Personal loans with fair credit: What to know

A personal loan is a type of installment loan you can repay over time with interest. Personal loans may be helpful for making big purchases. They can also be used to consolidate high-interest debts.

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

What you’ll learn:

• Higher credit scores may make it easier to qualify for personal loans, but there isn’t a universal score needed for a personal loan. 

• A fair credit score, which typically ranges between 580 and 669, may affect your loan terms, depending on the lender and the loan.

• When shopping for personal loans, consider things like approval requirements, borrowing limits, repayment terms and how to qualify.

• Credit cards are an alternative to personal loans.

While your options might be slightly limited, you may still qualify for personal loans with fair credit scores. When a lender reviews a personal loan application, it’s considering your creditworthiness to decide whether to offer a loan. Credit scores are one indication of creditworthiness. 

Generally, the higher your credit score, the better your chances of getting approved for new credit. A fair credit score doesn’t mean you can’t qualify for a personal loan. But according to the Consumer Financial Protection Bureau (CFPB), having a higher score typically makes it easier to qualify for a loan with a better interest rate and terms.

What’s considered a fair credit score depends on who’s judging and what score they’re using. But credit-scoring company FICO® says fair credit scores range from 580 to 669. With fair credit, you may not qualify for as much as someone with good or excellent credit. 

In addition to your credit score, lenders may also consider factors like your credit history, income and debt-to-income (DTI) ratio when you apply for a personal loan. So while it may be harder to qualify for a personal loan with a lower credit score, approvals are ultimately up to individual lenders.

Borrowers with fair credit scores may be offered less-favorable terms, like higher interest rates, shorter repayment terms and lower loan amounts. Here’s a closer look at how having fair credit may impact the terms for a personal loan: 

• Interest rate: Lenders may offer borrowers with fair credit a higher interest rate on a personal loan. Interest is the price you pay for borrowing money. And the higher the interest rate, the more you generally pay for the loan over time. 

• Repayment period: Credit scores may also impact how long you have to pay back a personal loan. Borrowers with fair credit scores may be offered shorter repayment periods than borrowers with good or excellent scores. 

• Loan amount: Lenders typically consider credit scores when determining how much credit to offer a potential borrower. Lower scores may limit the amount you’re able to borrow.

If you have fair credit, exploring different lenders and loan options can help you find the best personal loan for your needs. Here are a few things to consider:

• Approval requirements: Some lenders tell potential borrowers what credit score range they typically need to qualify for a certain loan. Narrowing down your options this way may help you limit hard inquiries on your credit report.

• Loan type: Secured loans require the borrower to back the loan with an asset, such as a car, a house or cash. Unsecured loans don’t require collateral and typically have stricter eligibility requirements, like higher credit scores. 

• Interest rate: Even small differences in interest rates offered can make a big difference over the life of a loan. 

• Repayment terms: A longer repayment term may mean lower monthly payments, but it may increase your interest rate.

• Fees and discounts: You can weigh things like origination fees, prepayment penalties, late fees, autopay discounts and flexible due dates.

If you have fair credit and are considering a personal loan, there are a few steps you can take that may improve your chances of approval:

Do some research on different potential lenders to learn where you might get more favorable terms on a personal loan with fair credit, like lower interest rates and fees. You may be able to use an online tool to easily see what lenders might best meet your needs.

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. Narrowing down your options before applying is another way to help you avoid unnecessary hard inquiries.

If the lender allows it, having a co-signer with strong credit might help you get approved for a loan and secure a better interest rate. But if you make late payments or miss payments, it can hurt both your and your co-signer’s credit scores. Plus, your co-signer is ultimately responsible for the loan if you can’t pay.

If you’re having trouble qualifying for a personal loan with the terms you’d like, it may be worthwhile to work on improving your credit scores first. Making on-time payments, keeping your credit utilization below 30%, and limiting credit applications and hard inquiries can help increase your scores over time. 

You can also monitor your credit and keep an eye out for potential errors by using a tool like CreditWise from Capital One, which is free and won’t negatively impact your credit. Or visit AnnualCreditReport.com to get free copies of your credit reports.

Banks, credit unions and online lenders might offer personal loans to people with fair credit. Each lender sets its own rules about necessary credit scores and other requirements. Keep in mind that you may need to have an account at the bank or credit union to qualify for a personal loan.

Depending on your needs and financial situation, these personal loan alternatives might be worth considering.

Credit cards are a type of revolving credit, which means you can use and repay funds over time as long as the account stays open and in good standing. Seeing whether you’re pre-approved for credit card offers can be a good first step. Pre-approval is quick and won’t affect your credit scores.

If you’re interested in a personal loan to help you consolidate debt, a balance transfer is another potential way to help you combine existing payments, often at a lower interest rate. Look into fees, limits and limited-time offers before you apply.

You may qualify for a personal loan with a fair credit score—there isn’t a set 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 your credit score may also affect the loan terms, like interest rates, you’re offered.

If you have fair credit and are considering a personal loan, you can take steps to improve your scores and increase your chances of approval. And there might be other options available. You can compare credit cards to see which one offers you the best terms, annual percentage rates (APRs) and benefits. You can even find out whether you’re pre-approved without impacting your credit scores.