Personal Loans With Fair Credit

It can be easy to forget how important your credit score is - until you need to take out a loan. If you have fair credit, you may be able to get a personal loan. However, your options might be more limited. You may also pay a higher interest rate compared to those with good, very good or excellent credit scores..

Let's explore what qualifying for a personal loan with fair credit can look like, how to improve your approval odds and alternatives to personal loans.

What is considered fair credit?

The exact range for fair credit scores can vary by credit scoring model. FICO® puts fair credit scores between 580 and 669.

Several factors help determine your credit score, such as:

• On-time payment history
• Credit utilization ratio (how your revolving credit balances compare to your total credit limit)
• Length of credit history
• New credit accounts
• Credit mix (the different types of credit accounts you have open in your name)

Credit scores can impact the loan terms you qualify for. That includes the annual percentage rate (APR), which represents your total cost of borrowing. With fair credit, you may pay more to borrow than someone with a higher credit score.

Personal loan lenders may consider other factors when evaluating your application, too. That may include your income and debt-to-income ratio, as well as the desired loan amount and term.

Can you get a personal loan with fair credit?

It can be possible to qualify for a personal loan with fair credit, but your options may be limited. Some lenders, for instance, may cater to those with fair credit scores. Others may only approve applications for those with good to excellent credit scores.

In general, fair-credit borrowers typically see less favorable loan terms than those with higher credit scores. That said, some lenders accept collateral, a piece of property you use to secure the loan, such as a car. These lenders may have less strict credit requirements and may offer more favorable terms to applicants with fair credit.

Applying for a personal loan with fair credit

Applying for a personal loan is generally the same, regardless of your credit range.

First, you'll need to gather your documents. Often, this includes proof of income and employment (such as tax returns or bank statements) and proof of identity (such as your driver's license or passport).

You may also need:

• Social Security number or individual taxpayer identification number
• Bank details, such as routing and account numbers, if you're receiving the funds as a direct deposit

If available, pre-qualification can help you narrow down your search. Pre-qualification lets you check if you may qualify for a loan without impacting your credit.

Once you pick a lender, you can fill out the application, and if approved, sign your loan documents. Carefully reviewing the agreement before signing - including the APR, fees, monthly payment and repayment term - can help you avoid loan missteps in the future.

How to improve your chances of loan approval

If you're having trouble qualifying for a personal loan, you can take steps to boost your approval odds. Checking your credit score and credit report can help you understand what steps might be most beneficial. You're entitled to a free credit report every 12 months from each of the major credit bureaus. The credit bureaus also currently offer free weekly credit reports.

Based on your credit history, you can decide on next steps. For example, if you've missed payments in the past, autopay can help you start an on-time payment streak. If you have a lot of debt, paying down that debt can reduce your credit utilization and debt-to-income ratio (which compares your monthly debt payments to monthly gross income). If you find errors on your credit report, disputing those and having them corrected may help improve your credit score.

What to expect when applying for personal loans with fair credit

Your approval odds can vary by lender, so shopping around can help you find the best rates and terms.

In general, you may expect to see higher interest rates and potentially lower loan amounts if you have fair credit. Fees, such as origination, late and insufficient funds fees, are also common among personal loans. At the same time, some of these loans may offer an autopay discount, which can help reduce your APR.

Personal loans are typically unsecured, but you may come across secured options. Secured personal loans require collateral, which the lender could repossess if you miss payments. There is more personal risk with secured personal loans, but they may help you qualify for better terms.

Alternatives to personal loans for fair credit borrowers

Fair credit can limit your personal loan options. If that's the case, you may want to consider alternatives:

• Credit cards: If you're looking to consolidate credit card debt, a balance transfer credit card may be a good option. Some credit cards offer a low intro APR on balance transfers. You can transfer balances from other credit cards and use the low-interest period to pay off the debt. You'll pay a balance transfer fee for each balance you transfer, which is typically a flat fee or a percentage of the balance transferred, whichever is more. If you want to cover a big purchase, a credit card may also be an option, though the interest rate may be higher than that of a personal loan. Some credit cards offer a low intro APR on purchases, which means you will have time to pay off the balance before it starts accruing interest at the regular rate.
• Home equity loans: If you own a house, you may be able to borrow against your home's equity (that's the current value minus your mortgage). Here, your property becomes collateral, so missing payments can lead to foreclosure. Because they're secured by your home, home equity loans may come with lower APRs than personal loans.
• Home equity line of credit (HELOC): Like a home equity loan, a HELOC lets you tap into your home's equity. Instead of a lump sum, you'll be able to borrow from a line of credit for a set period (the draw period). You must repay that amount during the repayment period. Like a home equity loan, if you fail to make payments, you could lose your home.

Learn more about personal loans and other financial topics by visiting the Personal Loans Learning Center.

This article is for general educational purposes. It is not intended to provide financial, it is not intended to provide financial advice. It also is not intended to describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.