Compare personal loans for “fair” credit scores

For most of us, big-ticket expenditures like a car, wedding or holiday very often can’t be paid for upfront. So, being practical is incredibly important – and even more so if you’ve been declined for a loan in the past.

If you’re looking for a loan and have your credit rating in mind, you’re already ahead of the curve. By taking into account what kind of loan your credit score can get you, you’re setting yourself up for success. Interest rates, terms, requirements and whether you can even get approved are all affected by your perceived creditworthiness. By considering it, you’re setting up realistic goals for repayments. This guide will take you through what to expect when you’re looking for a fair credit loan.

How does my credit score affect my application?

The lowest rates on the market – and therefore the cheapest loans – are reserved for those with excellent credit. Applicants with fair credit may be offered personalised (higher) rates or may need to apply to specialist lenders.

Crucially, when lenders advertise their Representative APR, in most cases this is not the rate that they award to all successful applicants. Up to 49% of successful applicants may receive a higher rate. This is known as “risk-based pricing“.

While your credit score isn’t the only factor considered, it’s widely used to determine your interest rate, the maximum amount you can borrow and your odds of getting the loan in the first place.

Though your perceived risk may vary from lender to lender, they’ll all try to determine how well you’re meeting your financial obligations. The better you are at meeting your financial obligations, the less risk you’ll pose to a lender. On the other hand, if you’ve struggled to pay your bills on time or have missed payments in the past, the rates you’re offered will most likely be “sub-prime”.

Loan companies must only practice responsible lending, which means that they should also consider factors like your income and outgoings so that they don’t offer loans likely to lead to financial difficulty.

What types of loans are available to those with a fair credit score?

Repairing your credit score can take time, but you do have loan options now if your credit is sitting at “fair”.

• Personal loans. Fixed-rate, unsecured instalment loans are repaid monthly payments and aren’t secured against any property. This kind of loan is available from high street banks, online direct lenders and brokers, with many lenders catering to those whose credit histories may be less than perfect.
• Guarantor loans. Guarantor loans require a friend or relative of the borrower (who will need to have good credit) to promise to step forward in the event that the borrower defaults on the loan.
• Credit builder credit cards. Credit building cards are designed as “stepping stone” products to cards or loans with better rates. By reporting back to CRAs that you are borrowing responsibly, they can help you to build or rebuild a positive credit history.
• Car finance. Car loans take various forms, and because some forms use your vehicle as security, lenders can be less exposed to risk and can be more inclined to lend.
• Logbook loans. These loans are usually considered short-term loans because they are meant to be repaid quickly. Interest rates are high, and if you fail to repay on time, you stand to lose your vehicle.
• High-cost, short term loans. Short term loans, including payday loans, can be paid back in a few days or on your next payday, but they typically come with some of the highest interest rates around. They are usually given in smaller monetary amounts of up to £1,000, over terms ranging from a few days up to 12 months.

Borrow up to £10,000 within 24 hours with a guarantor

If a limited credit record is holding you back from the money you need, a guarantor loan can be a great option – allowing you to borrow money while building your credit score.

• Amigo loans will not judge you based on your credit score
• Loans of £500-£10,000 over 1-5 years
• Loans normally paid out within 24hrs of the guarantor being accepted

Representative example: Borrow £5,000.00 over 3 years at a rate of 49.9% p.a. (fixed). Representative APR 49.9% and total payable £8,782.92 in monthly repayments of £243.97.

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How do I compare my loan options if I have a fair credit score?

