Secured loans backed by collateral have the lowest rates, but mortgages and auto loans typically offer the best terms
The lowest interest rates go to secured loans — loans where you pledge an asset (a house, car, or savings account) as collateral. If you stop paying, the lender can seize that asset. Because the lender's risk is lower, they charge less interest. A mortgage on a home usually carries the lowest rate of all, often 2 to 8 percent depending on the market and your credit. Auto loans come next, typically 3 to 10 percent. Loans secured by savings accounts or certificates of deposit (CDs) are also low-rate options, often 1 to 3 percent above what the account itself earns.
Unsecured loans — credit cards, personal loans, and lines of credit — have no collateral backing them, so lenders charge more to cover their risk. Credit cards typically range from 15 to 25 percent. Personal loans from banks or credit unions usually fall between 6 and 36 percent, depending on your credit score and the lender. The worse your credit, the higher the rate, because the lender sees you as riskier.
Your credit score, income, and the loan term (how long you have to repay) all shift where you land within these ranges. A person with excellent credit might get a personal loan at 6 percent; someone with poor credit might pay 30 percent for the same type of loan from the same lender.
Key Takeaways
- Mortgages secured by a home typically offer the lowest rates, usually between 2 and 8 percent, because the lender can foreclose if you stop paying.
- Auto loans are the second-lowest option, generally 3 to 10 percent, since the car itself serves as collateral.
- Loans secured by your own savings or CDs cost 1 to 3 percent above the account's interest rate and carry almost no risk to the lender.
- Unsecured personal loans and credit cards have no collateral, so rates are much higher — typically 6 to 36 percent for personal loans and 15 to 25 percent for credit cards.
- Your credit score, income level, and the length of the loan term determine where you fall within each loan type's rate range.
How mortgages stay the cheapest option
A mortgage is a loan to buy a house, and the house itself is the collateral. The lender holds a legal claim on the property until you pay off the loan. If you default, the lender forecloses — takes the house and sells it to recover what you owe. Because the collateral is typically worth more than the loan amount, the lender's risk is very low.
Mortgage rates also stay low because they are long-term loans, often 15 or 30 years. The longer repayment period spreads the lender's risk over many years and many payments, which lowers the rate they need to charge. Current mortgage rates vary by market conditions and your credit score, but historically they have ranged from 2 to 8 percent in recent years.
To get a mortgage, you will need a down payment (usually 3 to 20 percent of the home's price), proof of income, and a credit score that most lenders prefer to be at least 620. The better your credit and the larger your down payment, the lower your rate will be.
Auto loans: the second-lowest rates
An auto loan is secured by the car you are buying. The lender holds the title until you pay off the loan, and can repossess the car if you stop making payments. Because cars depreciate (lose value) over time, the lender's risk is higher than with a mortgage, so rates are higher too.
Auto loan rates typically range from 3 to 10 percent, though rates vary by the age of the car, the loan term, and your credit score. New cars usually have lower rates than used cars, because new cars hold their value longer. A 36-month loan usually has a lower rate than a 72-month loan, because the lender gets repaid faster.
Credit unions often offer lower auto loan rates than banks or dealerships. If you are a member of a credit union, it is worth checking their rates before you finance through the dealer. You can also shop rates from multiple lenders before you buy — most lenders will give you a rate quote without a hard credit inquiry.
Loans backed by your own savings
A passbook loan or savings-secured loan lets you borrow against money you already have in a savings account or CD. The bank holds your savings as collateral, so you cannot touch that money while the loan is active. If you default, the bank simply takes the collateral to cover what you owe.
Because the lender's risk is zero — they already have your money — these loans carry the lowest rates of any unsecured borrower option. You will typically pay 1 to 3 percent above what your savings account or CD earns. If your savings account earns 4 percent, you might pay 5 to 7 percent on the loan.
These loans are useful if you need to borrow but want to keep your savings intact and earning interest. They also help build credit history if you are new to borrowing or rebuilding after past problems. The loan shows up on your credit report as an active account, and on-time payments help raise your score.
Personal loans and why rates vary so widely
An unsecured personal loan from a bank, credit union, or online lender has no collateral. The lender relies entirely on your promise to repay and your credit history to decide whether to lend and at what rate. This is why personal loan rates swing so widely — from 6 percent for someone with excellent credit to 36 percent or higher for someone with poor credit.
