There’s lots of information out there which focuses on how to get a loan if you have a poor credit score.
That’s very helpful for lots of borrowers, but there are many more whose scores are “fair” - that means a score that isn’t considered bad, but isn’t perfect either. Think of it like a B or a C in school.
Happily, for borrowers who fit in this bucket, there are lots of loan types available to you. In this article, we’ve summarised some of the key options available, to help you make an informed decision.
If you’re looking for a flexible personal loan of £1,500-12,000, you can take a look at our loan calculator or make an application at www.koyoloans.com. Representative APR 27%
What is a fair credit score?
Good question - unfortunately, it depends on who you ask. In the UK, there are three credit bureaus, each of whom scores borrowers on a different scale. For the purposes of this article, we’ll focus on two well-known bureaus: Equifax and Experian.
Experian scores borrowers from 0-999, and a “fair” or average credit rating is anything from 721 to 880 (1).
For Equifax, which scores borrowers out of 700, a value between 380 and 419 is considered fair (2).
Both companies allow you to check your score and credit file for free - although we always suggest you check their terms - via their websites. If applicable, you can see what it would take for you to reach a good credit score, and you can also check that the information held on you is correct - this can be particularly useful if you have a poor credit score.
Will I have to pay more for a loan if I have a fair credit score?
In general, the lowest rates are available only to the borrowers with the highest credit scores. There’s a little more to it than that, but as a rule, it’s worth ensuring that your credit score is as high as it can be if you’re looking for a loan.
So, in general, a borrower with an “excellent” credit score will have two advantages over a borrower with a “fair”or average credit score when a lender carries out a credit check:
He or she will probably be able to borrow at a lower rate of interest
He or she will usually be able to borrow a larger amount
That’s not the full picture though - read on for more.
What personal loans are available to borrowers with a fair credit score?
It’s worth noting that your credit score is just one factor that a lender uses when making a decision, and even a perfect score will not guarantee approval on a loan (3).
However, in general, a fair or average score will mean that a borrower isn’t able to access the best deals, and might start off with a low credit limit relative to borrowers with a good or excellent credit score. All’s not lost though: there are plenty of options out there for borrowers with a fair score, and in the following section, we’ve highlighted five which might be worth considering.
For illustration purposes, we’ve included a representative example for a loan amount of £3,000 and equal monthly repayments made over a loan term of 3 years. We’ve referred to annual percentage rates (APRs) - this is a simplified way to show the total cost of a loan.
Although annual representative rates are a good guide, your eligibility and the actual rate you pay will be determined by your personal circumstances - this will be different for every borrower.
Lastly, online loans can be very fast to process - in many cases, you can have money in your account within just a few business days of making a loan application.
Here we’ve focused on loans, rather than credit cards, which are difficult to compare with loan rates since they’re not repaid in the same way.
What are the best personal loan options for borrowers with a fair credit score?
Standard personal loan
A standard personal loan (sometimes called an unsecured loan) has no bells or whistles: it’s a simple loan, usually at a fixed rate and repayable over a defined period of time. Borrowers with fair credit scores ought to have a good range of options available to them - the market is huge, with hundreds of providers.
With that in mind, rather than mention a single provider, we’ll point you to a comparison site. MoneySupermarket is a good place to start, quickly comparing a huge number of loan options for you (including loans for borrowers with an average credit score), and giving you an indication of eligibility.
They have lower interest rates relative to many other forms of borrowing, and repayment terms should be clear and easy to understand.
They can be used for many purposes, including a car purchase, debt consolidation or home improvement, although the best rates might only be available to borrowers with a higher score.
Personal loans usually allow you to borrow up to £25,000, with rates starting at 8.4 per cent for a three year loan of £3,000 (4).
There are different types of personal loans though. For example, instead than relying on a credit score or third party credit report, some modern lenders use Open Banking technology to base lending decisions on your bank account data.
