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Best Personal Loan Rates & What Influences Them


When qualifying for a personal loan, two things matter most - the amount you are eligible for and your interest rate. There are a few things that influence these numbers. They are your credit score, annual income, and debt to income ratio. 

How To Qualify For The Best Personal Loan Rates 

To qualify for the best personal loan interest rates, you want to have an understanding of where you stand with these three pieces of information. Keep reading to learn more about how these factors influence your personal loan rate and approval. 

Credit Score

Each lender has a minimum credit score to qualify for a personal loan, but that number is not the same everywhere. Some will have stricter requirements, while others are more flexible. 

Your credit score indicates to a lender your ability to repay the loan in full and on time, which dictates if you qualify along with the interest rate you receive. 

Your credit score is derived from a few factors related to your credit including your...

  • Payment history (35%): This is based on whether you've paid your past loans and debts back on time. This is the most critical factor.
  • Total debt (30%): This is based on how much debt you have compared to how much debt is available to you. If you have $30,000 in available credit, but you've used $25,000, it can negatively impact your credit. However, if you have $150,000 in available credit, but you've only used $25,000, your utilization rate is lower. 
  • Length of credit (15%): The longer you've maintained your credit, the better. If you have a lot of new credit, it can decrease your score.
  • New credit history (10%): Creditors don't want to see that you have a lot of new credit because it can indicate a potential financial risk.
  • Type of credit used (10%): The credit bureau wants to see that you have a mix of credit, including credit cards, retail accounts, installment loans, mortgages, etc. 

Equifax, Experian, and Transunion are the three federal credit reporting agencies that collect information about your credit and give you a credit score that lenders then use to determine your personal loan rate. 

You can get a free copy of your credit report from each bureau annually by visiting AnnualCreditReport.com. You can also view your credit score online at websites such as CreditKarma.com

If you have time to hold off on getting your personal loan, see how you can improve your credit score. By doing this, you allow yourself to qualify for a better personal loan interest rate. This might mean paying off more debt, getting inaccuracies corrected, making additional on-time payments, or waiting for negative remarks to fall off. It might take some time depending on your current status, but it can pay off big time when on a quest to get a lower loan rate. 

Debt-To-Income Ratio

Your debt to income ratio (DTI) is also considered when determining your personal loan interest rate. 

You can calculate your DTI ratio by dividing how much you owe to others by your monthly gross income. You want to include debt obligations such as credit card payments, auto loans, and student loans. This number is used to show the lender the percentage of your income that you use to pay off current debts. 

The higher your DTI ratio, the greater chance there is that you could struggle to make your payment consistently. In that case, you will likely have a higher interest rate so the lender can protect their interests. However, if you have a low DTI ratio, the lender feels more confident in loaning you money. 

Keep in mind that a great debt to income ratio is 35% or lower. Anything higher than that sends a signal that you might have too much debt compared to your income. If your debt to income ratio is over 35%, consider what you can do to decrease it so you can qualify for a better interest rate. You would either have to increase your income or decrease your debt obligations. 

Annual Income

Along with your credit score and debt to income ratio, lenders want to see that you have a steady income to make your payments on time. They also want to know how long you've been at your job if you have a stable work history, and how much you make each pay period. 

If you have a high debt to income ratio due to a low income or if your work history isn't consistent, you might not qualify for a low interest rate.

Finding A Lender Who Has The Best Personal Loan Rates

If you’re hoping to qualify for a low personal loan rate, you want to review the information above. Your annual income, credit score, and debt to income ratio will make a significant difference in whether you qualify for the best personal loan rate or if you have to settle for a lower rate. 

Another factor that plays a role in the rate you get is the lender you choose. You should work with a lender that prioritizes keeping your rates low. At OUCU Financial, that's one of our goals. Learn more about getting a personal loan at OUCU. 

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