Best Personal Loans for Fair Credit

Just because you don’t have perfect credit doesn’t mean you can’t qualify for a personal loan.

The personal loan industry has grown tremendously in recent years, and while some lenders prefer to focus on borrowers with good credit histories, there are others that welcome subprime borrowers.

Although you’ll likely pay a higher interest rate than a borrower with flawless credit, with a fair credit score, you could potentially find a personal loan with a better interest rate than you’d get with a credit card. With that in mind, here are three of the best personal lenders that accept borrowers with fair credit scores, a little about each one, and how to determine which is best for you.

The term personal loan generally refers to unsecured loans made to individuals, as opposed to secured types of borrowing such as auto loans and mortgages. Common uses for personal loans are for debt consolidation, such as paying off credit card debt, and to pay for personal expenses such as home renovations, auto repairs, and more.

Personal loan proceeds can be used for just about any purpose you want and are offered by traditional banking institutions, peer-to-peer lenders, as well as online personal lending companies. It seems like nearly every financial institution has created some sort of streamlined personal lending product within the past few years.

Interest rates on personal loans generally vary with factors such as your credit, income, employment history, debt obligations, and the loan’s length. Borrowers with fair credit scores can expect interest rates that are on the upper end of each lender’s advertised range of APRs.

FICO® credit scores are calculated on a scale of 300 to 850, with higher scores being better. Although there’s no official cutoff point that determines what is considered excellent, good, or bad credit, FICO does offer some guidelines:

Data source: www.myFICO.com

So, for the purposes of this discussion, we’ll go with FICO’s definition and consider you a fair-credit borrower if you have a FICO® credit score in the 580-669 range.

If you aren’t sure what your credit score is, there are several websites where you can check it, or you may be able to access a free FICO® score through certain credit card issuers if you’re a cardholder. My personal favorite (although it isn’t free) is myFICO, which is run by the Fair Issac Corporation -- the creators of the FICO® score. I’ve been a customer for well over a decade and love the comprehensive score reports and available tools I get.

There are certainly some personal lenders that focus on borrowers with strong credit histories. Just to name a couple of popular examples, you’re unlikely to get a personal loan from SoFi or Marcus by Goldman Sachs if your FICO® score falls in the “fair” range as defined earlier.

Having said that, while personal lenders generally shy away from people with bad credit, there are a handful of reputable lenders that accept borrowers with lower credit scores, and in some cases, with little or no credit history at all. Here are three of our favorites that may be worth a look.

Best For: Borrowers with limited credit histories

Upstart has a minimum FICO® credit score of 620, so borrowers in the upper half of “fair credit” could potentially qualify for the company’s loans. Upstart is one of my favorite lenders for fair credit borrowers because it considers non-traditional factors as part of its underwriting process, such as the borrower’s educational background. Because of this, Upstart can be an especially good choice for people with limited credit histories, such as recent college graduates.

Upstart’s loans have three or five-year terms and the loan range of $1,000 to $50,000 is the widest among the companies on this list. APRs range from a minimum of 8.89% to a maximum of 35.99% based on the borrower’s qualifications.

Best For: Borrowers with poor credit scores

Avant is perhaps the best choice for borrowers deep into fair credit territory, as the company accepts applicants with FICO® credit scores as low as 580. There are also some unique features designed to help struggling borrowers get back on track, such as the lender’s late-fee forgiveness program. If an Avant borrower makes one late loan payment, but makes the next three on time, the $25 late fee is refunded to them.

Avant’s loans range from $2,000 to $35,000 and APRs start at 9.95% and go to a maximum of 35.99%. Loan terms range from two to five years.

Best For: Borrowers with limited credit history

LendingPoint’s APR range of 15.49%-34.99% is the highest on this list, but its loans are built for “customers with credit scores in the 600s,” according to its website. Like Avant, LendingPoint’s minimum FICO® credit score is 580, and like Upstart, the lender considers non-credit factors such as job history and behavior with other credit accounts. LendingPoint’s loan terms range from two to four years, and amounts go from $2,000 to a maximum of $25,000.

The number one rule when finding the right personal loan is to shop around. This doesn’t just mean investigating what lenders are available like you’re doing right now, but actually going through the pre-qualification process in order to find out the loan terms you would be offered by each lender.

Most personal lenders (including the three mentioned here) allow prospective borrowers to check their loan offers without any impact to their credit score, so there’s no reason not to check all three -- or even more. This isn’t meant to be an exhaustive list, so there are other companies that make personal loans to fair-credit borrowers.

You might be surprised at the variation in loan terms that are often offered to the exact same borrower. It isn’t uncommon for the difference between the best and worst interest rates offered to be 10 percentage points, or even more. This is especially true for borrowers with sub-optimal credit scores.