Compare personal loans for fair credit scores

What is a fair credit score?

How does my credit score affect my application?

While it’s not the only factor considered, your credit score is one of the main things used to determine your odds of getting approved for a loan in the first place, the maximum amount you can borrow and the interest rate you’re offered.

Although your perceived risk may vary from lender to lender, they’ll all try to determine how well you’re meeting your financial obligations. The better you are at meeting those financial obligations, the less risk you’ll pose in a lender’s eyes. If you haven’t always paid bills on time or have missed loan repayments in the past, the rates you’re offered will most likely be “sub-prime”.

The lowest rates on the market are only accessible to people with excellent credit. Applicants with fair credit may be offered personalised (higher) rates or may need to apply to specialist lenders.

All lenders must evaluate the interest and fees they charge and calculate the APR (annual percentage rate) of their products in the same way, and must tell you the APR before you sign an agreement. So for consumers, the APR should be a handy tool for comparison.

But crucially, when lenders advertise their Representative APR, in most cases this is not the rate that they award to all successful applicants. It’s defined by the Financial Conduct Authority (FCA) as being the APR that the lender realistically expects at least 51% of its borrowers to get. Because most lenders tailor their interest rates to the applicant, it’s usually the 51% of applicants with the best credit scores that get the representative APR, while the remaining 49% get a higher APR. This is known as risk-based pricing.

How do I find the right fair credit loan for me?

Let’s say that you have a fair credit score, and you go straight to the lender offering the very lowest rates on the market. If your application is approved, it’s highly likely that the lender will offer you a higher rate than what you’d seen them advertise. If you apply to a specialist fair credit lender, you’ll stand a better chance of getting approved and a better chance of getting their advertised representative APR.

So when your credit score isn’t excellent, the representative APR can be misleading. What you really need to know is the actual APR that you personally would be offered by each lender, and what their loans would cost you each month and overall. Lenders can give you this information before you apply if you consent to a soft search of your credit file (the “soft” bit means that it won’t hurt your credit score).

Better still, a decent loan matching service (like Finder!) can check your eligibility with multiple lenders in one go, and give a personalised comparison of the actual APRs that you’d receive and the monthly/overall costs of the loans.

What types of loans are available to fair credit scores?

Repairing your credit score can take time, but you do have loan options now if your credit is sitting at “fair”.

• Unsecured personal loans. Fixed-rate, unsecured instalment loans such as those compared on this page, involve a lump sum of £500 to £25,000 borrowed up front repaid in monthly instalments. As the name suggests, these loans aren’t secured against any property. They’re available from high street banks, supermarket banks and online direct lenders or through brokers and loan matching services. Many lenders cater to those whose credit histories are less than perfect. With a fair credit score, the interest rates on a personal loan are likely to range from around 15% to 40% yearly.
• Guarantor loans. Guarantor loans require a friend or relative of the borrower (who will need to have good credit) to promise to step forward in the event that the borrower defaults on the loan. Interest rates for these loans typically sit between about 35% and 50% yearly.
• Secured (homeowner) loans. If you’re a homeowner with a mortgage, a secured loan is essentially a second-charge mortgage, that can let you leverage the equity in your home as security for the lender. By reducing the chances that the lender could lose its money, you could be more likely to get your application approved, you could be able to borrow a larger sum and you could get a lower rate. There are some downsides to be aware of: your home is on the line and a lower rate might actually work out more expensive if you end up borrowing over, say, 20 years. At the time of writing, with a fair credit score, the interest rates on a secured loan are likely to range from around 8% to 20% yearly.
• Credit builder credit cards. Credit building cards are essentially just regular credit cards that designed for lower credit scores, to be “stepping stone” products to cards or loans with better rates. Credit limits typically start relatively small, but can usually be reviewed within just a few months of responsible card use. By reporting back to CRAs that you are borrowing responsibly, any credit card can help you to build or rebuild a positive credit history. Whether or not a card is a better bet for you than a loan may come down to whether you need a one-off lump sum now or ongoing access to a bit of credit each month.
• Car finance. Car loans take various forms, and because some forms use your vehicle as security, lenders can be less exposed to risk and can be more inclined to lend.
• Logbook loans. With a logbook loan, you hand over the V5 logbook of your vehicle to a lender as security. These loans are usually considered short-term loans because they are meant to be repaid quickly. Interest rates are high, and if you fail to repay a logbook loan on time, you stand to lose your vehicle. The amount you are able to borrow will be relative to the value of your vehicle.
• High-cost, short term loans. Short term loans, including payday loans, can be paid back in as little as a few days or on your next payday, but they typically come with some of the highest interest rates around. They are usually given in smaller monetary amounts of up to £1,000, over terms ranging from a few days up to 12 months. Interest rates on this type of loan are legally capped at 0.8% per day (292% yearly).

How do I compare my loan options if I have a fair credit score?

