Can you get a loan with fair credit? Yes, here’s how

It is possible to get personal loans for fair credit – typically a FICO score is between 580 and 669. However, you will have to jump through more hoops than those with good or excellent credit. You may also need to shop around to find lenders offering competitive personal loan rates for fair credit.

Can you get a loan with fair credit?

The short answer is yes, you can get a loan with fair credit.

You may have fewer lenders to choose from because some require good or better credit. It won’t be as difficult as getting a loan with bad credit. Interest rates will likely be higher than those of people with good to excellent credit.

Most lenders use your FICO score to make lending decisions. Some use the VantageScore model.

These two credit scoring models have slightly different definitions of fair credit. Your lender may also have its own definition of fair credit. But these ranges are a useful guideline.

How to get a loan with fair credit

When you’re ready to apply for a personal loan, you can streamline the process by following these seven steps.

1. Assess your needs. Use a personal loan calculator to determine how much you can borrow. Add an estimated origination fee to your loan amount if you need to take home a specific amount of cash. Lenders typically deduct this when your loan is funded.
2. Check your credit. Know where you stand before you apply so that you are not faced with any surprises. If your credit score is on the lower end of the reasonable spectrum, consider paying down some credit card balances. Even a small increase in your score can get you better terms.
3. Pay off your current debt. If you can, pay off a few small balance debts before applying for a loan. Lenders look at your debt-to-income ratio (DTI) to determine how much of your monthly gross income is spent on monthly debt. Your DTI ratio is expressed as a percentage, and if it is higher than 43 percent, you may not qualify for the amount you want.
4. Compare loan offers. Be sure to pre-qualify with at least three lenders that target honest borrowers to gauge your likelihood of approval. Pre-qualifying allows you to see real offers without hurting your credit, as lenders only use a soft credit draw for this step.
5. Think of banks and credit unions. A local bank or credit union may offer interest rate discounts and other benefits to long-time customers. They may also be willing to offer better terms than an online lender with whom you have no financial history. You can also argue your case in person and explain your circumstances rather than via an online form.
6. Use a co-signer. You can increase your chances of approval if you add a co-signer. You may qualify for a higher loan amount, a lower rate or a longer term because the lender has the assurance that an additional person will be responsible for paying the debt.
7. Submit a formal loan application. Once you’ve chosen the best loan offer, it’s time to fill out the application. This part requires a hard credit check, so make sure your application is error-free and upload all required documents to avoid an accidental denial.

How fair credit affects a personal loan

Lenders use credit scores to assess the risk that you will not repay a loan. A fair credit score tells a lender that you have had some challenges in the past. Although some lenders offer fair credit loans, you should know in advance what to expect when you apply for a fair credit loan.

• Higher interest rates. The current average interest rate on personal loans is 12.21 percent. But as an honest borrower, you can expect an interest rate between about 18 and 32 percent, depending on the lender.
• Steeper fees. You can pay origination fees of up to 12 percent of your loan amount. Origination fees tend to be higher if your credit score is lower.
• Shorter repayment terms. Lenders typically offer shorter terms to borrowers with fair credit than to borrowers with good or excellent credit.
• Lower borrowing limits. Lenders may limit how much you can borrow with a fair credit score.

But you may not be stuck with these unfavorable conditions. Making consistent, on-time payments on your personal loan and other debts can help boost your score. Then you may be able to refinance your personal loan at a better interest rate.

Where can I get a loan with fair credit?

You can get fair credit personal loans through traditional banks, credit unions, online lenders and peer-to-peer lenders. Each type of lender has advantages and disadvantages.

Traditional banks typically prefer borrowers with solid credit scores. Please check the requirements before applying to ensure you meet the minimum requirements.

You can get approved for a personal loan with a fair credit score if you belong to a credit union based on the strength of your relationship. Credit unions limit interest rates on personal loans to 18 percentwhich may be lower than offers from online lenders.

Qualification requirements at online lenders are typically the most lenient, but they can charge interest rates as high as 36 percent, with high origination fees.

Peer-to-peer lenders are also an option for honest borrowers because they review factors such as your education and employment history to approve you for a loan. However, they also entail high financing costs.

How to decide if a fair credit loan is right for you

A personal loan makes sense if it allows you to achieve a financial goal. Because a fair credit score won’t get you the lowest rates, it’s important to understand how it will help (or potentially hurt) your money situation.

For example, you can use it to consolidate high-interest credit card debt, which could improve your credit scores in the future. Or it may make sense to use a personal loan to replace an old air conditioner before the hot summer months, to avoid a costly emergency repair scenario.

Alternatives to Fair Credit Lending

Perhaps the loan offers you’ve received have sky-high interest rates or repayment terms that make loan payments unaffordable. It’s not worth stretching your budget to cover the monthly payments. And you could do more harm than good if you can’t pay off the loan because you’ll likely damage your credit rating.

Instead, consider alternatives to personal loans:

• Credit card: Credit cards allow you to use any amount of your credit limit at once. You can then repay the amount used and continue to reuse your credit. However, credit cards typically have higher interest rates than personal loans if you carry a balance from month to month. And because interest on credit cards is compounded, it adds up quickly.
• Salary advances: If you need a small amount of money in the short term, you may be able to use a salary advance. Early payday apps and companies pay you part of a future paycheck in advance. Please note that you will not receive that part of your salary in the future.
• Mortgage Loan or HELOC: If you own a home and have enough equity, you may be able to get a mortgage loan or HELOC. This allows you to get a loan that is secured by your home. Your rates and approval on this type of loan depend on your credit score. But if you don’t pay back a home equity loan, you could lose your home.

The bottom line

It is possible to get a fair credit personal loan if you need money immediately and don’t have time to improve your scores before applying. Some lenders even specialize in providing bad to fair credit. Compare offers from at least three lenders, as these loans often have higher interest rates and fees.