Four personal loan picks for 2020

Young man thinking about a low interest personal loan over a cup of coffee Image: Young man thinking about a low interest personal loan over a cup of coffee

In a Nutshell

The average personal loan rate in 2020 is near 10%, but the rates you’ll see on personal loan offers can vary widely depending on your credit scores and credit history. Before selecting a personal loan, it’s important to compare loan options to help find the best rate available for you.

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Personal loan interest rates can vary wildly depending on the lenders you’re considering and your borrowing power.

The average annual percentage rate on a two-year personal loan from a commercial bank was 9.63% in the first three months of 2020, according to Federal Reserve data.

While the average rate isn’t too high, some personal loan lenders offer loans with annual percentage rates of up to 36%. Other lenders may charge even higher rates than that if you have bad credit.

Qualifying for a personal loan with a low rate, one with an average rate and one with a sky-high rate often comes down to your credit history and credit scores. Generally, the higher your credit scores, the more likely you are to qualify for a loan with lower or more-competitive rates. And the lower your credit scores, the more likely you are to face higher interest rates.

Before applying for a personal loan, read on to learn about lenders with lower personal loan rates and some tips on how to prequalify for a loan with low interest rates.

Worried about debt because of COVID-19? Check out our resources.



Which lenders offer low interest rates?

There’s no single lender that offers a personal loan with the lowest interest rates for everyone. But certain types of lenders, such as credit unions or online lenders, may offer lower or more-competitive rates to people that qualify.

Here are some of our picks for personal loan lenders with competitive interest rates for borrowers with good credit. As with most lenders, the rates available will vary, with better credit terms typically available for the highest credit scores.

Best for debt consolidation: Marcus by Goldman Sachs

If you’re looking to consolidate high-interest credit card debt with a personal loan, Marcus by Goldman Sachs will send your approved loan funds directly to your credit card issuers for up to 10 credit cards.

Best for being part of a community: SoFi

SoFi emphasizes member benefits like career coaching and access to members-only experiences and events.

Best for rate shopping: Lightstream

With its Rate Beat program, Lightstream offers to match other lenders’ personal loan APR terms for you — and then lower the APR by 0.1 percentage points, provided you meet certain criteria when applying. Bonus: Lightstream discounts your rate by 0.5 percentage points when you enroll in autopay to make your monthly payment, which is reflected in its lowest rates.

Best for a secured personal loan: Wells Fargo

Wells Fargo allows borrowers to take out a secured personal loan using a savings account or CD as collateral, which might be a way to borrow money at a lower interest rate.

Check out more of our picks for best personal loans for good credit

How can you prequalify for a personal loan?

Because each lender has a different risk tolerance and underwriting criteria, it’s wise to compare personal loans from several lenders to make sure you get the best deal available for you. Applying for prequalification can be a good way to compare rates without adding a hard inquiry to your credit reports.

The prequalification process typically involves submitting some information to a lender so it can decide if it might be willing to lend to you.

Once you submit the required information for prequalification, the lender will likely run a soft credit check to get an idea of your credit history. If you’re prequalified, the lender may share a loan offer with an estimated interest rate and loan amount for your review.

If you like the estimated rate and amount, you can submit an application. The lender will then run a hard credit check, which provides a fuller picture of your credit history. The lender will then determine whether or not to approve your application and, if approved, give you a final interest rate and loan amount.

Take note: If you’re approved for a loan, your final interest rate and loan amount may be different than the estimates you got during the prequalification process. This can happen if the lender finds something through the hard credit check that changes how it views your credit profile.

How do personal loan rates compare to other types of loan rates?

Different financing options, like personal loans, credit cards and mortgages, can come with varying interest rate ranges.

Here are the current average interest rates from commercial banks for the first quarter of 2020 for personal loans compared to auto loans and credit cards, according to the Federal Reserve.

Financing type Average interest rate
Personal loan (2-year loan) 9.63%
New auto loan (4-year loan) 5.29%
Credit card 15.09%


If you’re buying a car, you may get a better rate by financing it with an auto loan than with a personal loan. But that same logic may not apply to a personal loan vs. a credit card. That’s because a credit card is a form of revolving credit. And if your card has a grace period, you won’t have to pay any interest on purchases as long as you’re paying off your balance in full and on time each month.

When comparing personal loan rates to other options, like auto title loans and payday loans — which can have fees that can equate to APRs of around 300% or more — the gap is much greater.


What’s next?

Scoring a personal loan with low interest rates can save you hundreds — or even thousands — of dollars in interest over the life of your loan.

The more you understand how lenders set interest rates, the easier it can be to qualify for lower interest rates with a lower monthly payment.

Here are three quick tips to keep in mind before applying for a personal loan.

  1. Check your credit scores. The higher your scores, the better your chances of getting a lower or more-competitive rate. Use Credit Karma to check your VantageScore 3.0 credit scores and credit reports from Equifax and TransUnion.
  2. Pay down existing debt. Lenders may consider your DTI, or debt-to-income ratio. If your DTI is high, you might be considered a risky borrower and end up with a higher interest rate. Paying down your credit card balances or other debt before applying for a personal loan might help.
  3. Shop around. Each lender has different criteria for determining interest rates. It’s worth comparing rates from several lenders to see which is best for you.
How to compare loan offers to get the best deal for you

Worried about debt because of COVID-19?

The coronavirus pandemic has hit the economy hard. It may be difficult to find or qualify for personal loans with low interest rates right now, and if your employment situation has changed, just paying off existing debt and bills may be a challenge. The CARES Act may offer you some financial assistance, along with measures from your state and local governments.

Some lenders are also offering financial relief. Learn more about aid from mortgage, auto and student loan lenders as well as what options credit card issuers are offering.


About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Cr… Read more.