Oct 12, 2023

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Have you been asking yourself how to find the best rate for a personal loan, or typed “what is a good APR for a loan?” into the search bar recently? If the answer is yes, remember: Each person’s financial situation is different.

There may be plenty of benefits to a particular loan, apart from the interest rate, that make it the best option for you. In other words, sometimes a loan with a lower rate isn’t the best solution for you, for instance if it comes with fees and/or penalties.

That said, it’s good to know the factors that go into calculating your rate, so you can find the loan that best meets your current needs and may help you reach future financial goals, too.

Table of contents

What factors affect personal loan rates?

Credit History

Credit history is usually a primary factor in determining the annual percentage rate (APR) on a personal loan.

Generally speaking, your credit score is based on how reliably you’ve borrowed money and repaid it in the past. Important data points might include:

  • Your payment history (including missed or late payments)
  • How much debt you have
  • The age of your oldest loan or credit card
  • The number of open accounts and how you use them

Knowing your credit score (e.g., do you have fair, good, or excellent credit?) could explain why you might qualify for a higher or lower rate on a personal loan. For that reason, it makes sense to review your credit report before applying, so you aren’t surprised.


Generally speaking, a higher income might help you qualify for a lower interest rate on a personal loan. But income isn’t the only factor.

For example, even a relatively high income might not carry as much weight if you also have a lot of debt or expenses in relation to that income. Lenders may look at your debt-to-income ratio as one way to assess your application; lenders prefer this number to be as small as possible.

Some lenders may have a minimum income requirement. For example, you must have a minimum individual or household annual income of $25,000 to qualify for a Discover® personal loan.

Length of loan repayment term and rates

If you want to find out what a good APR might be on a personal loan, that makes perfect sense. But it’s important to understand that your interest rate isn’t the only thing that determines how much you’ll pay in the long run. Repayment terms matter, too.

The stated interest rate only shows you the cost of borrowing the principal. A loan with a lower interest rate may not always be the least expensive option if you must also pay fees. Fees can add up, so you would owe more over the life of your loan. So, you may want to look at the Annual Percentage Rate (APR) which includes the base interest rate and any other expenses or fees.

Read our article on the difference between APR and interest rates, to learn more about why it matters when you are comparing loans.

What steps can I take to get a good interest rate on a personal loan?

There are several things you can do to find the best personal loan rates for your financial situation, including:

  • Maintain a good credit history
  • Have sufficient income to repay the loan
  • Choose the shortest repayment term you can manage
  • Find a lender that allows you to check your interest rate and monthly payment before applying, without affecting your credit score 
  • Compare online lenders

Just note that if you qualify for a loan, you could get a rate anywhere within the range that the lender offers. In addition, each lender has its own underwriting criteria.

Finally, remember to consider other loan features that could serve you well, such as no origination fees or prepayment penalties, which are both benefits of borrowing with Discover Personal Loans.

Can I preview my interest rate online?

Some online lenders offer tools that let you preview your rate and monthly payment before you apply. Discover Personal Loans has a calculator that lets you Check Your Rate with no impact to your credit score. That way, you can get a better idea of the total cost of the personal loan before you submit a full application.

If you find your interest rate is higher than you expected, you can always come back and check again after you’ve had time to improve your credit health. Or you could look into other factors that might be affecting your interest rate.

How do I compare lenders and rates?

You might be able to compare personal loan APR ranges from various lenders with a simple internet search.

Also consider the reputation of the lender, whether you have a preexisting relationship with them, and whether you’ll be able to rely on their customer service team to answer all your questions.

If you’re more comfortable sitting down with someone in person, a local bank or credit union might be a good fit. But you can get the same level of personal attention online, as well. When you apply for a Discover personal loan, for example, you can talk with a U.S.-based loan specialist who will explain your options and help you complete your application.

Rates are important, but borrowing money is a serious commitment, and you want to have confidence that the lender you choose will see you through from the beginning to the end of the life of the loan.

What else affects the cost of borrowing, beyond the interest rate?

As you search for the right lender and rate, don’t forget about additional costs, such as origination fees and prepayment penalties. These fees can chip away at other cost-saving benefits, and are typically taken out of your total loan amount.

For example, if you apply for a $15,000 loan with a 4% origination fee deducted from the loan amount, you’ll only receive $14,400. That’s because $600 in origination fees—4% of the loan—will stay with the lender. And you will still pay interest on the total amount of your loan.

So, be sure to focus on the total cost of borrowing, instead of deciding based on the lowest interest rate.

Interested in taking out a personal loan? Our personal loan calculator makes it easy to estimate monthly payments based on loan amount and credit score.

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