A personal loan can provide some much-needed access to cash. Whether you want to renovate your home, pay off medical bills or even splurge on a wedding, a personal loan can be used for just about anything.
You might have a harder time securing a loan if you have fair or average credit. You also may not qualify for the kinds of loans and best terms typically reserved for people with top-notch scores.
But you should still have access to a healthy range of lending opportunities. Follow this guide to find the best personal loans for fair credit.
Best Personal Loans for Fair Credit
A fair credit score is typically in the range of 580 to 669 for FICO® and 601 to 660 for VantageScore®. Your FICO® Score is generated by the Fair Isaac Corporation and is one of the primary factors lenders will look at to determine your eligibility for a loan.
Your VantageScore® was developed by national credit reporting companies (CRCs) — Experian, TransUnion and Equifax. It’s another commonly used scoring metric alongside FICO®. Both credit scores categorize creditworthiness based on a scale of very poor, fair, good, very good and excellent.
Having fair credit is better than having poor credit or no credit history at all. However, you’re still considered a less-than-ideal candidate in the eyes of lenders.
Take a look at our picks for the best personal loans for fair credit.
Types of Personal Loans for Fair Credit
The terms and interest rates you qualify for when you take out a personal loan will heavily depend on your credit score. With fair or average credit, you won’t receive the kind of favorable terms someone with very good or excellent credit would receive.
You might have to put up with higher interest rates or fewer choices. In fact, some lenders may deny you a personal loan altogether. If you are denied by a lender, remember not to become discouraged. You’re still able to shop around for a lender that will approve you. In the meantime, take a look at some common types of loans you could be offered.
A secured loan is a personal loan that is backed by collateral. Collateral is an asset you own that has significant value. Collateral can be your home, car, jewelry, antiques, an investment portfolio or even art. Lenders will verify that you are the owner of the asset and that the asset’s value is high enough to cover the loan amount.
Secured loans are a great way to obtain cash without a credit check. However, they are not without their downsides. Secured loans can be especially dangerous if you are unable to pay back the money you owe. You risk losing the asset you’ve put up for collateral if you can’t meet the loan’s terms.
Unlike secured loans, unsecured loans don’t require you to put up any collateral in order to qualify for the loan. Instead, lenders will consider other factors when deciding whether to approve you. Your credit score and income levels are both important in determining your eligibility.
Many lenders will still approve you for a personal loan even if your credit score is only fair, or average. However, if you have a high-income or low debt-to-income ratio, your chances of being approved on more favorable terms are higher.
Fixed-rate loans come with an interest rate that remains the same for the duration of the loan. Common examples of fixed-rate loans include auto loans, student loans and mortgages. Fixed-rate loans are the opposite of variable-rate or adjustable-rate loans, which have interest rates that can change over time.
It’s ideal if you can secure a fixed-rate loan at a low-interest rate. This way, even if interest rates go up you’ll keep paying your original rate. Personal loans generally have shorter timeframes than mortgages or student loans. So even if you are stuck with a fixed-rate loan at a higher rate, rest assured that it won’t be for the long-run.
Personal Loan Requirements and Criteria
It’s a guarantee that most lenders will pull your credit report before approving you for a personal loan. Your fair credit score could hinder your chances of getting approved. Even if you are approved, your options will be limited and you may have to accept a higher interest rate.
The good news is that lenders won’t base the entire decision on your credit report. There are other important factors they consider to get an accurate estimate of your overall financial health. Check your status in the categories below to gauge your chances for approval:
- Steady income
- Debt-to-income ratio
- Payment history
- U.S. citizen or legal resident
- Minimum age (usually 18 but varies in different states)
Personal Loan Considerations
The good news about having fair credit is that you are on your way to good credit – and maybe even excellent credit in the future. Taking out a personal loan can help you boost your credit score.
Be sure to make all your payments on-time and always pay above the required minimum amount. This practice will lower your credit utilization ratio (the amount of available credit you are using up). A lower credit utilization ratio shows lenders you are responsible with your credit and reflects positively on your credit score.
Some other good tips for boosting your credit include paying off your higher-interest debts 1st, refraining from opening up too many accounts at once and keeping unused accounts open.
Never take out a predatory loan. Predatory loans exploit borrowers with unfair or abusive terms. Some lenders might try to coerce, force or hide important information from you to try to get you to agree to a predatory loan. These loans charge high-interest rates, excessive fees and have the potential to pull you into a cycle of debt. They’re also notorious for harming people’s credit scores.
Personal Loans vs. Credit Cards
Personal loans have fixed interest rates and fixed timeframes. On the other hand, credit cards charge variable interest rates and offer a continuous credit line. Credit cards are a great option if you are looking for long-term access to credit and you can make continuous payments towards your balance. Personal loans are better if you need a set amount of cash and you’re able to pay it off in full by the required dates.
Borrow Money With Fair Credit
Whenever you decide to borrow money, it’s a good idea to meet with multiple lenders to shop around for the best rates. Always work with licensed lenders and avoid lenders that sound too good to be true.
Don’t want to engage with lenders who rush you to sign documents, leave blank spaces in documents or offer packaged services. With a bit of work, you’ll find you can still access the lending options you need even with fair credit.