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Dear Personal Loan Adviser,

I’m shopping for a personal loan to help consolidate my credit card debt into 1 monthly payment. What impacts the interest rate that I’ll get on a personal loan? What can I do to get the lowest interest rate?

— Troubled Tony

Dear Tony,

Interest rates on personal loans are determined primarily by your credit score and your income.

Personal loans are unsecured, so the lender doesn’t have any collateral to reduce the risk it faces in lending you the money.

A personal loan can help to manage several types of debt. If that scenario works for you, check out the range of offers at Bankrate.com.

Consolidate credit card debt?

Using a personal loan to consolidate credit card debt makes the loan riskier to the lender. You’ve restructured your debt to have 1 monthly payment, but you’ve also freed up the lines of credit on your credit cards. If you start carrying balances on your credit cards, the higher debt levels increase the probability that you won’t be able to make your loan payment.

In some instances, when you apply for credit, it creates what’s known as a hard inquiry on your credit report. These inquiries stay on your credit report for 2 years and influence your credit score in the first year. But some marketplace lenders — like Prosper and Lending Club — don’t run hard inquiries during the application process, so applying won’t damage your score. Hard inquiries may come after you’ve accepted the offer.

In addition, if there is negative information on your credit report, it stays on the report for 7 years, influencing your credit score. Staying current on your payments is one of the best ways to have a good credit score and get a low interest rate on your personal loan.

The myBankrate feature lets you see your credit report and credit score for free. Although your lender may use a different credit-scoring model than the one available on myBankrate, the score will give the lender enough information to provide you with a nonbinding indication of the interest rate without you formally applying for a loan.

Don’t forget to ask about personal loan fees and loan prepayment penalties when you’re loan shopping.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the “Ask the Experts” page and select one of these topics: “Personal Loans,” “Financing a home,” “Saving & Investing,” “Senior Living” or “Money.” Read more Dr. Don columns for additional personal finance advice.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

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