What loans can I get with fair credit?
A fair credit score is not good, but it is not bad either. According to Experian, a fair credit score range varies between 721 and 880, which suggests a potential level of risk, and therefore, interest rates will not be as attractive as those for good credit borrowers. Well, having a fair credit score will not preclude you from applying for a loan, nor will it increase your chance of being rejected.
If you cannot keep your credit score good, you should try to ensure that it is not lower than a fair credit score range. Interest rates that you are charged will not be as attractive as rates for good credit borrowers, but they will not be as high as rates for subprime borrowers either. While you will not be able to qualify for the best deals, exclusively available for people with excellent credit scores, you will be eligible for most of the loans available from direct lenders.
What loans can you qualify for with a fair credit score?
There are various types of loans that you can qualify for when your credit score is fair:
Unsecured loans
Unsecured loans are personal loans. These are large loans that start with £5,000, and the maximum amount of money you can borrow is up to £25,000. Unsecured loans are called by their name because they require no collateral. In other words, you do not have to bear the risk of losing your valuable assets if you fail to repay the debt. However, on no account is it recommended that you miss payments.
You will have to face consequences if you do not discharge your obligation on time. Your credit score will be ruined, and late payment fees and interest penalties will be added, increasing your debt.
Unsecured loans can be easily qualified for with a fair credit score. Interest rates will be quite lower than those for subprime borrowers. However, it is vital to bear in mind that the interest rates you are charged might not always be attractive and lower. It depends on your overall financial condition.
If a lender finds that your overall financial condition is not strong enough, they will perceive you as a risky borrower. As a result, they will charge high interest rates.
Small unsecured loans
Small unsecured loans are those that are aimed at funding small emergency expenses and planned expenses. Payday loans and Christmas loans are examples of small unsecured loans. These loans are similar to large unsecured loans in terms of collateral, but they work differently.
Unlike large unsecured loans, you are supposed to discharge small loans in one fell swoop. These loans come with a shorter repayment length, which cannot be more than a month. These loans are considered risky, and they come with high interest rates. Chances are you qualify for lower interest rates as compared to a 1000 pound loan for bad credit, but there is no guarantee for it. £1,000 is the maximum amount of money you can get approved for these loans, while the minimum is £100. Some lenders do not lend lower than £500, while others do not lend more than £700, depending on their policy.
Secured loans
Secured loans are long-term loans. Mortgages and car loans are examples of secured loans. They are called secured loans because collateral is put down. In the case of a mortgage, your house itself is considered collateral, while in the case of a car loan, your car itself serves the purpose of collateral. It means you cannot get the title unless you discharge your debt in full.
Secured loans will let you avail yourself of lower interest rates because your collateral reduces the risk on the part of a lender. In case you make a default, they will liquidate your asset to cover their money back.
There is no denying that secured loans charge lower interest rates than unsecured loans, but you still need to have a good credit rating and strong repayment capacity. If your credit score is fair, you will most likely end up with high interest rates despite collateral. Make sure that your overall financial capacity is strong.
Guarantor loans
Guarantor loans are unsecured loans, but they involve a guarantor. These loans are aimed at subprime borrowers who are refused because of their poor credit rating. You can improve your odds of being accepted for a loan if you arrange a guarantor.
The guarantor you find must have a suitable credit rating. Bear in mind that your guarantor cannot access money. A lender will call them on when all means of collecting money from you have been exhausted.
Involving a guarantor reduces the risk of a lender because they can turn to them in case you fail or refuse to settle your dues, but do not forget that your guarantor’s credit score will be affected along with yours. This will affect your relationship with them, too. It is recommended that you ensure they are well aware of the consequences if you fail or refuse to repay.
Is a fair credit score more profitable than a poor score, and will interest rates be lower?
Most people assume that they can easily qualify for lower interest rates if their credit rating is fair, but the fact is that you might end up getting as high interest rates as borrowers with bad credit. This is because your credit score is only one factor of the entire process that lenders take into account to determine whether or not to approve your loan application.
They will also look at your debt-to-income ratio, your income sources, and an alternative repayment terms plan in case your financial condition is turned upside down. If your overall condition is not so strong, you will end up with high interest rates.
The final word
There are various types of loans you can qualify for despite a fair credit score; however, there is no certainty that you will be able to get the best deal. You should try to keep your overall condition strong.
Paul Smith is an established financial author and writer with over nine years of experience, who specialises in personal finance, loans, credit management, and investment strategies for people throughout the UK. Paul’s expertise can be seen on leading loan websites such as Bargainloans. Through his blogs and articles Paul has helped thousands of borrowers make wiser financial decisions while his passion for study encourages people to take control of their finances with greater confidence and clarity
