How to get a personal loan with an average credit rating

Most of us aim
for a good–to–excellent credit score so that we can access loans and credit
cards easier, as well as cheaper utility bills and phone contracts.

Not all of us
have a flawless credit file, though, because lots of us miss the odd payment
here and there, while some of us get into difficulty with our personal finance
and have more serious blots on our files. Mostly, though, we have average
credit ratings because most of us are average. Not too good, not
too bad. Functional. You can get a mobile contract easily and your home loan
terms are OK…

Occasionally,
though, you may need something more. If you’re really sick of seeing those old
kitchen cabinets, or you decide it’s finally time to move home then a loan will
help you to get things done all the sooner.

So, what’s the reality? 

You might believe that if you only have a so-so credit score that you won’t be able to apply for a personal loan, or you’ll have to accept high interest rates. However, times have changed and with the growth of alternative lenders, personal loans for bad credit aren’t that unusual now. This means that if you have an average credit score Australia still has lenders out there who can help you.

You may face slightly
higher interest rates, because anything other than a good–to–excellent score is
seen as a higher risk to lenders. Self–employed people are sometimes seen as
slightly riskier and so can have higher interest rates applied to any credit
they’re offered.

What constitutes an average credit score?

Your credit score
is a rating between 0 and either 1,000 or 1,200 (depending on the credit
reporting bureau you use) that is then placed somewhere on a five–point scale
that runs from “weak”, through “below average”, “average”, “good” and
“excellent”.

The credit
reporting agencies take the information on your file to formulate your score.
This information includes how much credit you’ve had in the past, how you’ve
handled it, whether you have lots of missed payments, defaults, whether you
have a seemingly permanent overdraft and so on. They also look at positive
listings like paying your bills and debts on time.

The average
credit score is between 500 and 600 and, when it comes to looking at your
riskiness, a score like this means you have a one in 12 chance of having a new
negative listing on your credit file within the next 12 months.

Look for your most favourable terms

Anything over 800
or so is considered excellent and means you’ll qualify for the best personal
loan rates available. If your score is average to good and you want a personal
loan apply to lenders with the most suitable rates and terms for you. By paying
this loan off in a timely manner, you will help to improve your rating.

What sort of personal loans should I look for?

You can look for unsecured personal loans

You can apply for
unsecured
loans with an average credit rating, but be prepared for higher interest
rates than you’d get if you were using an asset as collateral. You can always
nominate a guarantor if you think this will improve your chances of approval.
Looking for personal
loans online is a good idea here, as you can compare them side–by–side to
look for the ones with the best terms for you.

You might try peer–to–peer lenders

P2P loans involve
third–party lenders who match up private investors with borrowers. You won’t
have a one–to–one relationship with your lender as you would normally; instead
your investor–lenders will finance your loan as part of their portfolios. Just
as with regular loans, however, your interest rate—which is essentially the
investors’ returns—will be determined by your risk rating.

P2P lenders like RateSetter
and SocietyOne
base your loan interest rate on your credit rating.

Car loans are also very possible

A personal
car loan is different from a purely personal loan because it’s secured by
the car itself. Still, when your credit score is average, you’ll pay more
interest than someone with a good–to–excellent rating.

What sort of interest rates should I expect? عدد اوراق لعبة اونو

If your score is
average, then you might see a range of interest rates, rather than an
unequivocal set rate. This is because you’re a higher risk, but you might not
be too risky. The highest and lowest rates are bound by acceptability and
fairness, so they tend to have narrower banding, whereas people in the middle
have more of a range.

When you’re comparing
personal loans, look for ranges with upper limits that you still feel
comfortable with. The chances are that your eventual rate will be in the middle
of the banding anyway. If you worry that you might be near the top of the
range, then you should apply for a smaller amount if possible. Don’t forget
that the length of your loan and your employment history also count. It might
be an idea to commit to a shorter payback period if you’re worried about the
amount of interest you’ll end up paying.

Comparing personal loans with an average credit rating

This can be more
difficult because you won’t know what your rate will be with any one lender
until they respond. The best thing to do is assume you’ll be nearer the top
end, work from there and hope for a pleasant surprise.

You should also
factor in establishment fees, as well as ongoing and early repayment fees.
These add to the eventual cost of your loan so if you can find loans with
smaller costs, go for it.

Should you consider a credit card instead? هابانيرو

Having a credit card will give you
the immediate funding, but you’ll almost certainly have significantly higher
interest rates than with your loan. In addition to this, a credit card is a
revolving debt, whereas a loan has a definite structure and end point.

Compare unsecured
or secured
personal loans, car
loans, bank account overdrafts
or loans for debt
consolidation purposes at InfoChoice.

The information contained on this web site is
general in nature and does not take into account your personal situation. You
should consider whether the information is appropriate to your needs, and where
appropriate, seek professional advice from a financial adviser. If you or
someone you know is in financial stress, contact the National Debt Helpline on
1800 007 007.