A fair credit score can limit your options slightly. Not all lenders will be willing to fund you, and others might not give you their best loans. Here’s what you should look for when comparing lenders:

• Eligibility. Different lenders will require you to meet different criteria. Credit score, age, income and residence are all factors that may determine your eligibility for a loan, and there’s no point applying if you don’t meet those terms. Look for “soft search” or “eligibility checker” facilities to find out whether or not you’re likely to be approved, without affecting your credit score.
• Available loan amounts. Consider exactly how much you need to borrow, and why that amount is necessary. Borrowing more than you need will obviously cost you more in the long run, and lenders can be apprehensive about lending larger sums to people with less-than-perfect credit histories.
• Overall cost. If you only compare one factor, it should probably be this one! Aim to keep the overall cost as low as possible, while ensuring the repayment schedule is affordable.
• Interest rate. One of the biggest factors to look at is the APR that’s offered. Your credit score, the amount you want to borrow, your ability to repay and the loan term can all impact this figure. Don’t forget that the advertised “representative APR” may not be awarded to all applicants. Lenders typically tailor rates to the individual.
• Available loan terms. Typically your loan term will be dictated by how much you’re borrowing and how much you can afford to repay each month. Broadly speaking, the longer you borrow for, the more expensive the loan, but realistically it can be necessary to spread larger loans over longer terms.
• Turnaround time. Some lenders are able to get you the funds on the same day that you apply, but these lenders may not have the best rates. Consider carefully whether you really need to prioritise speed over savings.

I want better rates and terms on a loan. How can I improve my credit?

Some of the main factors determining your credit score are your payment history, your credit utilisation, how long you have held credit, the type of credit used and your number of credit searches. To repair your credit, keep in mind the following factors:

• Start small. If you’re going to have to pay a higher rate of interest than those with better credit scores, it might make sense to start with a smaller sum over a shorter term, so that you can prove to a lender that you’re trustworthy. Then, next time, you should be able to score a better rate.
• Save regularly. By demonstrating that you can put aside even a tiny part of your regular income, you will demonstrate that you’re financially responsible.
• Reduce your debt balances. Lenders will also consider your credit utilisation ratio – that’s how much of your available credit that you’re actually using (your debt compared to your total credit). Simply moving your balances around will not actually change your utilisation rate. It’s often easier said than done, but reducing your level of debt overall will naturally make you more appealing to a would-be lender.
• Don’t necessarily close an unused credit account if you don’t have to. Closing an account can actually have a negative effect on your credit utilisation rate. Provided that there are no ongoing costs to do so, and provided you resist the urge to use it, it could be worth keeping an unused credit account open.
• Avoid applying for lots of loans or credit cards. Nothing looks more desperate to a potential lender than a multitude of loan applications in a short space of time, especially if none of the applications result in an account being opened. Use “soft search” facilities to check whether or not you will be approved for credit without affecting your credit score.

As an aside, if you’re not on the electoral roll, it’s worth registering with your local council, as CRAs will check this too.

Build your credit history while you save with LOQBOX

• Choose what you want to save – from £20 to £200 a month
• Build your credit history with the credit reference agencies
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Bottom line

Your credit score can affect your ability to get a loan, with interest rates, terms and eligibility all at least partially dependent on your credit score. It’s important to know not only what your score is, but also how your actions influence it.

When you’re looking to take out a loan, make sure it’s both what you need and something that you can financially handle. If you can’t make timely payments, you could damage your creditworthiness and hurt future attempts at financing. Shop around, do your research, ask advice from an expert or even a trusted friend, and make sure you sleep on any big decisions.

Frequently asked questions

• There’s something wrong on my credit report. Can I dispute it?

  Yes. If you believe you’ve found a discrepancy, contact the credit reference agency that the report came from to request an amendment.

• I need to get a loan, but I don’t qualify on my own. Now what?

  Some lenders offer the ability to include a guarantor on your loan, who will typically need good credit. If you can find somebody suitable, you may be able to take out the loan you need.

• What are standard repayment terms for loans for people with fair credit scores?

  Repayment terms can vary widely between lenders. Some short term loans have repayment terms as short as a few weeks, while more traditional personal loans can span seven years or more.

• Do loans for fair credit come with fees?

  It’s increasingly rare to find “application”, “setup” or “product” fees in the world of unsecured personal loans. When you’re comparing loans, if in doubt, you can focus on the overall cost, which will take into account this type of charge.

  Late payments can result in a penalty fee, and will result in additional interest and damage to your credit score.

  Fees for early repayment are also rare, however it’s fairly standard to be charged up to two months’ interest on any sums repaid early, beyond the date on which the overpayment was made.

How different factors can affect your credit score