There are many types of personal loans, each with their own general loan amounts, advantages, and minimum credit score requirements. Typically, you'll need a credit score in the mid-600s to qualify for most unsecured personal loans and require a score of 740 or above to get the best rates.
Personal loans are a broad category of loans you can use for almost anything. Some financial institutions offer personal loans targeted towards specific borrowers, such as people remodeling their homes. Others offer general loans to any qualifying borrower without asking what the personal loan will be used for.
These personal loan lenders simply deposit funds in borrowers’ bank accounts — sometimes as soon as the next business day — and the borrower can choose to use the funds for anything ranging from debt consolidation to paying for a wedding to buying a new motorcycle.
Qualifying for a personal loan isn’t always easy. After you submit your loan application, lenders will run a credit check to see if you’re a trustworthy borrower, and to determine what rates they will apply to your loan. If your credit report shows a large amount of debt or a history of late payments, your application may be denied.
Make sure you understand the information below to avoid unnecessary credit inquiries and denied loan applications.
On this page:
- How to Qualify for a Personal Loan
- Understanding Your Credit Score
- What Score Do You Need to Be Approved?
- How Can You Get a Personal Loan With Bad Credit?
- How Do You Apply for Personal Loans?
- Personal Loan Alternatives
How to Qualify for a Personal Loan
To qualify for personal loans, borrowers will need a reasonable credit score as well as proof of income to show they can pay back the loan.
However, qualifying requirements, interest rates, and other loan terms vary dramatically from one lender to another. That’s because there are all kinds of personal loan lenders catering to different clients. Banks, credit unions, online lenders, and peer-to-peer lenders all make personal loans available, but some have strict qualifying requirements, while others offer bad credit loans at higher rates.
Anyone looking for a personal loan should try to improve their credit as much as possible, as higher credit scores open up the door to more loan offers and better rates. However, borrowers with a wide range of credit scores should be able to find a loan that’s right for them, so there’s no single answer to what credit score is required to be approved for a personal loan.
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Understanding Your Credit Score
You have lots of different credit scores, but the two most commonly used are your FICO and VantageScore. Both range from 300 to 850, with higher scores preferred to lower scores. Here’s how lenders typically view different scores:
- 300 to 559 (no credit or poor credit) – A credit score in this range indicates no or little credit or a damaged credit history potentially caused by bankruptcy or excessive defaults. Personal loans are available, but the terms of the loan are usually restrictive, and the interest rate is high.
- 580 to 669 (fair credit) – This range also shows a damaged credit history, often caused by loan defaults or an excessive number of late payments to multiple lenders. Usually, lenders recommend you repair your credit first, then apply for a loan. Loans are available, but you’ll pay a higher interest rate.
- 670 to 739 (good credit) – With a credit score in this range, you’re more likely to secure a personal loan with a decent interest rate.
- 740 to 799 (very good credit) – Credit scores considered very good can qualify you for favorable rates, and you’ll have your pick of lenders.
- 800 to 850 (excellent credit) – With excellent credit, you’ll get low interest rates, you’ll be eligible to borrow larger loan amounts, and you’ll be able to qualify for loans with even the most stringent qualifying requirements.
What Score Do You Need to Be Approved?
You can be approved for an installment loan even if you have a very low credit score, but you’ll pay a high interest rate. OneMain Financial personal loans, for example, doesn’t have a minimum credit score requirement for borrowers, but their loans have APRs between 17.59% and 35.99%.
OppLoans also provides loans to borrowers with FICO scores under 600 because OppLoans looks beyond your credit score and considers other factors, including whether you’ve been regularly employed for at least two months and have had a bank account open in your name for at least 90 days. However, the maximum APR from OppLoans is 199% — which is lower than payday loans but still exorbitant.
Once your score improves a bit, you have more options. Marcus by Goldman Sachs, for example, indicates you’ll typically need a credit score of 660 or higher to be approved. Marcus personal loans have starting APRs as low as 6.99%.
Finally, for borrowers with “strong” credit profiles, terms can be even better. LightStream makes loans of up to $100,000 available to borrowers at interest rates as low as 3.34%. As you can see, there’s a big difference between what you’d pay as a strong borrower and what you’ll pay if your credit is considered poor.
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How Can You Get a Personal Loan With Bad Credit?
If you are looking for a personal loan with bad credit, start your search with online lenders and credit unions, both of which are typically more willing to lend to borrowers without a perfect credit score. You’ll want to compare rates and terms from lots of different financial institutions so you can find one with the most affordable rates—keeping in mind that interest is always higher with bad credit loans.
You may also want to consider a secured personal loan, which means you have assets serve as collateral. Some lenders will allow you to qualify for loans at more favorable rates if you have an investment or savings account to guarantee the loan. Taking out one of these loans could help you build your credit for the future.
Whatever options you pursue, watch out for lenders with predatory lending practices that target people with bad credit. Read the fine print carefully and understand all loan terms before you agree to borrow so you don’t end up with a loan you can’t afford.
How Do You Apply for Personal Loans?
When you’ve shopped around among lenders and found the right one, you’re usually able to apply online and can often get a decision within minutes. However, some small local banks or credit unions may require you to visit a branch to apply for a loan.
When you apply, you’ll need to submit personal information, including your Social Security number and other relevant info. Lenders check your credit and either approve or deny your loan. They’ll also let you know the specific loan terms you’ve qualified for. Pay attention not only to the monthly payments, but also any fees you’ll have to pay and how long you’ll have to pay off the loan.
Other Factors That Determine Approval
While credit is extremely important in determining if you’ll be approved for a loan, it’s not the only thing that matters. Lenders also look at some other financial characteristics, including:
- Your income: Lenders want to know you have a reliable source of income and so may require pay stubs or tax returns.
- Your other debt: Lenders usually calculate your debt-to-income ratio, or the amount of your debt payments relative to income. If it’s too high, you may not be able to borrow—especially if you don’t have excellent credit.
- Collateral: If you qualify for a secured loan and pledge assets as collateral, you can get financing more easily and get a lower interest rate.
- Repayment history: Lenders will look carefully at your payment history on your credit report to assess the likelihood you’ll repay a loan.
Find out up front what information your lender will require so you can ensure you have the necessary documents during the application process.
Personal Loan Alternatives
If you can’t qualify for an affordable personal loan or if you don’t want a personal loan but still need to borrow, you can also explore other options. Some of your other choices include:
- Credit cards: Credit cards typically have higher interest rates than personal loans, but borrowers with reasonably good credit could qualify for a card with a special promotional 0% APR that could last as long as 15 months. (Read more: Personal loans vs. credit cards)
- Home equity loans: If you have equity in your home, you could obtain a home equity loan or home equity line of credit. These loans are usually easier to qualify for and have lower interest rates than personal loans because your home guarantees the loan. Like with personal loans, you can usually use the proceeds for anything you’d like.
There are also other options for bad credit loans, including payday loans and car title loans, but these should be avoided at all costs due to the high costs of this type of financing.
If your credit score is below the mid-600s, you’ll have few choices for personal loans and will pay a fortune in interest if you obtain financing. But once your credit score hits around 740, you should qualify for the best personal loans with very low rates—provided you also have good income and can meet other lender requirements. Just remember, whatever your credit score, shop around to find the loan that’s most affordable for you.
Author: Christy Rakoczy
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