Think of all the dreams you have for the future. It could be buying a bungalow on the coast or getting a degree from your dream university. Maybe you picture starting your own company from the ground up. Each one is an exciting potential chapter in your life – and it all takes money. A lot, usually.

That’s where most of us turn to different financing methods, like credit or a loan. But borrowing comes at a price, which can become much harder to do with a high interest rate. Here’s a rundown on interest and the rates you should look for.

What is an Interest Rate?

When you borrow money from someone, you have to pay that person back. But when you also owe interest, you return more than you received. That’s because the group or person who lent the money to you charges you for using their funds.

The interest rate is essentially a portion of the original amount you borrow, or the principal, added back on to the overall amount you owe. Borrowers typically pay interest back periodically, or at regular intervals. Lenders may quote interest on a yearly basis, or periods longer or shorter than a year.

Interest rates may be part of your repayment, but they don’t always have to sting. The lower the interest rate (i.e., “good” interest rates), the less you have to pay in the end. That means you save more money in the long run.

How to Get a Good Interest Rate?

Interest rates don’t just pop out of thin air (or they shouldn’t). They depend on a variety of factors.

A “good” interest rate is subjective to each person. But there are a couple of ways you can improve your chances of getting one that benefits you.

First, think about your spending habits. Avoid making large purchases on credit, taking out loans, or applying for new credit cards in the months leading up. If you’re not careful, you can lower your credit score, which will likely lead to a higher interest rate.

Lenders will look at other factors outside your credit score, though. For example, they will probably consider your debt-to-income ratio. So, paying off some debt preemptively before you go for a loan can also lower your interest rate. It also frees up more funds for you to spend.

Then, you can look for alternatives in the type of financing you want. For example, let’s say you need a mortgage for your new home. Shortening the term of the loan can result in a lower interest rate, although your monthly payment will be larger.

How to Find a Good Interest Rate

You might be at the stage where you’re ready to hop on board and take out that credit card or loan. In that case, finding a good interest rate starts with research and careful consideration.

Begin by shopping around. Compare quotes from a few lenders to see how they stack up against each other. Keep in mind, though, that the rates you first look at may be subject to change. Be sure to review official Loan Estimates before you submit an application or sign up for anything.

If you’re considering alternative types of loans, remember to get quotes for each kind as well. A lender will offer different rates for, say, a 24-month loan than they will for a 48-month loan.

Additionally, don’t be afraid to negotiate with lenders. If you have one option offering a better rate, use it as leverage with others. They may be able to match it or propose a more competitive rate.

What is a Good Interest Rate on a Mortgage?

Mortgages are unavoidable for many of us. Experian reports that approximately 44% of U.S. consumers currently have a mortgage as of 2020. For the American homeowner, that’s a regular monthly payment averaging around $1,487 (or a median of $1,200), based on the U.S. Census Bureau’s latest American Housing Survey.

With that in mind, you probably want to find the lowest possible interest rate. But mortgage rates change all the time. So, the “best” mortgage rate can also look very different based on the borrower, lender, and the time. Right now, they’re relatively low – record low, actually – but there’s no guarantee they’ll stay that way.

As of October 2021, Freddie Mac’s weekly average interest rate for a fixed-rate, 30-year mortgage is 3.09%. But the daily equivalent from Fannie Mae reports around 2.7%. So, this market experiences a lot of variances.

Right now, the average mortgage interest rate is a good percentage to aim for. But as they increase over time, you may want to look for something lower than the national average. Also, try to put a down payment on the house larger than 20%. The larger your down payment is, the lower the interest rate on your loan.

What is a Good Interest Rate on a Personal Loan?

Personal loans are one way you can pay for large purchases, like remodeling your home or consolidating debt. You borrow this money from a lending institution, like a bank, and you repay it in set installments over time.

According to the Federal Reserve’s data, the average interest rate during August 2020 for a 24-month personal loan was 9.34%. That’s actually a little bit lower than the average annual percentage rate that Experian reports from 2019 at 9.41%. Depending on your financial situation, lender, and credit score, you may find rates vary. Generally, they dip as low as 6% and as high as 36%.

But, altogether, you want to aim for an interest rate below the reported national averages. When you’re shopping for a loan, compare their term, available discounts, fees, monthly installment plan, and APR. In return, lenders will look at your credit score and debt-to-income (DTI) ratio.

What is a Good Interest Rate on a Student Loans?

Around 43 million adults in America have some form of student loan debt, totaling up to $1.73 trillion in quarter two of 2021. Considering the extreme costs of college, that’s not surprising. College graduates in 2020 borrowed around $29,927, according to U.S. News data – and that was a drop from the previous year. So, with that much debt, interest rates can really help or hurt.

Interest rates vary, especially when it comes to private student loans. They can range from 2.94% to 12.99% when fixed and .99% to 11.9% when variable. In contrast, federal loans generally range from 3.73% to 6.28%.

Both types follow economic trends, so they may drop or rise at the same time. However, Congress sets the rates for the federal loans every year, while private lenders like banks and credit unions set their rates based on the prime rate. The latter also consider your credit score, financial history, and income level to determine the rate they offer you.

So, federal loan rates are locked in. But if you want to lower your private student loan interest rate, then you have a couple of options. First, you can improve your credit score or apply with a co-signer. You can also choose a variable rate, but that’s risky since they may rise.

What is a Good Interest Rate on a Credit Card?

Your credit card comes with its own APR (annual percentage rate), and, like the above interest rates, it’s a price tacked on for borrowing money. The APR assigned to your card depends on a few factors, such as the type of credit card you sign up for and your credit score.

According to the Federal Reserve, the average interest rate for consumers carrying a credit card balance is around 16.3% as of Q2 2021. However, it’s possible that you might have a higher interest rate than that. Americans with poor credit, in particular, face interest rates as high as 24% and more.

So, you want to look for an APR below the national average. That would generally qualify as a “good” APR. If you’re in the market for a new card, though, you might want to look for certain offers. Some companies offer cards with a 0% introductory APR when you sign up. That gives you some time to pay off other debts and bills without building interest. But really, the best way to get a low-interest credit card is to improve your credit score.

Keep in mind that if you pay off your balance in full every month, you will avoid your APR rate.

The Takeaway

Dreams come at a price. From sprawling homesteads to well-earned degrees, each goal requires a bit more cash than many of us have on hand. That’s why we borrow.

But a dream also shouldn’t lead us down the road of debt. Finding the right interest rate for our personal situation and finances ensures that we get the best of both worlds. If you’re ever unsure about the type of loan or credit you need, try speaking to a financial advisor or visiting a comparison site like Forbes Advisor. They can help you navigate the financial field.

You can also make it easier to find a “good” interest rate by working on your financial habits. Careful spending and saving can make a big difference when you ask lenders for a quote. Envel makes it easy, too. With our Envelope system, we make banking and budgeting easy for everyone.