If your credit score is in the low- to mid-600s, you have what is usually considered to be fair credit — not in the range where you have trouble getting personal loans at all, but in the range where finding a good interest rate and reasonable terms can be challenging. Whether you are experiencing a temporary fall in otherwise good credit or you have built your credit up from poor to fair status, it takes effort to find a loan that meets your needs.
Banks and credit unions are less likely to offer you a loan with fair credit unless you take the path of a secured loan that is backed by some form of collateral, such as your car, the contents of your bank account, or the equity in your home. With a secured loan, you are likely to receive a much better interest rate than you could receive otherwise, but there are two drawbacks: you put your collateral at risk, and your loan amount is limited by the amount of collateral that you supply.
Depending on your reason for the loan, a secured personal loan may be your best bet. For short-term predictable debt of moderate size that you can repay soon, the interest on a secured loan is likely to be superior to credit cards (and will certainly be superior to a high-interest payday loan).
Promotional credit card deals may be a viable alternative, but you must check the terms carefully and also resist the urge to rack up further debt. Consider that, with only fair credit, you are not likely to get the best credit card offer any more than you would the best loan offer.
If the above alternatives do not fit your needs, an unsecured personal loan is probably the best option. However, you may need to consider online lenders to find a suitable deal. Some online vendors are merely extensions of existing large bank operations, but others have novel business models that allow for lower overhead and flexibility in lending criteria.
The following two examples represent excellent online options for you: online specialists in the intermediate credit range and peer-to-peer lenders.
Fair credit puts you squarely in the middle of Avant's primary customer base. Avant offers traditional installment loans with defined payments at regular intervals, as compared to payday loans that require short-term lump-sum repayment or credit cards that allow you to rack up sizable debt while requiring only minimum payments. With an installment loan, you can continue to build your credit rating simply by making your regularly scheduled payments on time.
Loan amounts are available from $1,000 to $35,000 and interest rates as of this writing range from 9.95% to 35.99%. Repayment terms are available from 24 to 60 months, giving you the flexibility to find your optimum repayment conditions. With fair credit, you are likely to be in the middle-to-upper range of the interest rate range, but that is still likely to be a superior option to alternatives at your fair credit level.
Administration fee ranges from 0.95% to 4.75%, which will automatically be deducted from your loan proceeds at the time the loan is funded. There is no balloon payment at the end of your loan and you have the option of paying off your loan early without penalty to limit your interest payments. You may be able to benefit from late fee forgiveness or payment date adjustments under certain circumstances, perks that are not always available with a fair credit loan.
In general, Avant represents one of the best balances between terms and borrowing limits that are available within the fair credit range.
Lending Club is one of the leading peer-to-peer lenders, where borrowers like you are matched with investors who are willing to lend you money. You will fill out a simple application online and Lending Club assigns you a grade based on available data, which determines the range of interest rates for which you qualify. There are seven letter grades and five subdivisions within those grades. As of this writing, the best possible rating (A1) can receive a 5.99% interest rate while the worst (G5) will receive 35.89%.
Investors will see this profile and decide whether to fund your loan. In essence, the investor decides what risk you present and whether your loan goes forward. If you have other factors in your favor that can counteract a lesser credit score, for example, a relatively low debt-to-income ratio or higher income, investors may be more willing to lend you money as compared to a traditional bank or credit union.
Loan amounts are available up to $40,000 with repayment terms from 36 to 60 months. There is an origination fee of between 1% and 6%, but there are no penalties for prepayment or any hidden fees.
Lending Club caters to the upper end of the fair credit range, with an average credit score of 699 as of March 31, 2016. A typical use of Lending Club is for credit card debt consolidation, where debt has risen but payments are regularly made on time and income is still moderately high. Should you qualify, you are likely to receive a better rate than with other alternatives — but if not, Avant and other online lenders are still available for your needs.
With personal loan shopping with online vendors, initial rate comparisons can take place without a hard credit pull that can lower your rating. Rate estimates are usually done through a soft credit pull, which is more analogous to ID verification and background checking than it is a financial assessment. Check each lender's website to verify at what point a hard credit pull is required. You want to keep these to a minimum, as they can lower your score even more.
Once you find a lender with a suitable interest rate and favorable terms, be sure to read the terms and conditions thoroughly so you understand your rights and obligations and can make a direct cost comparison. We suggest doing a further background check on the lender by reviewing their ratings with the Better Business Bureau and the Federal Trade Commission, as well as researching online customer reviews. The lender is going to research you thoroughly, so turnabout is fair play. Do keep in mind as you pore through reviews that lenders dealing with fair or poor credit are taking greater risks.
If you set up loan repayment through an automatic withdrawal from your bank account, make sure that you understand the timing of withdrawals and what happens in case of a bank overdraft or a refused payment. Charges will apply, the only question is how much and through which organization (the lender or the holder of your bank account). By setting up a low balance alert, you may be able to prevent overdrafts and eliminate penalty fees.
There are avenues for acquiring personal loans when you have bad credit; it just takes more time and perseverance to find the terms that are right for you. You can consider one other path as well: If possible, take steps to improve your credit rating before taking out a personal loan. Review your credit report for errors and pay down debts as much as possible, and your loan options may look far better.
If you are interested in a personal loan, visit our curated list of top lenders.