1. The Federal Reserve Discount Interest Rate.
Banks and other lending institutions borrow money from the Federal Reserve Banks. The discount rate is the interest rate a Federal Reserve Bank charges eligible financial institutions to borrow funds on a short-term basis. This rate is set by the boards of directors of the Federal Reserve Banks. The discount rate has a direct effect on the "Prime Interest Rate", which is the interest rate on short-term loans that banks charge their commercial customers with high credit ratings. You can get live information on the current Prime Rate at www.FedPrimeRate.info.
Of the three major factors that affect your interest rate, this is the one you have the least amount of control over.
2. Your FICO Score and Credit Report.
There are companies that gather and sell information about where you work and live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy. They are called Consumer Reporting Agencies (CRAs). The most common type of CRA is the credit bureau. Potential lenders will get your credit report from the credit bureau.
The FICO score is a method of determining the likelihood that credit users will pay their bills. It condenses a borrowers credit history into a single number.
You can protect your FICO score and credit report by paying your bills on time and not over-extending yourself. You also have the right to have false information removed from your credit report.
3. Lender Business Factors.
Banks and other lenders are in business to make a profit. They also exist in a competitive market. Like all businesses, they will balance their profit margin with competitive factors. If they charge too little, based on your credit history and the prime rate, they risk going out of business. If they charge too much, they risk losing you to a competitor. Therefore, in order to get the best deal you can, you should shop around.
Keep one thing in mind when you are shopping around. One of the things that affects your FICO score is the number of times your credit report has been accessed in a certain period of time. Therefore allowing too many potential lenders to run your credit report in a short period of time could be counterproductive. Three or four is typically a safe number. If you request an on line quote from several lenders, they won't typically run your credit report until after they have made their initial quote.
(You must explicitly provide a potential lender with permission to run your credit report. For that, they usually need your Social Security Number.)
In summary, the three major factors you pay for a loan are the prime rate, your credit history (FICO score) and business conditions such as competition.