Credit unions typically offer lower personal loan rates than banks or online lenders. Credit union members often get rates 2 to 5 percent lower than the market average, because credit unions are member-owned and operate on a non-profit basis. If you are not a member, you may be able to join through your employer, school, or community.
Online lenders and peer-to-peer lending platforms offer personal loans to people with lower credit scores, but charge higher rates to offset the risk. Rates from these lenders can exceed 30 percent. Before you borrow from an online lender, check whether they are licensed in your state and read reviews from other borrowers.
Credit cards: the highest rates for revolving debt
Credit cards are unsecured revolving credit, meaning you can borrow, repay, and borrow again up to your credit limit. Because there is no collateral and the debt can grow indefinitely, credit card companies charge the highest rates of any common loan type. The average credit card rate is around 20 percent, though rates range from 15 to 25 percent depending on the card and your creditworthiness.
Some credit cards offer a 0 percent introductory rate for 6 to 21 months, usually on balance transfers or new purchases. After the introductory period ends, the regular rate kicks in. These cards can be useful if you need to move debt from a high-rate card or make a large purchase you can pay off before the rate jumps, but they require discipline to avoid paying interest later.
Credit cards are expensive for long-term borrowing. If you carry a $5,000 balance at 20 percent interest and pay only the minimum each month, you will pay thousands in interest and take years to pay it off. For larger or longer-term borrowing needs, a personal loan or secured loan will almost always cost less.
How your credit score affects the rate you get
Your credit score is the single biggest factor lenders use to set your interest rate within each loan type. A score of 750 or higher is considered excellent and qualifies you for the lowest rates. A score between 670 and 739 is good and gets you near-average rates. A score below 580 is poor and locks you into the highest rates available.
The difference between excellent and poor credit can be 10 percentage points or more on a personal loan. On a $10,000 personal loan, the difference between 6 percent and 16 percent is roughly $5,000 in total interest over five years. This is why building your credit score before you borrow can save you thousands of dollars.
You can check your credit score free through AnnualCreditReport.com, which is the only site authorized by federal law to provide free credit reports. Many banks and credit card companies also show your score for free in your online account. If your score is lower than you expected, look for errors on your report and dispute them if you find any.
Comparing loan types side by side
| Loan Type | Collateral | Typical Rate Range | Best For |
|---|---|---|---|
| Mortgage | Home | 2–8% | Buying a home; long-term borrowing |
| Auto loan | Car | 3–10% | Buying a car; medium-term borrowing |
| Savings-secured loan | Your savings account or CD | 1–3% above account rate | Building credit; short-term borrowing |
| Personal loan (unsecured) | None | 6–36% | Debt consolidation; medium-term borrowing |
| Credit card | None | 15–25% | Short-term purchases; building credit |
Frequently Asked Questions
Can I get a mortgage rate below 3 percent?
Mortgage rates depend on the broader economy and the Federal Reserve's interest rate decisions, which you cannot control. In some years, rates dip below 3 percent; in others, they stay above 6 percent. Your credit score, down payment size, and loan term affect where you land within the current market range, but you cannot negotiate below what the market offers.
Why do credit unions offer lower rates than banks?
Credit unions are member-owned and non-profit, so they return earnings to members rather than shareholders. They also have lower overhead costs and serve a smaller, more stable membership. These factors let them charge lower rates on loans and pay higher rates on savings accounts than for-profit banks typically do.
If I have bad credit, what is my lowest-rate option?
A savings-secured loan is your best bet. Because the lender already holds your money as collateral, your credit score does not matter. You will pay a low rate (1 to 3 percent above your savings rate) and build credit history at the same time. After six to twelve months of on-time payments, your credit score will improve and you can refinance into an unsecured loan at a better rate.
Does the length of the loan affect the interest rate?
Yes. A shorter loan term usually means a lower rate, because the lender gets repaid faster and takes on less risk. A 36-month auto loan will have a lower rate than a 72-month auto loan. However, the monthly payment will be higher on the shorter loan. You have to balance the lower rate against the higher monthly cost.
Can I negotiate my interest rate after I get the loan?
You cannot negotiate the rate on an existing loan, but you can refinance — take out a new loan at a better rate to pay off the old one. Refinancing makes sense if your credit score has improved, market rates have dropped, or you want to change the loan term. Ask your lender about refinancing options and whether there are any fees to do so.