Personal Loans for Average Credit
The crash of the economy in 2008 left many consumers with credit issues, and now many of them are living with average scores. Missed payments, being laid off and making late payments, extending credit too much, or getting into financial trouble in any other manner has caused many consumers to face financial issues. People are working to restore their credit scores, but they’re living with average credit while they work on their credit. Before you worry you don’t qualify for a personal loan, you might want to know there are some personal loans for consumers with average credit. Here’s what you must know.
What Constitutes Average Credit?
Each credit bureau uses a specific set of standards to determine credit scores. The average range for an average credit score is around 630 to 689. The range for excellent credit is around 720 to 850. It’s a big difference, and it’s evident in the interest rates offered to those who want to apply for a personal loan. With excellent credit, a consumer can get a personal loan with a rate around 10.94%. With good credit, which falls between 690 and 719, consumers pay around 14%. Those with average credit are looking at paying approximately 19% for a loan.
How Can I Get a Lower Rate?
If your credit score is average, you might find variable rates with various lenders. You can shop around to find a lender willing to offer you a loan, but you might not find the loan rates change too much. There are always different rates available, but most will be around this percentage depending on the market. If you want to get a lower rate, you’ll want to work on your credit score. It’s only a 60-point difference from the lowest average score to the lowest good score, and that’s not much to work on if you have a few months to spare.
Changing Your Credit Score
Average credit personal loans can be more expensive to repay than other loans, and this means many consumers are left with payments they can’t afford or a problem making payments down the road. Check your credit. Is it close to the good range? If it is, there are a few ways you can raise your score quickly if you can afford to wait to apply for a loan for a month or two.
The first thing you do is check your credit report. There are several major credit bureaus, and each one is required to provide consumers with one free credit report each year. Take advantage of this and look for mistakes on your report. Someone at the credit bureau could have mistyped a piece of information such as an additional zero at the end of a credit card balance. If you have a credit card with a $3,000 limit and you owe $300 on it but that additional zero makes it look like you owe $3,000, it appears you’re using 100% of your credit. This drops your score. Some accounts could be paid off but aren’t reflecting that. Mistakes are made on credit reports all the time, and consumers must fix them. You can raise your score a few points or more if you find mistakes and correct them.
If you have late payments in recent months, you could spend six months to a year making all your payments on time. This could raise your score to the good range fairly quickly, allowing you to apply for a personal loan with a better rate.
Is An Average Credit Loan Right for You?
If you have average credit and can’t fix your score, you must know what it means to apply for this loan. You’ll need to get your application paperwork together. This includes the following:
- Your personal information
- Your employment information
- Your income information
- Any other information the bank needs
Get it together, submit your application, and see what happens. Be aware that sending this application means your credit score is going to take a small hit. Every check of the credit takes a few points off the total score, so this is a factor you must be willing to consider if you’re not sure the terms of the loan are terms you can agree with when it comes to signing the final paperwork.
Once the application is submitted, you can see what your details include. The rate might be high, but you can work on paying it off faster and more affordably. Let’s say your loan is $5000 and your payment is $252.04 per month for two years to pay off a loan with a 19% interest rate. You’re paying a grand total of $6048.96 over the course of two years paying the required payment.
If you can afford to round the payment you make each month up to $302, you can pay off your loan a lot faster. You’ll pay off the loan four months sooner and for only $5,844.71. That’s a significant savings designed to make your personal loan more affordable. If you can round up your payments by $100 per month to pay $350, you can pay it off even faster and for even less. You’ll pay $352 per month seven months sooner for a lot less.
Paying more is one way to ensure your average credit loan doesn’t cost you as much despite the high rate you’re paying.
Why Take Out a Personal Loan?
If you have average credit, taking out a personal loan is something you should only do if you have a plan for the future. It’s not a way to go on vacation or buy something you really want. It’s best used to pay off debts, consolidate loans, and work on your finances. The rate is high, so it works best if you’re paying off other debts and saving money by taking out a loan like this one.
If you’re looking for a way to improve your credit score, a personal loan is a great option. The more revolving credit your report shows, the better your score looks. To keep your credit from falling, it’s best to make all your payments on time, to miss no payments, and to get the rest of your financial life on track.
To best make your personal loan work for you, create a plan and a budget. When you have a good handle on your finances, you’re better able to get out of debt and improve your average credit score.
What You Should Know About Average Credit Personal Loans
There is a cost to apply for a loan, but it’s minimal when it comes to personal loans. You might pay an origination fee or a loan application fee, but it’s usually included in the amount you pay back to the lender when you make your monthly payments. You don’t pay anything if your application is denied credit by any lender, but your credit score does take a hit.
Your personal loan is not secured, which is why the rate is much higher than a secured loan such as a mortgage or a car note. Failing to repay a personal loan can cause your credit score to drop dramatically, and it can cost you more in the long run if legal action is taken and your wages are garnished as a result of nonpayment of your loan.
Not all lenders offer personal loans to people without good credit at minimum, but there are always lenders who will. It might require some shopping around, but that’s recommended for finding the lowest rate possible. Once you find a loan that works for you and your financial situation, gather the required paperwork and submit your application. It could take as many as 7 to 10 business days to finance your personal loan following your application approval. It’s best to have everything ready for the lender to get the ball rolling faster.
Another piece of advice for anyone with any credit is to take out only what you need and can afford. You might be approved for $10,000 but if you only need $6,000 to pay off your debts and consolidate them, don’t take out the full amount. It’s a good way to find yourself in a financial position you can’t control yet again, and it’s not a practical option.
Personal loans are a great option for anyone who has average credit and the finances to repay the loan at a higher payment in a shorter timeframe. They’re not the best loans since they are more expensive, and the terms are often stricter. Do the math, following the paperwork, and be sure you can afford to take out a personal loan. It’s good for those who might not have any collateral, but this is what makes the loan more expensive to take out. If you can repay it quickly, this is a great way to bring up your credit score and take advantage of other loans for lower rates in the future.