A fair credit score can limit your options slightly. Not all lenders will be willing to fund you, and others might not give you their best loans. Here’s what you should look for when comparing lenders:

• Eligibility. Different lenders will require you to meet different criteria. Credit score, age, income and residence are all factors that may determine your eligibility for a loan, and there’s no point applying if you don’t meet those terms. Look for “soft search” or “eligibility checker” facilities to find out whether or not you’re likely to be approved, without affecting your credit score.
• Available loan amounts. Consider exactly how much you need to borrow, and why that amount is necessary. Borrowing more than you need will obviously cost you more in the long run, and lenders can be apprehensive about lending larger sums to people with less-than-perfect credit histories.
• Overall cost. If you only compare one factor, it should probably be this one! Aim to keep the overall cost as low as possible, while ensuring the repayment schedule is affordable.
• Interest rate. One of the biggest factors to look at is the APR that’s offered. Your credit score, the amount you want to borrow, your ability to repay and the loan term can all impact this figure. Don’t forget that the advertised “representative APR” may not be awarded to all applicants. Lenders typically tailor rates to the individual.
• Available loan terms. Typically your loan term will be dictated by how much you’re borrowing and how much you can afford to repay each month. Broadly speaking, the longer you borrow, the more expensive the loan, but realistically it can be necessary to spread larger loans over longer terms.
• Turnaround time. Some lenders are able to get you the funds on the same day that you apply, but these lenders may not have the best rates. Consider carefully whether you really need to prioritise speed over savings.

I want better rates and terms on a loan. How can I improve my credit?

Some of the main factors determining your credit score are your payment history, your credit utilisation, how long you have held credit, the type of credit used and your number of credit searches. To repair your credit, keep in mind the following factors:

• Start small. If you’re going to have to pay a higher rate of interest than those with better credit scores, it might make sense to start with a smaller sum over a shorter term, so that you can prove to a lender that you’re trustworthy. Then, next time, you should be able to score a better rate.
• Save regularly. By demonstrating that you can put aside even a tiny part of your regular income, you will demonstrate that you’re financially responsible.
• Reduce your debt balances. Lenders will also consider your credit utilisation ratio – that’s how much of your available credit that you’re actually using (your debt compared to your total credit). Simply moving your balances around will not actually change your utilisation rate. It’s often easier said than done, but reducing your level of debt overall will naturally make you more appealing to a would-be lender.
• Don’t necessarily close an unused credit account if you don’t have to. Closing an account can actually have a negative effect on your credit utilisation rate. Provided that there are no ongoing costs to do so, and provided you resist the urge to use it, it could be worth keeping an unused credit account open.
• Avoid applying for lots of loans or credit cards. Nothing looks more desperate to a potential lender than a multitude of loan applications in a short space of time, especially if none of the applications result in an account being opened. Use “soft search” facilities to check whether or not you will be approved for credit without affecting your credit score.

As an aside, if you’re not on the electoral roll, it’s worth registering with your local council, as CRAs will check this too.

Bottom line

Your credit score can affect your ability to get a loan, with interest rates, terms and eligibility all at least partially dependent on your credit score. It’s important to know not only what your score is, but also how your actions influence it.

When you’re looking to take out a loan, make sure it’s both what you need and something that you can financially handle. If you can’t make timely payments, you could damage your creditworthiness and hurt future attempts at financing. Shop around, do your research, ask for advice from an expert or even a trusted friend, and make sure you sleep on any big decisions.

There’s a decent spread of loan companies out there serving all sectors of the market. All of them must only practice responsible lending, however, which means that they should consider factors like your income and outgoings so that they don’t offer loans likely to lead to financial difficulty.

Frequently asked questions

• There’s something wrong on my credit report. Can I dispute it?

  Yes. If you believe you’ve found a discrepancy, contact the credit reference agency that the report came from to request an amendment.

• I need to get a loan, but I don’t qualify on my own. Now what?

  Some lenders offer the ability to include a guarantor on your loan, who will typically need good credit. If you can find somebody suitable, you may be able to take out the loan you need.

• What are standard repayment terms for loans for people with fair credit scores?

  Repayment terms can vary widely between lenders. Some short-term loans have repayment terms as short as a few weeks, while more traditional personal loans can span seven years or more.

• Do loans for fair credit come with fees?

  It’s increasingly rare to find “application”, “setup” or “product” fees in the world of unsecured personal loans. When you’re comparing loans, if in doubt, you can focus on the overall cost, which will take into account this type of charge.

  Late payments can result in a penalty fee, and will result in additional interest and damage to your credit score.

  Fees for early repayment are also rare, however it’s fairly standard to be charged up to two months’ interest on any sums repaid early, beyond the date on which the overpayment was made.

• Can I improve my credit score?

  There are several things you can do to improve your credit score. For example, consolidating your debt and paying your bills on time are steps you can take to get your credit score up.

How different factors can affect your credit score

Written by

Chris Lilly

Head of publishing

Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio

Chris's expertise

Chris has written 602 Finder guides across topics including:

• Loans & credit cards
• Building credit
• Financial health