Personal Loans for Fair Credit 2024
Personal loans for fair credit borrowers are an attractive form of financing for many borrowers.
They offer the ability to get money today with fixed monthly payments and no tricky fees or hidden interest costs.
But to go further – and to be realistic – we really have to understand what “fair” credit really means.
What Is a Fair Credit Score?
There is a range of credit scores. They go from 300 on the low end to as much as 850 on the high side. According to Fair Isaac, developer of the FICO-brand score, the average credit score as of the end of 2020 was 710, a record high.
However, credit score averages vary by age.
According to Experian, “Americans between the ages of 50 and 59 hold the second-highest FICO® Score average of 706. People between the ages of 40 and 49 have an average FICO® Score of 684, while Americans between the ages of 30 and 39 score 673 on average. The average FICO® Score for Americans between the ages of 20 and 29 is 662.”
There are different credit scoring models and flavors. The result is that your score can be higher or lower, depending on the system used by the lender.
Two important scoring models are the FICO Score 8 and the VantageScore 3.0. FICO Score 8 is used most often by lenders, so let’s take a look at that one first.
Fair Credit and FICO Score 8
FICO Score 8 ranges from 300 to 850. According to myFICO.com, these are the values for each credit score range:
- Exceptional: 800+
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 and lower
It follows that if 706 is average, then scores from 707 to 850 are above average, and scores at 705 and below are, um, less than average. Since a fair credit score is from 580 to 669, it’s below average.
A fair credit score is a big concern to lenders. Figures from myFICO.com relate credit standing to delinquencies. About 1% of borrowers with credit scores of 800 and above become delinquent. For those with scores between 580 and 669, the story is different. About 28% of those with fair credit tend to become delinquent. That’s 28 times greater than those with excellent credit.
The result, of course, is that with more risk, there’s more cost. Approvals are less likely, and interest rates are higher for those with something other than excellent credit.
>>Related: Consolidate Debt With a Personal Loan
Fair Credit and VantageScore 3.0
Like FICO, the VantageScore system goes from 300 to 850. However, the ranges are different when compared with the FICO-brand system.
- Excellent: 781 to 850
- Good: 661 to 780
- Fair: 601 to 660
- Poor: 500 to 600
- Very Poor: 300 to 499
With VantageScore, “fair” credit ranges from 601 to 660 versus 580 to 669 for FICO Score 8. While there is overlap, the FICO definition is broader, while the VantageScore is more focused. Because the VantageScore range is smaller, small changes in credit habits
Personal Loan Options for Fair Credit
Having realistically looked at what fair credit is, we next ask if a personal loan can make sense for borrowers with such credit. To do this, we need to explain a little further what a personal loan really is.
A personal loan is unsecured. This is both good and bad for borrowers with fair credit. On one hand, your home or car does not guarantee the loan. On the other, lenders like as much security as possible to reduce risk.
With a personal loan, your word is your bond. Lenders will look carefully at your personal finances – not just your credit score – to see how much risk you represent. A fair credit score means that you have had some issues repaying money that you owe, even though it may be due to no fault of your own. That’s why it can be more challenging to find unsecured personal loans for fair credit.
A personal loan typically has a fixed rate and a set term, say one to five years. However, in some cases, terms can be longer. Also, in some cases, the lender may offer adjustable-rate financing. With a fixed rate and a set term, the loan also has fixed monthly payments once the loan term ends and the balance is zero.
As you typically find with loans, the longer the term, the lower the monthly payment. However, longer terms will also produce a higher interest cost.
>> Related: What Is a Personal, Unsecured or Signature Loan?
Personal Loan Interest Rates
The interest rate you pay for a personal loan will depend on the usual mixture of credit scores and general financial standing. Rates can vary from 6% to 36%. As you can guess, those with the highest credit scores get the lowest rates. However, someone with fair credit might be able to get a good rate if he or she shops aggressively and has other strengths like solid income and low debt.
Personal loan interest rates for fair credit generally run between 15% and 25%. The offer you receive depends on your debt-to-income ratio, the amount you need, and the length of the loan term. You’ll do better if you shop with lenders who like to lend in the fair credit market. Others not interested in competing won’t offer the best interest rate, or they might not approve your application at all.
How to Get a Personal Loan With a Fair Credit Score
Before you start filling out a bunch of applications for a personal loan in the hopes one will be approved, take a little time to make a plan. Follow these tips to increase your chances of being approved for a personal loan with a fair credit score.
