How to get the best loan rate

The interest rate is just one factor to consider when choosing a loan. The loans with the best rates often have the lowest APRs. There are several things you can do to boost your chances of getting a low-rate loan, such as improving your credit score, shopping around, and comparing different loan amounts and terms.

4 min read
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Can I get a loan with a low interest rate?

Whether you get approved for a loan and what interest rate you are offered will depend on the lender and your individual circumstances. Each lender has their own eligibility criteria, but most will check your:

  • Credit history – a good credit history shows lenders that you are a responsible borrower, so there’s less risk involved for them. In turn, you’re more likely to be accepted and get a low interest rate.
  • Affordability – you’re also more likely to get a low APR if you can demonstrate that you can afford the repayments on top of your other outgoings, as again, it’s less risky for the lender.

Which type of loan has the lowest interest rate?

Secured loans (also known as homeowner loans) tend to come with lower interest rates than personal loans. This is because your property acts as security for the lender, making it less risky for them. However, your home could be repossessed if you fall behind with secured loan repayments.

Find out about the pros and cons of both types of loans for more information.

How to get the best loan rate

Follow these tips to find the best loan rate you’re eligible for. Remember though, the most suitable loan for you will depend on your individual circumstances, not just the interest rate.

1. Boost your credit score

The higher your credit score is, the more likely you are to get a competitive rate. If your credit score is low, it may be worth improving your rating before you apply. There are lots of things you can do to help, for example:

  • Register to vote on the government’s website
  • Set up Direct Debits so you never forget to make any payments
  • Fix mistakes on your credit report by getting in touch with the credit reference agencies
  • Remove old financial associations from your credit file
  • Use a credit card responsibly by always paying on time and in full if you can and staying well within your credit limit. Missed payments may harm your credit score and late fees could apply.
  • Reduce existing debt – aim to reduce your credit card balances to around 30% (or less) of your credit limit. 

Read on to find out how to check your credit score.

2. Shop around using eligibility checkers

It’s worth using eligibility checkers to find out how likely you are to be approved, before you apply. Unlike a credit application, an eligibility checker only performs a soft search on your credit file. It won’t affect your credit score and lenders won’t be able to see it. So, you can check your eligibility as much as you need to narrow down the best deal for you. 

3. Check if it's cheaper to borrow more

Smaller loans tend to come with higher interest rates. While you should only borrow the minimum you need, it can sometimes work out cheaper overall to get a slightly bigger loan. So, it can pay to check if borrowing a little bit more could unlock lower interest rates.

Remember, however much you borrow and whatever the interest rate, make sure you can afford the monthly repayments. If you miss payments or make them late, this can leave negative markers on your credit file that may affect your ability to get credit in the future. If you fall behind on a secured loan, your home could be put at risk.

4. Consider the loan term

How long you take out a loan for can affect the overall cost. You may get a lower APR and cheaper monthly repayments by spreading your loan over a longer term. But this may not work out cheaper overall than having a shorter loan with a higher interest rate. It's important to compare different loan terms to find the best deal for your needs.

Tip: Try our loan calculator to see your estimated monthly payments. You can also find the best rate that you’re eligible for from our panel, without affecting your credit score.

What else should I look out for when I compare loans?

Early repayment charges

While a lower APR often works out cheaper, there may be extra costs on top. For example, early repayment charges may apply if you overpay or clear the balance early. It’s important to always check the terms and conditions of a loan before borrowing.

The representative rate isn’t guaranteed

The loan rate you get will depend on your individual circumstances and doesn’t always match the advertised rate. Where you see a ‘representative APR’ or ‘representative APRC’ advertised, this means 51% or more of customers receive this rate or better.

Fixed and variable rates

Interest rates are normally fixed on personal loans. This means your interest rate and monthly payments stay the same for the duration of your loan.  

With secured loans and mortgages, you could get a variable rate or a fixed rate for a set period. If you choose a variable rate, the interest rate and monthly repayments can go up and down. The best option depends on your individual circumstances. It’s worth speaking to a mortgage adviser before making any big decisions.

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We're a credit broker not a lender. Homeowner loans are secured against your home.

Alternatives to a loan

If you’re looking to borrow a small amount, there are options that could work out cheaper than a loan, such as:

Interest-free overdraft

Your bank may be able to give you a small interest-free buffer on your current account, depending on your eligibility. As with any type of credit, it could affect your credit score if you don’t manage it responsibly. Bear in mind that some overdrafts are only interest-free for a fixed period, after which time interest will apply.

0% credit card deal

Some credit card providers offer interest-free introductory rates for a fixed period (around 6 months or more). Lenders will consider your individual circumstances to decide if you are eligible.

Bear in mind, you will need to make at least the minimum payment on time (every time) to avoid interest and charges. Once the deal ends, you will move to a higher interest rate, so it’s important to pay off as much of your balance as you can before the end of the interest-free period.

Disclaimer: All information and links are correct at the time of publishing.

Adele Kitchen, Personal Finance Writer

Adele Kitchen

Personal Finance Writer

Adele is a personal finance writer with more than 10 years in the finance industry behind her. She writes clear and engaging guides on all things loans for Ocean, as well as contributing blogs to help people understand their options when it comes to money.