Need to finance a big purchase? A personal loan might be an option to explore.
As the name implies, lenders make personal loans to individuals for a variety of personal reasons. You might borrow money to start a business, adopt a child, or simply get through an emergency situation that your monthly budget can’t cover.
Personal loans are unsecured, meaning they’re not tied to any collateral (like your home or car). If you default on the loan, there’s not an immediate asset the lender can seize instead.
This makes personal loans a little riskier for the lender. As a result, they want to take a good look at your credit before approving you.
You need a good credit score for personal loan products, along with a few other things lined up and ready to go before you consider this financing option.
Get prepared before you apply
The first thing you should prepare is a good reason. This isn’t necessarily for the lender: It’s for you.
Make sure you truly need to borrow money before you take out a loan. Remember, there’s a cost to borrowing — the interest you pay on the loan amount. And interest rates tend to run higher on personal loans than other kinds of secured debt.
In most cases, saving up for what you want to buy makes more sense than spending money to borrow a loan. But if you explore your other options and determine a personal loan is the way to go, you’ll need a certain minimum credit score for personal loan applications.
The right credit score for personal loan products
With a great credit score, you’ll likely have no trouble getting the loan you want with a lower interest rate. But with poor credit, you may have a harder time finding the option you want.
Find your credit score in the ranges below to get an idea of what you can expect if you apply for a personal loan:
If your score is 800 or higher
According to Experian, only 1% of consumers with this kind of credit score will become delinquent in the future. That means you don’t pose much of a risk to lenders and it’s easy to qualify for new credit.
You should have no problem qualifying for a personal loan with this score. Make sure you shop around for rates, as lenders will likely offer you competitive options thanks to your high credit score.
If your score is 740 to 799
Your score is better than average, and you should also be able to easily qualify for a personal loan. You’ll likely get lower interest rates, too.
If your score is 670 to 739
This score is still in the “good” range, and you look like an average and acceptable borrower to lenders. You may have a harder time qualifying for the loan you want, but that doesn’t mean getting a personal loan is impossible.
With a score in this range, lenders may also take a closer look at other factors to determine how creditworthy you are. If you have a strong income, low existing balances, and only want to borrow a small sum of money, you may have a better chance of qualifying even with a credit score on the lower end of the range.
If your score is 580 to 669
This is a below-average credit score and borrowers at or below this number are considered “subprime.” This means it’s more difficult to get approved. If you do qualify, your interest rate will likely be really high.
Again, you can increase your chances for approval if you only apply to borrow a small sum of money and have little existing debt. But still expect to pay for your lower score in the form of a higher interest rate.
If your score is 579 or lower
This is considered a poor credit score. If you fall in this range, your score probably does not meet the minimum credit score for personal loan applications. You might want to consider other options or take steps to improve your credit before you apply.
Or, you could consider getting a cosigner. This might increase your chances of approval, but think this through carefully. There are some downsides to cosigning, so make sure you explore all other alternatives first.
How a personal loan compares to other options
Because personal loans are unsecured, you usually need a higher credit score to get approved and be offered the best interest rates available. If you struggle to maintain a great score, you might want to look at other financing options.
Credit cards are the easiest type of credit to get approval for, but the kind of credit card you can get will depend on where your score falls on the scale from poor to excellent.
Your credit score will also influence your interest rate with a card. You may get approved with a below-average or poor score, but your interest rate could be extremely high.
You can likely get the credit card you want (although the interest rate will vary) with a credit score of 650 or higher. If your score is lower, consider a secured card instead.
(The same credit score range is needed for most traditional mortgage loans, too — although some special options, like FHA loans, may allow you to get a mortgage with a score below 650.)
Look into peer-to-peer lending if you don’t have the minimum credit score for personal loan products. This is where other individuals make loans to people like you. These are a type of personal loan, and you’ll need a credit score of 640 or higher to qualify.
Increase your credit score for a personal loan
Want a personal loan, but your credit score doesn’t make the cut? You can take action to improve your score.
Lenders base approval for personal loans and other financing options on your creditworthiness. Your credit score is an indication of that factor.
To increase your score, you can take actions that demonstrate your creditworthiness and ability to manage different kinds of lines of credit. Specifically, you can focus on building a positive payment history by paying down existing balances.
Here’s what to do to get the credit score needed for personal loan products:
- Make all payments on statements, loans, credit cards, and bills on time. You also want to pay the full amount due.
- Keep the amount of credit you use low, relative to the amount of credit you have available. This is your credit utilization ratio, and it makes up a big chunk of your credit score. Aim to keep your ratio at 30 percent or lower on revolving lines of credit (like credit cards).
- Don’t open lots of new accounts all at once, or allow hard inquiries to hit your credit report. Doing so right before you apply for a personal loan can hurt you, as each inquiry dings your score for a period of time.
If you can take these steps consistently, your credit score should improve over time. Once your score is up, you can apply and qualify for the personal loan you want.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|