Find out your credit score
Your credit may not be as bad as you think.
While your score may vary by a few points depending on the credit reporting agency, generally, a fair credit score is from 580-669. If you fall within that range, there are some loans available to you.
It’s possible to get a personal loan with a 600 credit score. It does get more challenging to get personal loans for credit scores under 550.
Work on your credit score if it’s too low
If you find out that your score is at the lower end of fair or even in the poor range, which is 300-579, you may want to try and work on your credit to bring the points up to somewhere in the middle of the fair range or higher. You may be able to get a loan with a lower score, but chances are the interest rate and loan terms may not be worth it for you.
Get a co-signer
If you’re working on your credit and your finances, you may be able to get a family member or friend with good credit to act as a co-signer or joint applicant on your loan. If you can’t pay back the loan, your co-signer will be expected to pay back the loan for you, so it is important that you are able to make those payments.
Look for lenders before you start applying
Look at several lenders and talk to them about prequalifying so you don’t get caught in a flurry of rejected applications. Getting prequalified doesn’t guarantee you’ll get the loan, but the lender will collect some background info on you that can determine whether you’ll be approved for a loan.
The benefit of being pre-screened by lenders is that they won’t be doing a “hard” credit pull, which lenders do when they are considering giving loans to applicants. Hard pulls can cause your credit score to go down by a few points. To get prequalified, lenders may only need to run a “soft” credit check, which won’t affect your credit score.
Improve Your Credit Score, Get Better Interest Rates
The good thing about credit scores is that they can change. If you have fair credit today, you can do better tomorrow. Here’s how:
Create a budget
Every successful business operates on the basis of a budget. The budget outlines expected income, expected expenses, and what actually happens. In a similar sense, households also need budgets because financial planning is the key to better credit scores.
The catch is that it’s not enough to have a budget. For instance, if you have a plan to pay down credit card bills but at the same time continue to spend more than you should, you can’t come out ahead. When it comes to getting a better credit score, discipline is important.
As your finances prove, as you pay down debts little by little, you will find that your credit score will begin to rise. As you have less to pay, it becomes easier to make payments. Also, by making payments in full and on time, you can avoid late fees and credit report dings.
It’s easy to spend money. It’s easy to rack up credit card bills. The financial system is designed to encourage spending, but it’s your job to avoid financial temptation and carefully monitor the money you spend. Small steps can produce big results. Setting aside $10 a week, and at the end of a year, you’ll have $520 in the bank. That may not sound like a big deal but consider this. A government study found that a typical payday loan amounted to about $400. Millions of people can avoid payday lenders and their three-figure interest rates by setting aside just $10 a week.
Get professional help
You don’t have to go it alone. Help is available from credit counselors in reputable nonprofits. They can help you establish a budget, track your spending, and improve your credit standing. You may want to establish a debt management plan to help you reach the next level of financial security.
>> Related: How Many Personal Loans Can You Have at Once?
Use the Right Tools for the Job
If you have fair credit, it may be difficult to get a credit card. Or, you might find that credit cards are available but only with rates and terms that can’t be justified.
As an alternative, you might want to work with secured credit cards. These are a form of revolving credit that will show up on your credit report.
Another option is to get a credit builder loan from a credit union or local bank. This type of debt will also show up on credit reports and may be helpful when credit scores are computed because they fall into the “mix of credit” category.
Best Personal Loans for Fair Credit
The question is whether you can get a personal loan with a reasonable interest rate if you have fair credit. It may not be easy to get the financing you want at a low cost. However, there are some steps you can take to improve your situation.
Make sure that your credit report does not have factual errors or out-of-date items. You can see your credit report by visiting AnnualCreditReport.com. You can get one free report every 12 months from each of the big three national credit reporting agencies. If you see a problem make sure to file a complaint with the credit reporting agency because errors can knock down credit scores, something you don’t want. In general, it’s a good idea to clean up your credit report now before applying for any form of financing.
But what if you find a negative credit card item that is legitimate? What if you really did have a late payment or even missed one? It’s likely that the item will stay on your credit record for seven years. Some items can stay on your credit report even longer. However, the good news is that the importance of negative credit items falls with time.
It pays to shop around. Speak with multiple lenders and ask them what might be available given your circumstances.
Lastly, perhaps a friend or relative will cosign a personal loan with you. This means someone else’s risking their credit to help you get better rates and terms. It means you have both a financial and moral obligation to make all promised payments on time and in full, Not only because money is involved and also because you want to treat your cosigner fairly.