That means that unlike a lender who relies on a credit bureau, they’re able to directly verify your annual income and expenditure, so that they’re not relying on what someone else says about you.
Just like a standard personal loan, you’ll make monthly payments, and you can vary the total amount you want to borrow.
Credit union loan
A credit union is a community organisation, where a group of people with something in common (such as a profession or local area) will pool their savings and lend them to other members of the group. If that sounds informal, it’s not - credit unions are regulated by the Financial Conduct Authority, and late payments will be chased up just like they would at any other financial institution.
There are many credit unions, and each will have its own criteria and rates of interest. In order to save or take out a loan, you’ll need to become a member first. They charge an average of 13% APR, and are capped at 42.6%(6), making it a good option to consider if you have a fair credit score and are looking for loan options for average credit.
To get started, you’ll need to find a credit union that’s a good fit for you - a directory is a good place to start.
A guarantor loan works a little like a standard personal loan, with one additional feature: a guarantor (usually a close relative) has to offer to step in if you fail to make payments on the loan.
Guarantor loans are generally aimed at people with low credit scores, but because this isn’t an exact science, it might be something to look at if you’re at the lower end of the “fair” rating and struggling to get accepted for other forms of credit.
Because these loans are usually an option for people with lower credit scores, lenders usually charge higher rates of interest. As a result, you’re likely to pay more like 30-40% APR. The current best buy offers a rate of 29% APR for a 3 year loan of £3,000 (7).
If you’re considering a guarantor loan but aren’t sure if it’s right for you, we’ve compiled a list of guarantor loan alternatives with a detailed list of other options.
Secured loanA secured loan is similar to a standard personal loan, except that the lender takes “security” over a valuable asset you own - generally this will be your home. As such, it’s only available to homeowners, and even then, it’s not for everyone - you should think very carefully before you put your home at risk.
However, by doing so, you’ll usually be able to borrow a larger loan amount than you otherwise would. Depending on your home’s value and the amount of equity you have in it (to find this, subtract the amount you have left on your mortgage from the value of your home), you could borrow tens or even hundreds of thousands of pounds.
The value of your home is a factor, alongside your general perceived creditworthiness - although different lenders have different weightings and eligibility criteria.
The current best buy on one comparison site is West One, which offers 11.6% representative APR for a £25,000 loan over 3 years (8) to qualifying borrowers.
What’s the best option for me?
The best option will depend on your circumstances, but to make things easier, we’ve summarised some of the key takeaways in the table below.
Type of loan
Approximate APR on £3,000 for 3 years
Relatively low rates, flexible, lender may use Open Banking data
Not right for everyone - some borrowers might get a better rate with one of the options below
Credit union loan
Lower rates on loans
You’ll need to join a credit union first
Helps borrowers with lower credit scores to access credit
You’ll need someone happy to act as a guarantor
Makes it possible to borrower larger amounts of money
You’ll need to put your home at risk
Finally, when searching for a loan, it’s worth shopping around, but it’s also important to make sure that the lenders you apply with only use a “soft” credit check. Unlike a hard search, a soft search doesn’t leave a footprint on your credit history. A lender should make this clear when you apply for a quote.
We’ll update this post on the best personal loan options for an average credit score regularly, but in the meantime, if there are any questions we haven’t answered, let us know in the comment section below!
Now that you’ve read our article on different types of loan, you might want to take a look at some of the options available to you. Our loan calculator is a great place to start.
(4) https://www.moneysavingexpert.com/loans/cheap-personal-loans/, checked on 22 November 2020
(5) https://www.koyoloans.com/, checked on 22 November 2020
(6) https://www.moneyadviceservice.org.uk/en/articles/credit-unions, checked on 22 November 2020
(7) https://www.money.co.uk/loans/guarantor-loans.htm, checked on 23 November 2020
(8) https://www.uswitch.com/loans/secured-loans/, checked on 22 November 2020
(9) £25,000 loan - since secured loans are usually used to borrow larger amounts