A personal loan can help you pay for planned or unplanned expenses, but it’s not a blank check. You’ll need to repay not only the principal loan balance but also interest charges.

Shopping for a competitive rate, even on a low-interest personal loan, can reduce the interest you pay on your loan. That can save you hundreds, if not thousands, of dollars on your cost of borrowing.

You may be wondering where to shop for low-interest personal loans and what to ask before you agree to a new loan. Here’s what you need to know.

When you shop around for the best personal loan interest rate, you can save. Compare your personal loan offers with national average trends for personal loans to know if you’ve found a good deal.

Select your desired loan amount and loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan terms.

The lower your interest rate, the larger the portion of your payment that goes toward paying down principal rather than interest over the life of the loan. Here are a couple of scenarios that show the effects of interest rates on the cost of a personal loan:

Let’s say you received an offer for a $5,000 personal loan with a 9.3% annual percentage rate and a four-year repayment term. With this loan, you’d pay $1,006.66 in interest alone.

Now assume that you were approved for a $5,000 personal loan with a four-year term and a 6.75% APR. By comparison, your total interest charges on this loan would be $719.30, resulting in interest savings of $287.36.

Your interest rate makes more of a difference if you’re taking out a larger or longer-term loan. The average personal loan balance is $16,259, according to a 2019 personal loan study from the credit bureau Experian.

With this figure in mind, and the same 9.3% APR but a six-year term, interest charges increase to a sizable $5,017.28. If you can shop around for a loan and get the same term at 6.2% APR, you would spend $3,252.73 and save close to $1,800.

The good news is that you can find low-interest loans and that the average rate for all personal loans is about 12%. That’s particularly helpful if you need to pay off high-interest debt.

You’ll pay down debt faster than on credit cards with APRs of 20% or higher, says David Bakke, personal finance expert at Dollar Sanity, a financial education website.

Getting a good personal loan rate, though, depends on your credit profile. This often includes your credit history and score, income, and debt.

All lenders have their own criteria to set applicants’ interest rates and terms.

Here are a few key areas that lenders look at to determine personal loan approvals and interest rates:

Creditworthiness
Your credit score is one of the major factors lenders consider for personal loan eligibility, says Lauren Anastasio, certified financial planner at SoFi, a personal finance company. “Lenders don’t always disclose whether they have a minimum credit score for applicants, but often they prefer to see a good or excellent credit history,” she says.

A FICO credit score in the mid-700s or higher is considered very good to exceptional and generally earns you a competitive interest rate.

Co-Signers
A co-signer, ideally one with strong credit, is held liable for repaying your loan if you can’t. Lenders may approve a loan at a lower rate when you have a co-signer.

“If you don’t have a stellar credit score or don’t make very much, adding a co-borrower to your loan might increase your chances of approval,” Anastasio says. “They might also help you get a better interest rate and repayment terms.”

Debt-to-Income Ratio
Lenders will evaluate your income to ensure that you earn enough to repay the loan. A part of this assessment involves your debt-to-income ratio.

Your debt-to-income ratio, or DTI, is the percentage of your monthly income you put toward debt. It helps lenders gauge whether you can manage a personal loan payment without financial hardship.

“And, in a nutshell, the maximum debt-to-income ratio you want if you’re looking for a personal loan is right around 35%,” Bakke says. “Anything higher than that and the lender will be thinking twice about whether or not to extend the loan.”

Type of Personal Loan
Whether your personal loan is secured or unsecured can influence your interest rate. With a secured loan, you’re providing collateral that the lender can claim if you default on your loan.

“Secured loans, backed by assets owned by the borrower, like a car or house, are less risky to the lender and therefore often come with much lower interest rates, reducing the cost of borrowing over the life of the loan,” Anastasio says.

Before jumping on a secured personal loan, factor in the risk of losing your collateral, such as your home, if you can’t make the payments.

Discounts
Some lenders offer a small APR percentage point reduction for existing customers or for signing up for automatic payments.

Take these steps to find the lowest rates on personal loans.

1. Check Your Rate
Lenders may advertise a range of APRs, but you won’t find out your rate until a lender checks your credit. Prequalification can tell you whether you could be approved for a low-interest personal loan using only a soft credit inquiry, which doesn’t affect your credit score.

“Many lenders allow potential borrowers to see if they prequalify for a loan before applying,” Anastasio says. “This process shows how much the loan would potentially be approved for, what your repayment terms and your interest rate could possibly be.”

Not all lenders offer prequalification options, but online lenders generally do. You’ll submit basic information, such as how much you want to borrow and your income, and the lender will perform a soft credit check.

This option gives you great insight into whether you might meet borrower criteria and what terms you could get without committing to the loan or hurting your credit.

Plus, the process can be quick. Some lenders let you check whether you prequalify online, which can take just minutes.

2. Check With Your Bank or Credit Union
When you’re rate shopping, getting a quote from a financial institution you have a relationship with could pay off. “Your bank or credit union would be a great place to start,” Bakke says. “However, rates and fees do vary, so it’s recommended that you get quotes from at least three lenders.”

Your bank or credit union might be able to offer a more competitive rate than rivals because it has a window into your finances that the others don’t. If you have deposit accounts, for example, the bank may consider your wages, spending patterns and savings.

3. Be a More Attractive Borrower and Try Again
If you can’t get approved for a competitive rate on a personal loan, you might want to wait. Take time to focus on raising your credit score and reapply.