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How to get a personal loan with an average credit score

How to get a personal loan with an average credit score

You may think that if you have an average credit score, you’re ineligible to apply for a personal loan. While that statement was mostly true when big banks were the major players in the personal loan industry, the rise of alternatives and online lenders has changed the game.

Traditionally it’s been difficult for a person with an average credit score to secure a personal loan because money lenders consider them as high-risk borrowers. But, by bearing the brunt of possible higher interest rates and shorter loan terms, it may still be possible to get a personal loan with an average credit score.

What is a credit score?

A credit score is a numerical value given to a person based on the analysis conducted on their past borrowing activity. The purpose of this score is to show lenders how reliable a person has been in the past at repaying their loans.

Your credit score is rated on a five-point scale, ranging from ‘weak’ to ‘excellent’ and is given in numbers between 0 and 1,000 or 1,200. To determine this score, credit reporting agencies compile all your personal and financial information, including your previous loans, debts and the number of applications you’ve made to secure a loan. The highest rating score you can get depends on where you get your credit report from, for example, Experian can give you a score up to 1,000, while Equifax rates up to 1,200.

If your credit score is 600 or higher, you’re considered to be in the ‘good’ or ‘excellent’ category, on the other hand, anything lower than 500 comes in the ‘weak’ category.

Will an average credit score impact the interest rate of the loan? 

Typically, lenders make use of risk-based pricing models to determine the interest rate that is applicable for a particular loan. Risk-based pricing refers to when a lender does not offer a set interest rate and instead provides an interest range for the loan. When you send your application, the lender will first assess your credit report, including your credit score, income and existing debts. Based on this information, the lender may decide to make a loan offer, with an interest rate that is within the initially proposed interest range.

So, applying for a personal loan for an average credit score will most likely impact the interest rate. However, it’s often difficult to determine how high the rate will be until you apply.

Having said that, you could still consider comparing your loan options by taking the interest range into consideration, along with other costs like application fees, ongoing fees and early repayment fees.

Which personal loans can you apply for with an average credit score?

When applying for a personal loan, it’s important to understand that the number of times your application is rejected has an impact on your credit score. To increase the chances of getting approval on your personal loan application, you could consider applying for certain personal loans that are more likely to get approved even with an average credit score.

For example, you could apply for an unsecured personal loan. An unsecured loan means that you can potentially get a loan without putting up any asset or security as collateral for the loan. While you could get approval for an unsecured personal loan with an average credit score, you will most likely have to pay higher interest rates as compared to a secure personal loan. Also, as there is no guarantor or asset, the lender can take legal action against you if you default on your payments.

Car loans could be a good option too, because even with an average credit score the value of the car secures the loan. So, if you consider taking a loan for an affordable model, the chances of your loan application getting approved are higher.

It’s important to look at your capacity to pay back any money you intend to borrow before taking out a loan. Some of these loans have high interest rates and it could be worth seeking advice before applying if you have an average credit score.

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Learn more about personal loans

What do credit scores have to do with personal loan interest rates?

There is a strong link between credit scores and personal loan interest rates because many lenders use credit scores to help decide what interest rates to offer to potential borrowers.

If you have a higher credit score, lenders will probably classify you as a lower-risk borrower. That means they’ll be keen to win your business, so they may offer you a lower interest rate if you apply for a personal loan.

If you have a lower credit score, lenders will probably classify you as a higher-risk borrower. That means they might be concerned about you defaulting on the loan and costing them money. As a result, they might protect themselves by charging you a higher interest rate.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Can I get a fast loan with bad credit?

Some lenders offer fast loans to borrowers with bad credit. Providers of small payday loans of up to $2000 or medium amount loans of up to $5000 may have no credit checks, though these lenders will usually want to confirm you can afford its loans on your income.

How long does it take to get a $5000 loan?

Depending on the lender, personal loans and medium-amount loans for $5000 can sometimes be approved in under an hour, and give you access to the money the same day. Other loans may take 24 hours or longer to assess your application, and you may not get the money for a few days.

Are there emergency loans with no credit checks?

While many personal loans require a credit check as part of the application process, some personal loans and payday loans have no credit checks, which may appeal to some borrowers with a bad credit score.

Keep in mind that even if a loan is available with no credit check, the lender will likely want to confirm that you can afford the repayments on your current income.