Compare personal loans for fair credit scores
Having "fair" or average credit won't stop you getting a loan – plenty of lenders don't expect perfection – but with higher rates involved it's worth finding the cheapest loan you're eligible for.
Calculate the cost of loans for fair credit
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What's in this guide?
- Calculate the cost of loans for fair credit
- What is a fair credit score?
- How does my credit score affect my application?
- How do I find the cheapest fair credit loan for me?
- What types of loans are available to fair credit scores?
- How do I compare my loan options if I have a fair credit score?
- I want better rates and terms on a loan. How can I improve my credit?
- Bottom line
- Frequently asked questions
- How different factors can affect your credit score
What is a fair credit score?
Fair credit scores
There is no single, definitive credit score that’s defined as “fair”. Each Credit Reference Agency (CRA) uses a different scale. Lenders will normally check with one or more of these agencies when assessing your application for credit. Even though these bureaus collect the same information to determine your credit score, there’s enough variance in their algorithms to result in different scores among them.
These are the scoring ranges employed by the main UK CRAs. The higher the number, the better the score.
Depending on your score, you’re said to have excellent, good, fair, poor or very poor credit:
|TransUnion (formerly Callcredit)||0-550|
|1: Very poor|
Having a decent credit score will make it easier to get approved for personal loans, mortgages, vehicle finance and credit cards. It’s also likely to have a bearing on the credit limits and interest rates that you’re offered by lenders (which can vary at the lender’s discretion).
How does my credit score affect my application?
While it’s not the only factor considered, your credit score is one of the main things used to determine, your odds of getting approved for a loan in the first place, the maximum amount you can borrow and the interest rate you’re offered.
Although 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 those financial obligations, the less risk you’ll pose in a lender’s eyes. If you haven’t always paid bills on time or have missed loan repayments in the past, the rates you’re offered will most likely be “sub-prime”.
The lowest rates on the market – and therefore the cheapest loans – are only accessible to people with excellent credit. Applicants with fair credit may be offered personalised (higher) rates or may need to apply to specialist lenders.
All lenders must evaluate the interest and fees they charge and calculate the APR (annual percentage rate) of their products in the same way, and must tell you the APR before you sign an agreement. So for consumers, the APR should be a handy tool for comparison.
But crucially, when lenders advertise their Representative APR, in most cases this is not the rate that they award to all successful applicants. It’s defined by the Financial Conduct Authority (FCA) as being the APR that the lender realistically expects at least 51% of its borrowers to get. Because most lenders tailor their interest rates to the applicant, it’s usually the 51% of applicants with the best credit scores that get the representative APR, while the remaining 49% get a higher APR. This is known as risk-based pricing.
How do I find the cheapest fair credit loan for me?
Let’s say that you have a fair credit score, and you go straight to the lender offering the very lowest rates on the market. If your application is approved, it’s highly likely that the lender will offer you a higher rate than what you’d seen them advertise. If you apply to a specialist fair credit lender, you’ll stand a better chance of getting approved and a better chance of getting their advertised representative APR.
So when your credit score isn’t excellent, the representative APR can be misleading. What you really need to know is the actual APR that you personally would be offered by each lender, and what their loans would cost you each month and overall. Lenders can give you this information before you apply if you consent to a soft search of your credit file (the “soft” bit means that it won’t hurt your credit score).
Better still, a decent loan matching service (like Finder!) can check your eligibility with multiple lenders in one go, and give a personalised comparison of the actual APRs that you’d receive and the monthly/overall costs of the loans.
What types of loans are available to fair credit scores?
Repairing your credit score can take time, but you do have loan options now if your credit is sitting at “fair”.
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:
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.
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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.
There’s a decent spread of loan companies out there serving all sectors of the market. All of them must only practice responsible lending, however, which means that they should consider factors like your income and outgoings so that they don’t offer loans likely to lead to financial difficulty.
Frequently asked questions
How different factors can affect your credit score
Will you be approved?
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