Which Type of Loan Has the Lowest Interest Rate? (2024)
The type of loan that has the lowest interest rate is a mortgage, which usually charges 3% to 8%, depending on the overall economic climate and the borrower’s creditworthiness. Some other factors that influence your mortgage rate include your home’s location, your home’s price, your down payment and your loan term.
In general, a secured loan, like a mortgage, will have a lower interest rate than an unsecured loan, like a standard personal loan, because it is less risky for the lender. This is due to the collateral the borrower puts up to get the loan.
Note: The ranges in the table above reflect averages from the past 20+ years. Home equity loans reflect 2010-2019 data.
You can read more about these types of loans on WalletHub. Additionally, if you’re interested in a personal loan, you can estimate your potential rates with our free pre-qualification tool.
This answer was first published on 12/09/22. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
In general, a secured loan, like a mortgage, will have a lower interest rate than an unsecured loan, like a standard personal loan, because it is less risky for the lender. This is due to the collateral the borrower puts up to get the loan.
Secured personal loans often come with lower interest rates than unsecured personal loans. That's because the lender may consider a secured loan to be less risky — there's an asset backing up your loan.
Lenders take on less risk with secured loans since the borrower has more incentive to repay the loan. Because of this, average interest rates are typically much lower.
All things being equal, the cheapest borrowing options will be either a zero-interest loan or credit card with a promotional 0% APR offer. These loans may come with fees attached, but 0% interest (for a limited time, at least) makes them hard to beat.
The secured loans lower the amount of risk for lenders. Unsecured debt has no collateral backing. Lenders issue funds in an unsecured loan based solely on the borrower's creditworthiness and promise to repay. Because secured debt poses less risk to the lender, the interest rates on it are generally lower.
An unsecured loan requires no collateral. They usually have higher interest rates than secured loans because they are riskier for lenders. An installment loan or term loan is repaid with fixed payments over a set period. Revolving credit lets you borrow up to a predetermined credit limit.
A personal loan is probably the best way to go for those who need to borrow a relatively small amount of money and are certain they can repay it within a couple of years. A personal loan calculator can be a useful tool for determining what kind of interest rate is within your means.
Better interest rates: Credit unions typically offer higher interest rates on savings accounts because they have lower overhead costs than banks. Similarly, they offer lower interest rates on loans.
Subsidized Loans are loans for undergraduate students with financial need, as determined by your cost of attendance minus expected family contribution and other financial aid (such as grants or scholarships). Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods.
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