might not apply to borrowers with good credit, such as lower loan caps or slightly higher interest rates.

Learn About Low Interest Student Loans

Student loans are funds that individuals borrow from lenders for the specific purpose of paying college or graduate school tuition or other qualifying academic expenses, such as books and lab materials. As with private loans, no collateral is required.

How to Qualify for a Low-Interest Student Loan

Low interest student loans are available to students actively enrolled in institutes of higher education or their parents. Additional factors that may affect eligibility include:

  • Income level or calculated financial need.
  • Applicants’ credit scores and credit histories.
  • The types and amount of debt, and specifically student loan debt, that applicants already carry.
  • Individual college and university policies and requirements regarding financial aid eligibility and availability.

Students may choose between federal and private student loans, or use a combination of loan types to obtain the full funding support they need for their educational careers.

What are federal student loans?

Federal loans are widely considered the best student loans due to their generous terms and deferred repayment schedules. Students and their families must submit a Free Application for Federal Student Aid (FAFSA) each year to qualify.

There are three primary types of federal student loans:

  • Direct Subsidized Loans are available only to undergraduates who demonstrate financial need. Federal regulations limit the amount of money students may receive under this type of loan each year. The government pays the interest on these loans while students are enrolled in and attending school and during a six-month grace period post-graduation.
  • Direct Unsubsidized Loans are available to both undergraduate and graduate or professional students. There is no requirement to prove financial need, and the maximum dollar amount a student may borrow per year is higher than the Direct Subsidized Loan cap. Interest on these loans is not deferred, and students must make regular interest payments on these loans while enrolled in higher education programs.  
  • Direct PLUS Loans are federal loans available only to parents or guardians of active students.

Current federal student loan interest rates for these loans range between 5.05 and 6.6 percent.

What are private student loans?

Federal loans are not the only education loan finance option available. Students and their families who do not qualify for federal loans or who have maxed out their federal borrowing opportunities can seek out private student loans from banks, credit unions and other lenders.

While low student loan interest rates can be available from private lenders, these loans typically carry higher interest rates and less forgiving repayment terms than federal loans. Borrowers should carefully review repayment, deferment and forgiveness terms before selecting a loan.

Students and their families may also seek out private lenders to refinance their existing educational loans to gain better terms and to consolidate their debt.