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

It’s possible to get personal loans for fair credit — typically a FICO score is between 580 and 669. However, 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 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 as 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 with good to excellent credit enjoy.

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 have its own definition of fair credit, too. 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, following these seven steps will help streamline the process.

1. Assess your needs. Use a personal loan calculator to determine how much you can 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 also be willing to offer better terms than an online lender with which you don’t have a financial history.
6. Use a co-signer. You could improve your approval odds if you add a co-signer. 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.

How fair credit affects a personal loan

Lenders use credit scores to gauge the risk of you failing to repay a loan. 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 12.21 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 12 percent of your loan amount. Origination fees tend to be higher when your credit score is lower.
• 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.

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

Where can I get a loan with fair credit?

You can get personal loans for fair credit 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 lenders’ offers.

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.

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 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 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.

Alternatives to fair credit loans

Perhaps the loan offers you’ve received come with sky-high interest rates or repayment periods that make the loan payments unaffordable. It’s not worth stretching your budget thin to afford the monthly payments. And you could do more harm than good if you default on the loan, as 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 line that you’d like at one time. You can then repay the amount used and continue reusing your credit. However, credit cards typically have higher interest rates than personal loans if you carry a balance month-to-month.
• 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. Remember, you won’t receive that portion of your paycheck in the future.
• Home equity loan or HELOC: If you own a home and have enough equity, you may be able to get a home equity loan or HELOC. This allows you to get a loan that is secured by your home. Your rates and approval with this type of loan depend less your credit score. But if you fail to repay a home equity-secured loan, you could lose your house.

The bottom line

It’s possible to get a personal loan with fair credit if you need money immediately and lack time to improve your scores before applying. Some lenders even specialize in bad- to fair-credit lending. Compare offers from at least three lenders since these loans often have higher interest rates and fees.