Personal loans are a common financing choice for consumers who need some extra cash to cover everything from an emergency medical bill to a new car purchase to debt consolidation. A personal loan offers a structured repayment period, a fixed rate and fixed monthly payments. This makes the personal loan option a potentially affordable and flexible financing choice for many consumers.
However, not every borrower will be able to qualify or get the best personal loan rates and terms: Each loan provider has its own set of credit, income and other requirements. Here are some general guidelines for borrowers in each credit range and tips for finding the right personal loan for your own situation.
Personal Loans for Poor Credit: 579 and Under
FICO credit scores range from 300 to 850, and scores of 579 and lower are considered poor credit scores, according to Experian. Finding loans for bad credit situations might be challenging. Lenders view your poor credit score as a sign that you’re a high-risk borrower who’s less likely to keep up with payments and repay the loan.
Rates tend to be higher on personal loans for borrowers with scores below 668. For example, online lender OneMain offers secured and unsecured loans to poor-credit borrowers and doesn’t have a minimum required credit score. However, these loans carry high interest rates that range from 12.99 percent to 35.99 percent.
When you apply for a loan, a cosigner with a favorable credit history can balance out your poor credit score. Because another person is guaranteeing that the loan will be repaid, having a cosigner lowers the lender’s risk and boosts your chances of getting approved and securing a better rate. However, your cosigner will be on the hook for the loan if you can’t make your payments, and the loan will affect both your credit scores — so make sure you can take on those payments.
If you think you can’t get a loan with bad credit, think again. It’s not impossible, but you’ll have fewer options and higher costs. A secured personal loan might be an option if you have poor credit. With a secured loan, you provide collateral — such as a car title or savings account — to guarantee the loan. Having collateral lowers the lender’s risk and makes it easier to get personal loans if you have bad credit.
Another option if you have poor credit and need cash is to borrow from family or friends. Your relationship, rather than your credit score, will be the basis for this loan. Before you ask your family or friends for a loan, weigh the risk of potentially damaging that relationship if you’re not prepared to pay the loan back in a timely manner.
Personal Loans for Fair Credit: 580 to 669
A FICO score of 580 to 669 generally falls into the category of fair credit, which is still rather unfavorable in the eyes of most lenders, according to Experian. People in this range are considered subprime borrowers, so getting credit might be difficult and interest rates will likely be high.
If you’re shopping for a personal loan and have average credit, a credit union should be on your short list of places to check. Credit unions often have more relaxed credit requirements and tend to offer better personal loan rates due to their nonprofit structures.
Another option for fair-credit borrowers is a home equity loan. Like a secured loan, a home equity loan uses collateral to offset a lender’s risk. In this case, the loan is secured by the equity you’ve accrued in your property. Credit history is a smaller factor in getting approved for these types of loans, which is good news if your score isn’t great. The minimum credit score to qualify for home equity lines is typically 640 and above, according to the Wall Street Journal.
Personal Loans for Good Credit: 670 to 739
A FICO score in the 670 to 739 range indicates good credit, according to Experian. This score should enable you to get approved for an unsecured personal loan. Unsecured loans are typically structured as installment loans with a fixed repayment period and often — though not always — a fixed interest rate.
This type of personal loan is not secured by collateral, so your credit score and history will have a greater impact on your chances of approval. Because of this, unsecured loans require a good credit score — possibly as high as 720 — according to Wayne Westland Federal Credit Union. If your score falls in this range, you could be looking at a personal loan rate as low as from 9.99 to 11.99 percent from a lender like Lanco Federal Credit Union.
Online lending platforms such as Prosper or Lending Club offer peer-to-peer lending — also known as P2P lending — which enables you to borrow money from other individuals instead of an institutional lender. For many of these sites, the minimum score to be considered for a loan is in the mid-600s, so a good credit score should qualify you.
Personal Loans for Very Good Credit: 740 to 799
If you have a credit score of 740, you might qualify for better interest rates from lenders. That’s because not only do you qualify for all of the options available to those with lower credit scores, you also qualify for the best unsecured personal loan rates and flexible terms.
In addition, when your score is 740 or higher, it might be the main factor that lenders consider when considering approving your loan, meaning they might pay less attention to your debt-to-income ratio and your income.
Borrowers with good credit can secure personal loan rates in the single digits. For example, as of December 2016, Lanco Federal Credit Union offers a personal loan rate of 8.99 percent for borrowers with a score of 750 or above.
Personal Loans for Exceptional Credit: 800+
Anything above 800 indicates an exceptional FICO score that’s well above the average score. With a high FICO score like this, the borrowing world is your oyster and you’ll have the best personal loan options. You’re likely to experience an easy approval process when you apply for loans and new credit, and you should be able to get an unsecured personal loan in a heartbeat. You’ve worked hard for this score, so enjoy the benefits.
Improve Your Credit Score
Although there might be personal loan options for borrowers with a wide range of credit scores, it pays to work on improving your credit score. A higher score might give you lower rates, better terms and more choices when it comes to borrowing money — and those can help you financially in both the long and short terms.