What is a Low Interest Personal Loan?

Tricia Christensen
Tricia Christensen

The low interest personal loan is not a mythical beast, though it may be considered rather rare in the finance industry. In order to obtain a loan of this nature, it takes relatively perfect credit because the lender is at much greater risk in extending this money. It’s also known that low interest may not be as low as other forms of loans because a person pays a higher interest amount to subsidize the lender’s extra risk.

A man getting a low-interest personal loan.
A man getting a low-interest personal loan.

There are certainly companies that will advance a low interest personal loan to people with excellent credit ratings. Amounts are usually not that high, though each company specifically determines what they will lend. It does have to be understood that low interest is only low when contrasted to other personal loans that have higher interest rates. These are not usually the lowest interest loans people can get, but they’ll typically be the lowest interest loans obtainable without some form of security. Generally, the very lowest interest loans are those taken out on the equity of a home or other property; higher amounts can be obtained, and interest rates will certainly be lower.

As with all types of loans, people will need to do some shopping to find the best low interest personal loan. This could mean looking at bank rates, online lenders, and small finance companies to determine best interest rates. It also helps to know personal credit score before beginning this search, as many lenders will clearly define who qualifies for best low interest personal loan based on credit score. Changes in lending practices since the late 2000s typically mean people must have 700 or above to qualify for the most attractive rates.

The reason that rules for lending at low rates are so incredibly stringent is due to the fact that the loan is given on the borrower’s word or signature. There is no way for the lender to recoup losses, except by suing, if the lender defaults on the loan. Since litigation is a time-consuming and expensive process, most financial institutions want to avoid it. Thus, they do everything they can at loan origination to make certain the borrower is the type of person who will repay the loan.

Yet, as stated, interest rates are still going to exceed loans that aren’t constructed like personal loans. People who really want a low rate should not get a personal loan unless it is from a family member or friend not charging interest. It is usually far better to obtain a loan that is secured by collateral because this will cost less in interest payments.

When this isn’t an option, certainly a low interest personal loan is a good alternative. People should make extremely careful comparisons. Interest is not the only cost factor. Other details like loan origination fees, fees for late charges, and possibly even fees if a loan is repaid too soon can make one loan more or less attractive than another.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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