Getting a personal loan at a low interest rate is a good idea given how low personal loan interest rates are compared to credit card interest rates. I've worked in finance since 1999 and Financial Samurai has been around since 2009. You've come to the right place to learn how to get a personal loan with a low interest rate.
Interest rates plummeted during the global pandemic because the Federal Reserve slashed its Fed Funds rate range to 0% – 0.25%. As a result, personal loan rates and mortgage rates also plummeted. However, the rate that continues to stay stubbornly higher are credit card interest rates.
Take a look at the chart below that highlights the widest spread between personal loan interest rates and credit card interest rates.
Don't Borrow With A Credit Card
As you can see from the chart, the average personal loan interest rate is around 10%, close to a 20-year low. Meanwhile, the average credit card interest rate is at roughly 17%, close to a 20-year high!
Therefore, please do not get into revolving debt with a credit card. You will be severely overpaying. Instead, get a personal loan directly through a lender. Just be careful who you borrow from and avoid overly expensive loans.
Whenever there is such a huge discrepancy, it's always good to take full advantage. This is why you should take a look online lending marketplaces for personal loans. Within three minutes, qualified lenders can present real quotes for you to compare and contrast.
Taking out a loan by getting a cash advance on your credit card or paying for things on a credit card is NOT the most efficient way to go. It's easy to do, given the ubiquity of credit cards and how easy it is to use a credit card, but it's one of the most expensive options.
Absolutely get a rewards credit card for all your purchases. Just make sure to pay off your credit card debt each month.
Related reading: Credit Cards vs Personal Loans: Which Is Better?
Getting A Low Interest Rate Personal Loan
You must be very diligent about getting a personal loan. There are sharks out there who will try and take advantage of any desperation and charge you as high an interest rate as possible.
The industry calls these lenders “Payday Lenders” where they give you a loan as soon as you hit your payday. In other words, as soon as you get money, it's GONE!
By going with an online marketplace for a personal loan, you'll have a reputable SF-based lending company that already pre-vetted all the lenders. Not only can you trust the lenders, the lenders also compete for your business to bring down the interest rate.
To be completely balanced, it's a good idea to also discuss the pros and cons of borrowing money from a lending marketplace.
Pros of Getting a Personal Loan:
- You can get the money you need usually within a week
- Rates are very competitive because multiple lenders are competing for your business
- There aren't any hidden fees or surprises given the terms are clearly written and you will read the terms
- You don't pay a much higher interest rate with an alternative method of borrowing
- You build your credit score by paying back your personal loan on time
Cons of Getting a Personal Loan:
- If you are really in a bind and you don't have good credit, you could rush into getting a personal loan
- There are late payment fees
- Your credit score will be affected if you do not pay on time
- You may end up borrowing more money than you need because of how easy technology has made it to be able to borrow money
We are most vulnerable when we are most in need. This is why whenever you plan to borrow money, you must carefully compare ALL your options. It helps that lenders will compete for your business, driving down lending rates. However, you need a cool head before taking out a personal loan. Don't let your emotions push you into making a rash decision you will later regret.
Related: Why Low Interest Rates Are Probably Here Forever
Ask yourself the following questions before getting a personal loan:
- Will the personal loan rate I get be lower than other interest rates?
- Will I be able to pay back the personal loan on schedule?
- Do I understand all the terms of the contract?
- How will my financial situation improve if I take out the personal loan?
- Do I have any other outstanding liabilities and outstanding receivables?
- Is the company I'm borrowing from a reputable company?
If you can answer these questions with confidence, then you should be able to take out a personal loan. The explicit assumption is that you will eventually pay it back.
Always back back your debt! Getting a personal loan is not free money.
Money Borrowing Alternatives
Instead of getting a personal loan from a lending marketplace, your next best alternative is to borrow money from your parents, friends, or relatives.
But to do so requires swallowing your pride and coming clean as to why you need to borrow money. The second part, coming clean, is actually a very cathartic process. It makes you focus on your issues and ways in which you can get better.
Most friends and family members will have the generosity to offer you an interest-free loan with a reasonable term duration to pay back the loan.
If you want to feel better about borrowing from friends and family, then at least offer up an interest rate that keeps them neutral inflation. This way, they are not losing real purchasing power. This interest rate, based on the 10-year bond yield and CPI, is about 2%.
The biggest risk with borrowing from parents, friends, and relatives is that you might ruin your relationship. If you fail to pay them back or pay them back on time with the agreed upon terms, this could be bad.
I, personally, would never borrow from friends or family because I would feel too ashamed. Further, I value relationships so much that I don't want to risk destroying them.
Easiest Way To Borrow Money
Instead, I would rather take out a personal loan from a lending marketplace. Then I'd work like hell to make more money during my spare time to pay the money back.
If you're in debt, like millions of Americans are, the first thing you need to do is review your budget. Slash non-essentials. Then, I recommend consolidating your debt into a lower interest rate personal loan. Finally, you need to keep your austerity spending while doing everything possible to boost income.
If you have mortgage debt, then you should also refinance your mortgage to a lower rate. Mortgage rates have fallen the most in this low interest rate environment.
Take advantage of low interest rates and technology. Just make sure they don't take advantage of you! Fight on.
Take Control Of Your Finances
It's important to track all of your financial accounts often. In addition, you should be monitoring your investments regularly to make sure you're comfortable with your positions. I highly recommend signing up for Empower, a free online wealth management tool that utilizes the latest technology. It enables you to easily and securely monitor your finances.
Empower's free features include:
- Track your net worth in real-time (no more spreadsheets!)
- Retirement planner (they make it easy)
- Retirement calculator
- Budget expenses
- Track your cash flow
- Set portfolio allocation targets for your investments and monitor drift
- Get tips on saving and spending smarter
Definitely open up an account with Empower today. See how your finances are shaping up for free.
