A personal loan for fair credit is one that has a minimum credit score requirement that falls within the fair credit score range. It works the same as other personal loans. Typically, no collateral is required, the lender issues you a lump sum payment and you pay it back in fixed monthly installments. The only difference is that a lender may charge you more in interest and fees because of your credit score.
When you take out a personal loan for fair credit, you can use it to pay for most expenses. Personal loans are commonly used for emergencies, home improvement projects or high-interest debt consolidation. By comparison, when you take out a mortgage or auto loan, you can only use it for a specific purpose.
What’s a fair credit score?
Are you wondering where your credit score falls in the range of poor to good? The FICO credit scoring model can provide you with an answer. It has five credit score ranges:
- Poor: Below 580
- Fair: 580 to 669
- Good: 670 to 739
- Very Good: 740 to 799
- Excellent: 800 to 850
If you have a poor credit score, it may be difficult to get approved for a personal loan unless you have a cosigner. Your chances improve if you have fair credit, though you’ll likely have to pay a higher interest rate. The best rates usually go to borrowers who have good to excellent credit scores (670 and more).
Your FICO score is based on five key factors – information that’s found on your credit reports. Credit scoring models weigh each factor differently.
- Amount owed (35%): This represents the total amount of your credit accounts, including student loans, personal loans, mortgage loans, credit card debt and other types of debt.
- Payment history (30%): Your payment history shows whether you’ve made on-time payments. Late payments can negatively affect your score.
- Length of credit history (15%): The length of your credit history factors in the age of your oldest and youngest accounts, along with the average age for all your accounts.
- New credit (10%): This category factors in how recently and how often you apply for new credit. If you apply too often, this might signal to a lender that it’s more of a risk to lend you money.
- Credit mix (10%): Having a variety of different credit accounts can be beneficial for your score, but having all types of loans isn’t a necessity.
Your credit score is important because it’s one of the factors lenders use to assess the likelihood that you’ll repay your loan.
If you don’t meet the lender’s minimum credit scoring requirements, this increases the chances of having your application for credit denied. In addition, if you’re approved, your credit score helps lenders decide what your interest rate and fees (if any) will be.
To make a profit, lenders charge borrowers interest and fees. How much your personal loan will cost depends on the amount you borrow, plus the interest and fees the lender charges you.
Usually, the higher your credit score, the more likely you are to get a lower interest rate or more favorable loan repayment terms. This can help you pay less than someone with a lower credit score over the life of the loan.
Personal loan interest rates vary, depending on many factors. But it’s likely a lender who offers rates ranging from 6.99% to %, for example, gives its lowest rates to people with good to excellent credit. And those with poor credit would likely get the highest interest rates.