Personal loans with fair credit: What to know

A personal loan is a type of installment loan that allows you to borrow money from a lender and pay it back over time with interest. Personal loans may be helpful for making big purchases. And they can be used to consolidate high-interest debts.

If you have a fair credit score, you may be wondering whether you can get a personal loan. Learn more about getting a personal loan with fair credit and some alternatives you may want to explore. 

What you’ll learn: 

• There isn’t a universal minimum credit score needed for a personal loan. It all depends on the lender and the loan. 

• FICO® says a fair credit score falls between 580 and 669. VantageScore® says near-prime scores—its version of “fair”—range from 601 to 660.

• When shopping for personal loans, it’s a good idea to compare loan terms, including the approval requirements, loan amount, repayment term, monthly payment, interest rates and fees. 

• There are alternatives to personal loans, like credit cards and balance transfers, that you may want to look into before making any decisions.

There’s no specific minimum credit score needed for a personal loan. So you may be able to get approved for a personal loan even with fair credit.

But the lower your credit scores, the harder it might be to get approved—and the higher your interest rate might be. Each lender sets its own requirement for what credit score is needed for a personal loan.

What’s considered a fair credit score depends on the credit-scoring company that calculated it.

FICO and VantageScore are two major credit-scoring companies. Both companies calculate credit scores that range from 300 to 850. But they have different criteria for what’s considered a fair score.

• FICO considers a fair credit score to range from 580 to 669.

• VantageScore says a near-prime credit score ranges from 601 to 660.

There are a few different kinds of financial institutions that may offer personal loans for borrowers with fair credit. Remember, each lender decides what credit scores and other criteria are needed for personal loans. And it’s not guaranteed that a lender will offer personal loans to applicants with fair credit. 

Here are some options you may want to explore if you’re looking to get a personal loan with fair credit:

Many large national banks require higher credit scores for personal loans, so this may not be the best option for borrowers with fair credit. But a local bank where you have an established relationship may be more willing to approve you for a personal loan. Some banks even offer loyalty discounts.

Credit unions can be a great place to get a personal loan with fair credit, especially if you’ve got a long membership history. The credit union may take a positive repayment history into account when considering whether to approve your personal loan application. Federal credit unions are also subject to an interest rate cap of 18% from the National Credit Union Administration (NCUA). 

Keep in mind, you have to be a member of the credit union to use it as your personal loan lender.

Online lenders are popular because they can approve and fund a personal loan quickly. They can be a great option for fair credit borrowers because they often have less stringent credit requirements than other financial institutions. 

It’s important to ensure you’re partnering with a reputable lender when you apply for a personal loan online. People with lower credit scores can be the target of predatory lenders and scams.

Exploring different lenders and loan options can help you find the best personal loan for your needs. Plus, before you take out any kind of credit, it’s important that you understand all the terms. Here are a few things to look into:

Approval requirements for a personal loan can vary greatly across lenders. You’ll want to avoid applying for a loan if you know you won’t qualify, as this will trigger a hard inquiry, which can have a negative impact on your credit scores.

Lenders may approve you for different amounts. While you want to ensure you borrow enough to accomplish your goals, it’s also important to not borrow more than is necessary.

Your repayment term is an important consideration when choosing the right personal loan. A longer repayment term may mean lower monthly payments, but it could also increase your interest rate. You’ll want to weigh the pros and cons of each loan to ensure you make the best choice for your situation.

Before you sign a loan agreement, your lender should disclose what your monthly payment amount will be. You may want to compare the monthly payment for various personal loans and choose one that fits comfortably into your monthly budget.

You may see a low annual percentage rate (APR) advertised as a feature for a personal loan, but these favorable rates are typically reserved for those with higher credit scores. Be sure to compare the interest rate for your personal loan offers. Even a slight increase in the interest rate can end up costing you thousands of dollars over the life of the loan.

Consider choosing a personal loan lender that offers minimal origination fees. Some lenders may also offer discounts and other benefits, such as flexible payment dates and grace periods. Think about your priorities and do your best to choose a loan that meets your needs.

If you have fair credit and are considering a personal loan, here are a few steps you can take that may help:

Finding out whether you’re pre-qualified or pre-approved for a personal loan can give you an idea of how likely you are to be approved. Remember, it may be a good idea to narrow down your options to help you avoid unnecessary hard inquiries.

Having a co-signer with good credit might help you get approved for a loan. A co-signer might also help you get a better interest rate. But keep in mind that if you make late payments or miss payments, it can hurt your own credit as well as your co-signer’s credit. And your co-signer is ultimately responsible for the loan if you can’t pay.

The better your credit scores, the better your chances of qualifying for a personal loan—and the better your interest rate might be. Here are a few healthy credit habits that may help improve your credit scores, according to the Consumer Financial Protection Bureau (CFPB):

• Pay on time. Payment history can be a big factor in calculating your credit scores. It’s important to pay your loans on time, every time. 

• Stay below your credit limits. Your credit utilization ratio shows how much of your available credit you’re using. The CFPB says it’s a good idea to keep this ratio below 30%. 

• Be mindful of your credit age. Having a longer credit history may help your credit scores, according to the CFPB. So you may want to consider your credit age when deciding whether to close an account. 

• Only apply for credit you need. New credit applications trigger hard inquiries. The effect of a single hard inquiry may be minor. 

• Check your credit. Regularly monitoring your credit is another important part of credit health. CreditWise from Capital One lets you access your TransUnion® credit report and VantageScore® 3.0 credit score without hurting your credit. You can even explore the potential impact of financial decisions, like taking out a personal loan, before you make them with the CreditWise Simulator. CreditWise is free for everyone, whether you’re a Capital One cardholder or not. You can also get free credit reports from AnnualCreditReport.com.

When you’re considering a personal loan, it can help to be aware of the other options that might be available to you. Here are some alternatives to a personal loan:

• Credit cards: Unlike personal loans, credit cards are a type of revolving credit, so the card can be used and paid down repeatedly as long as the account remains open and in good standing. If you decide a credit card better suits your needs, Capital One’s pre-approval tool makes it easy to find out if you’re pre-approved for card offers before you apply. Pre-approval doesn’t guarantee approval, but if you answer a few simple questions about yourself, you’ll be able to review any offers you may be eligible for. Pre-approval is quick, and it won’t hurt your credit scores.

• Balance transfer: A balance transfer lets you move credit card debt to another issuer. It could help you simplify payments and combine your loans at a lower interest rate. Before you open a balance transfer card, you’ll want to fully understand how it works, including any applicable fees or restrictions.

• Cash advance: With a cash advance, you’re able to get cash from your available credit. While cash advances can be convenient, they often come with higher interest rates than purchases you make with your credit card. You might also have to pay fees.

• Peer-to-peer (P2P) lending companies: P2P lending companies connect borrowers and individual lenders through online services. There can be a big difference in how various P2P lending companies review lenders and borrowers, as well as how they evaluate loan requirements. That’s why the CFPB recommends that you fully understand all fees and interest charges that may apply to a P2P loan.

If you’re looking to learn more about personal loans for a borrower with a fair credit score, check out the answers to some frequently asked questions:

There isn’t a single minimum credit score that’s required for a personal loan. But the lower your credit score, the harder it may be to get approved. And the higher your interest rate might be.

If you have fair credit and are considering a personal loan, you can take steps to improve your scores with responsible use and potentially increase your chances of approval. And don’t forget that there might be other options available to you. If you’re considering using a credit card versus a personal loan, you can compare cards to see which offers you the best terms, APR and features and find out if you’re pre-approved for card offers.