What goes into getting the best personal loan offer?

Getting the best personal loan offer often comes down to preparation, comparison and timing. Sakchai Vongsasiripat/Getty Images

Americans are carrying record levels of debt, and credit cards are a big part of the problem. The average credit card balance sits just under $8,000, with average credit card interest rates hovering near 22%, meaning that many borrowers end up paying hundreds, if not thousands of dollars, in interest charges each year. Those juggling multiple cards or high balances, though, may find that their monthly payments have quickly spiraled out of control, making it hard to make meaningful progress toward paying down their debt.

One tool that many people turn to for relief in this situation is a personal loan. Unlike credit cards, personal loans typically come with fixed interest rates and predictable monthly payments, which can make it easier to plan and pay off debt faster. By consolidating high-rate credit card balances into a single loan with a lower rate, borrowers can reduce the amount of interest they pay, simplify their finances and regain some control over their budget.

Of course, not all personal loans are created equal. If your goal is to use a loan to pay off debt, the terms you secure, like the interest rate, fees and repayment period, will directly affect how quickly you can become debt-free and how much the loan ultimately costs. That makes it even more important to shop smartly and understand what goes into landing the best personal loan offer. Below, we'll closely examine what exactly goes into getting the best personal loan offer.

Learn more about how to get rid of your high-rate debt for less.

What goes into getting the best personal loan offer?

Here are the main factors that will help determine your personal loan offer:

Credit score and credit history 

Your credit score is the first, and often the most important, factor lenders look at. Higher scores typically unlock lower interest rates. If your score is in the 750s or higher, you may qualify for personal loan offers in the low double digits or even single-digit rates, in some cases. Conversely, scores below 650 may mean higher rates, stricter terms or limited lender options. Beyond the number itself, lenders also examine your credit history to determine whether you make timely payments, have outstanding balances or past delinquencies or collections, all of which weigh into the decision.

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Debt-to-income ratio  

Lenders want to know that you can realistically afford your new personal loan, and your debt-to-income (DTI) ratio, which is your monthly debt payments divided by your monthly income, helps them assess risk. A lower DTI signals that you have room in your budget to handle a personal loan payment, which can lead to more favorable rates and higher loan amounts. Most lenders prefer a DTI below 35%, though some may approve borrowers with higher ratios depending on other factors.

Loan term and amount 

The loan amount and term you choose also influence your rate, sometimes significantly. The lowest personal loan rates are typically offered to borrowers with high credit scores (over 700) for terms of three years or less. Shorter terms almost always come with better rates, though you'll need to balance that against affordable monthly payments.

Employment and income stability 

Income stability matters more than most people realize. A borrower with a 720 credit score but inconsistent income might get a higher rate than someone with a 700 score and solid employment history. Even if you meet their minimum requirements, having breathing room in your budget can translate to better rates. That's why salaried employees, self-employed professionals with proof of steady revenue or retirees with predictable income streams generally have an easier time securing favorable terms. 

Lender type and relationship

Not all lenders are created equally. Banks, credit unions and online lenders all have different approval criteria, rate structures and fees, which is why comparing multiple lenders is essential to finding the best offer. Your existing relationship with financial institutions can also be a secret weapon. Many banks and credit unions will offer rate discounts to existing customers, so starting your search with your current financial institution could pay off. Credit unions also tend to deliver lower rates to members they've built relationships with. If you're not already a credit union member, joining one might be worth the small hassle for the potential savings.

The bottom line

Getting the best personal loan offer comes down to preparation, comparison and timing. Your credit profile, debt-to-income ratio, income stability, loan size and lender choice all play crucial roles in shaping your terms. By reviewing your credit, understanding what lenders are looking for and shopping wisely, you can secure a loan that meets your needs without overpaying.