Key learning points
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Good credit loans typically offer more competitive terms and interest rates than fair credit or bad credit loans.
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Good credit loans are offered by banks, credit unions and online lenders.
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To apply for a good credit loan, you need a FICO score of at least 670 and the income and other eligibility criteria set by that specific lender.
If you need to borrow money, having a good credit score can work to your advantage. Not only will you have access to a larger pool of lenders, but you will also have a better chance of getting the best rates and terms on personal loans.
But even if you have good credit, there are a number of factors to consider before applying for a personal loan. These include your overall financial health and monthly budget, as well as how much money you need and whether or not what you’re offered meets your exact needs.
What are good personal loans?
A personal loan with good credit generally comes with more competitive loan terms than you would get with fair or bad credit, including:
- Lower interest rates.
- Longer repayment terms.
- Higher maximum loan amounts.
Personal loans currently have an average interest rate of 12.18 percent. However, standard interest rates on personal loans can range from approximately 8 percent to 36 percent. If you have good credit, you may qualify for a loan with an interest rate of less than 12 percent.
While good credit can help you get a lower rate, it doesn’t mean you’ll get the lowest rate available. These rates are generally reserved for borrowers with excellent credit – FICO scores above 800.
What is a good credit score?
Your credit score indicates how well you have handled credit in the past. It assesses factors such as your payment history, amounts owed and credit mix.
The most popular credit scoring model used by most lenders is FICO. These scores range from 300 to 850. If you have good credit, it means you have a credit score between 670 and 739. Anything above that is considered ‘very good’ or ‘exceptional’.
Lenders can also use the VantageScore model, where good credit ranges from 661 to 780.
Lenders often offer you better terms and interest rates if you have a good credit score. They believe that borrowers with good credit pose a lower risk of default. That means they are more likely to repay their debts than those with a negative score on their credit report.
Where can you get a good personal loan?
Good credit loans are available through three types of lenders: banks, credit unions and online lenders.
- Banks: Banks target borrowers with good or excellent credit scores. They offer larger loans and terms that in many cases range from 24 to 72 months. Some banks also offer perks to current account holders, such as interest rate reductions, to help maximize savings.
- Credit unions: To apply for a personal loan from most credit unions, you will need a membership. Their loans often have the same terms as those of banks, but with lower interest rates. The national average rate for a three-year, unsecured, fixed-rate personal loan is 10.78 percent for credit unions. For the banks this amounts to 11.37 percent, according to the American newspaper The Guardian National Credit Union Administration.
- Online lenders: Online lenders generally have a streamlined digital application process, fast approvals and financing times. Many also offer personal loan prequalification to review your loan offer without impacting your credit score. Online lenders often use more flexible credit criteria than traditional banks. Some even consider factors like your educational background and employment history for approval.
How to get a good personal loan
The process for applying for a good credit loan is basically the same as applying for any other type of personal loan.
- Check you credit. Get a copy of your credit report to know where you stand with creditors. If you see something is wrong, such as a closed account marked as open, file a dispute with each of the credit bureaus (TransUnion, Equifax, and Experian) to have the discrepancies removed. It can take up to 30 days for an agency to respond. Once they do, you may see your score increase.
- Shop. It’s never ideal to settle for the first personal loan you come across. Do some research to identify personal loans from traditional banks, credit unions and online lenders that may meet your needs.
- Make sure you prequalify. Be sure to pre-qualify online with at least three lenders to view potential loan offers without impacting your credit score.
- Compare loan offers. When comparing your options, consider the interest rates, loan terms, fees and financing times each lender offers. Also consider any benefits, such as auto-pay discounts.
- Gather your documents. Most lenders will request multiple documents. Gather a copy of your government-issued ID, proof of address, most recent pay stubs or bank statements, and information about your employer.
- Apply for a loan. Complete the final application and submit the documentation requested by the lender to make a credit decision. Many lenders make same-day or next-day lending decisions, and some offer fast financing options.
How to decide if a good credit loan is right for you
Personal loans are a big financial decision. Think carefully about the pros and cons of a personal loan before applying for it and ask yourself the following questions:
- Do you have a solid credit score? If so, are you eligible for a competitive interest rate?
- How do you plan to use the funds? Is there an urgent need for a personal loan, or can you save the money you need over time?
- Do you have enough wiggle room in your budget to afford the monthly loan payments? Have you used a personal loan calculator to make this determination?
- Are you planning to consolidate high-interest debt? If so, do the savings outweigh the borrowing costs you incur with a personal loan? Are you disciplined enough with your spending to avoid racking up more credit card debt after you settle the balances?
Your answers to these questions will help determine whether a personal loan makes financial sense or whether you should explore other options.
Common requirements for a good personal loan
Especially when it comes to loans for good credit, many lenders will take into account factors beyond your credit score.
Lenders often take your income into account. While some simply want a stable source of income, others may require you to meet a specific income threshold.
Your existing debt and how it compares to your income also matters. If your debt-to-income ratio (DTI) is high, it can be difficult to get approved. Lenders prefer a DTI below 36 percent. That means that currently no more than about a third of your monthly gross income goes toward paying your debts. Some allow up to 50 percent.
Alternatives for a good credit loan
A personal loan isn’t the only way to access the money you need. Some viable alternatives include lines of credit, credit cards, tapping into your retirement plan, and secured loans.
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Personal lines of credit work just like a credit card. You can use the money again while paying the balance. And, unlike personal loans, you only pay interest on the amount you use, not on the total amount available to you.
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Zero-APR credit cards have an interest-free introductory period – usually between 12 and 18 months. This can make borrowing more affordable or let you consolidate existing debts. This strategy is best for expenses that you think you can pay off before the introductory period ends.
Standard credit card: Regular cards are also an option, but be wary. If you carry a balance, the rate will likely be higher than a personal loan. Some cards also let you take out a cash advance, but these often have higher interest rates – and there’s no interest-free grace period. -
Borrowing money from your retirement account is usually not recommended because you may miss out on higher income. But sometimes taking out a 401(k) loan or an early IRA withdrawal can make sense. Before considering this, make sure you understand the costs and terms involved.
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Both home equity loans and HELOCs allow you to borrow against the equity you have built in your home. They often have a low interest rate because you use your house as collateral. But this could cause you to lose your home if you default on your loan. However, these can be a great solution for larger projects such as home renovations.
it comes down to
Good personal loans can be an excellent financing option if you’re strapped for cash or don’t want to tap into your savings. That said, a personal loan is still a form of debt, so it’s important to carefully evaluate your options, as well as your finances, before committing to one.