The study investigated the effect of credit rates on poverty reduction in Zirobwe Town Council, Wakiso District, Uganda. The research employed a mixed-methods approach, combining quantitative and qualitative data collection techniques with a sample of 152 microfinance borrowers and 8 key informants from financial institutions and local government. Data were collected using structured questionnaires, interviews, and focus group discussions, then analyzed using Pearson correlation, multiple regression, and thematic analysis. Results indicated a significant negative relationship between credit rates and poverty reduction (r = -0.638, p < 0.001), meaning higher interest rates were associated with lower poverty reduction outcomes. The regression model revealed that credit rates explained 40.7% of variance in poverty reduction indicators (R² = 0.407, F = 68.54, p < 0.001). Borrowers accessing credit at rates below 15% per annum demonstrated significant improvements in household income (43.2% increase), asset accumulation, and food security compared to those facing rates above 25% per annum. The study concluded that excessive credit rates undermined poverty reduction efforts by limiting borrowers' capacity to generate surplus income for reinvestment and household improvement. Recommendations included regulatory interventions to cap microfinance interest rates, promotion of group lending mechanisms, financial literacy programs, and establishment of community-based savings and credit cooperatives to provide affordable credit alternatives.