The best way to lower the interest rate on a personal loan is by refinancing the loan with another lender. When you refinance, you use a new loan or line of credit with a lower interest rate to pay off the old loan, so you owe the old balance to the new lender. And since interest won’t be accumulating as quickly, you should be able to pay off the new loan sooner, assuming your monthly payment stays the same or increases.
But some borrowers may also find success simply asking for a lower rate. Asking for a rate reduction is the easiest route, as it doesn’t require applying for a new financial product. It’s just less reliable. Still, it’s a good idea to pursue both paths at once – pre-qualify for some refinancing options and then mention their rates when negotiating. If the original lender won’t offer a cheaper rate, then refinance.
How to Get a Lower Interest Rate on a Personal Loan:
- Ask for a lower rate. If you call your lender and express concern that your APR is too high, there’s a chance the lender will reduce the rate. That’s especially true if you make it clear that you are experiencing temporary financial distress, that your creditworthiness has improved significantly since you applied, or that you are willing to take your business elsewhere. In any case, it doesn’t hurt to ask.
- Tap into your home equity. You can refinance an existing personal loan with a home equity loan or home equity line of credit, which are secured by your house but tend to have very low interest rates (4% - 8%).
- Take out another personal loan. If you get a lower interest rate on a new personal loan, you can use it to pay off the old one and save money in the long run.
- Move the debt to a balance transfer credit card. Balance transfer cards offer 0% introductory APRs for a certain number of months, and are best if you’ll be able to pay off the remaining balance completely in that time period. You’ll need good or excellent credit to qualify.
Tips for Negotiating a Lower Interest Rate on a Personal Loan
You can pre-qualify for a personal loan or for a balance transfer credit card (but not for home equity products). So if you pre-qualify for a loan with lower rates or a 0% balance transfer card, you can use that to your advantage when negotiating with your lender. If they know you’re thinking of moving your balance elsewhere, they may work with you. If not, you’ve got a good deal to fall back on.
It also helps to have another good reason for why the lender should lower your rate. One example is if your credit score has gone up a lot since you first opened the loan, meaning you’re a less risky borrower now. Another is if you’re having financial hardship (e.g. unemployment, sickness or damage to your home from a natural disaster) and simply can’t afford your payments. Lenders may be sympathetic to these problems and offer you at least a temporarily lower interest rate.
The keys to negotiating with your lender are to be clear about what you want to accomplish, truthful about your situation, and polite to the representative. Ask for copy of any new terms you agree to in writing. And if you’re unable to get a good deal, refinance instead.
This answer was first published on 07/17/19 and it was last updated on 11/27/19. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
FAQs
One of the best ways to qualify for a lower interest rate on your personal loan is by improving your credit score. If your score has increased since you initially took out your loan, this could be a good reason to refinance. You want to switch your rate type.
How can I lower my interest rate on my personal loan? ›
One of the best ways to qualify for a lower interest rate on your personal loan is by improving your credit score. If your score has increased since you initially took out your loan, this could be a good reason to refinance. You want to switch your rate type.
Is it possible to reduce interest rate on a personal loan? ›
Repay Your Outstanding Debts
Consequently, the lender perceives your loan as relatively high-risk. This may result in a higher interest rate on your loan or rejection of your application. You can negotiate a lower interest rate with your lender if you strategically pay off some of your current debt.
How to get the lowest interest rate on a personal loan? ›
A high credit score and income are crucial to getting the lowest rates on a personal loan. Improve your score before applying for any credit products if you can. Apply for prequalification with at least three lenders to preview your potential APR.
How do I make my interest rate go down? ›
Here are seven ways you may be able to lower your interest rate and reduce mortgage payments, both at signing and during your loan term.
- Shop for mortgage rates. ...
- Improve your credit score. ...
- Choose your loan term carefully. ...
- Make a larger down payment. ...
- Buy mortgage points. ...
- Lock in your mortgage rate. ...
- Refinance your mortgage.
Loan amount: The more you borrow, the more risk the lender takes in the event that you default. As a result, higher loan amounts may have higher interest rates. Repayment term: Longer loan repayment terms typically come with higher interest rates because of interest rate risk.
How much would a $5000 personal loan cost a month? ›
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| Loan Amount | Loan Term (Years) | Estimated Fixed Monthly Payment* |
|---|
| $5,000 | 3 | $153.54 |
| $5,000 | 5 | $104.98 |
| $10,000 | 3 | $313.32 |
| $10,000 | 5 | $207.54 |
13 more rowsThe average personal loan interest rate was 12.49% in February 2024 on two-year loans, according to the most recent data from the Federal Reserve. But personal loan interest rates can range from 6% to 36%, depending on your credit score, income, current debts, and other factors, such as loan term and amount.
Which bank gives less interest for personal loan? ›
Personal loan interest rates in March 2024
| PERSONAL LOAN - RATES AND CHARGES |
|---|
| Name of Lender | Interest rate (p.a %) | EMI (Rs) Loan amount- 1 lakh Tenure - 5 years |
|---|
| State Bank of India | 11.15-15.30 | 2,182-2,395 |
| ICICI Bank | 10.80 onwards | 2,164 onwards |
| Bank of Baroda | 11.05-18.75 | 2,177-2,580 |
21 more rowsMar 20, 2024
If you're with a major bank, ask them to beat what the other major banks are offering. If you're with a smaller lender, ask them to match what's on offer on the market. Your mortgage broker can do this for you using a pricing request.
The issuer may decline your request, but it never hurts to ask. If you've established a history of on-time payments and other responsible behavior with the issuer, you may be able to leverage this history to your benefit. A lower interest rate can ensure you pay less in interest over time, so it's worth asking for.
How much does it cost to buy down your interest rate? ›
How Much Does It Cost To Buy Down An Interest Rate? The cost for each discount point depends entirely on the amount you, as the borrower, take out on the loan. Each point that a borrower pays is equivalent to 1% of the loan amount.
How does a 3/2/1 buydown work? ›
With a 3-2-1 buydown mortgage, the borrower pays a lower than normal interest rate over the first three years of the loan. The loan interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year; for example, a 5% mortgage would be just 2% in year one.
How to buy a house when interest rates are high? ›
10 ways home buyers can overcome rising interest rates
- Do the math. Owning a home may seem costly, but it's not necessarily more costly than renting. ...
- Focus on the benefits. ...
- Rethink your budget. ...
- Boost your credit score. ...
- Ask about special loan programs. ...
- Update your wish list. ...
- Check out the charts. ...
- Raise your income.
If you are buying a home and have some extra cash to add to your down payment, you can consider buying down the rate. This would lower your payments going forward. This is a particularly good strategy if the seller is willing to pay some closing costs.
