Key takeaways

  • You won't qualify for the lowest rates if you apply for a personal loan with a fair credit score.
  • Adding a co-signer or co-applicant with excellent credit to your application could help you secure a lower rate.
  • Prequalifying with at least three lenders before submitting a formal application will help you gauge your approval odds without damaging your credit.

You can get a personal loan with fair credit — typically a FICO score is between 580 and 699 — but you’ll have to jump through more hoops than those with good or excellent credit. You may also have to shop around to find lenders that offer competitive rates for fair credit.

How fair credit affects a personal loan

Lenders use credit scores to gauge the risk of default, and a fair credit score tells a lender you’ve had some challenges in the past. Although some lenders offer fair credit loans, you should know ahead of time what to expect if you apply for a loan with fair credit.

  • Higher interest rates. The current average personal loan interest rate is just above 11.9 percent. But, as a fair credit borrower, you can expect to get an interest rate between roughly 18 percent and 32 percent, depending on the lender.
  • Steeper fees. You may pay origination fees as high as 10 percent of your loan amount, and lenders are more likely to charge them the lower your credit scores are.
  • Shorter repayment periods. Lenders tend to offer shorter terms to fair credit borrowers compared to good or excellent credit borrowers.
  • Lower loan limits. Lenders may limit how much you can borrow with a fair credit score.

Where can I get a loan with fair credit?

Personal loans for fair credit are available through traditional banks, credit unions, online lenders and peer-to-peer lenders. Each type of lender has benefits and drawbacks.

Traditional banks tend to prefer borrowers with solid credit scores. Check the requirements before applying to make sure you meet the minimums.

You could get approved for a personal loan with a fair credit score if you’re a member of a credit union based on the strength of your relationship. Credit unions cap personal loan interest rates at 18 percent, which may be lower than online lender offers with a less-than-stellar score.

Qualification requirements at online lenders tend to be the most lenient, but they may charge interest rates as high as 36 percent with high origination fees in exchange for their flexibility. Peer-to-peer lenders are also an option for fair credit borrowers since they evaluate factors like your education and employment history to approve you for a loan. However, they also come with high borrowing costs.

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

A personal loan makes sense if it helps you accomplish a financial goal. Since a fair credit score won’t get you the lowest rates, it’s important to take a longer term look at 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. If you’ve been putting off major car repairs, you could fund them with a fair credit loan so you don’t risk an unexpected breakdown. Or it might 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.

That said, you should explore other funding options if the loan offers you’ve received come with exorbitant interest rates or repayment periods that make the loan payments unaffordable. It’s not worth stretching your budget thin to afford the monthly payments. Furthermore, you could do more harm than good if you default on the loan, as you’ll likely damage your credit rating.

How to boost your credit before applying

It helps if you improve your credit score before applying for a personal loan. Doing so could open the door to good or excellent credit personal loan options, saving you a bundle in interest.

To boost your score, there are three key steps you should take.

  • Make timely payments. Payment history accounts for 35 percent of your FICO credit score. Pay your bills on time and get current on any past-due accounts.
  • Pay down debt balances. Your credit utilization rate, or the amount of revolving credit in use, makes up 30 percent of your FICO credit score. If possible, don’t use more than 30 percent of your available credit.
  • Don’t close old accounts. Although credit age only accounts for 15 percent of your FICO score, keeping old credit accounts open could improve your score enough to get lower rate offers from lenders.

How to get a loan with fair credit

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

  1. Assess your needs. Use a personal loan calculator to determine how much you can comfortably afford to borrow. Add estimated origination fees to your loan amount if you need to take home a specific amount of cash — lenders typically deduct when your loan funds.
  2. Check your credit. Know where you stand before applying to avoid surprises. If your credit score is on the lower end of the fair spectrum, consider paying some credit card  balances down. Even a slight increase in your score could get you better terms.
  3. Pay down 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 (DTI) ratio 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’s above 43 percent, you might not qualify for the amount you want.
  4. Compare loan offers. Get prequalified with at least three lenders that cater to fair credit borrowers to gauge the likelihood of being approved. Prequalifying allows you to see real offers without hurting your credit, as lenders only use a soft credit pull for this step.
  5. Consider banks and credit unions. A local bank or credit union may offer interest rate discounts and other perks to long-time customers. They may be willing to offer you better terms than an online lender that you don’t have a financial history with.
  6. Use a co-signer. You could improve your approval odds if you add a co-signer since their credit score and income can be combined with yours when you apply. You may qualify for a higher loan amount, lower rate or a longer term since the lender has the security of knowing an additional person is responsible for paying the debt.
  7. Submit a formal loan application. Once you decide on the best loan offer, it’s time to fill out the application. This part will require a hard credit check, so make sure your application is free of errors and upload any required documents to avoid an inadvertent denial.

The bottom line

It’s possible to get a personal loan with fair credit if you’re too crunched for time to improve your scores before applying and need money sooner than later. Some lenders specialize in bad to fair credit lending, so make sure you compare offers from at least three lenders to find the best deal for you.