How People With High Credit Ratings Use Personal Loans

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Personal loans offer people a flexible way to borrow money to pay for various expenses. Even if your credit score is low, chances are a lender can meet your financial needs and help you get the financing you’re looking for.

A recent study by LendingTree collected data on how borrowers with high credit scores and low credit scores tend to use their personal loan money, based on data on personal loans closed between April 2021 and March 2022 .

The study showed that personal loans for high-scoring borrowers — those with credit scores of 720 and above — averaged $18,443, a number 122.2% higher than the average amount of 8 $301 borrowed by those with credit scores below 720.

In addition to revealing that high credit score borrowers take out larger personal loans, the study also showed how they spend their personal loan funding. More than a third of high-scoring borrowers use personal loans to consolidate debt, and the second-largest use is to refinance credit card debt. Here’s what the study found with high-scoring borrowers:

  • 39.7% took out personal loans to consolidate their debts
  • 15.8% used the funds for credit card refinancing
  • 12.8% borrowed money to improve their home
  • 7.6% used a personal loan to pay for a major purchase
  • 2.8% paid to have their car financed or repaired
  • 1.9% paid for medical expenses
  • 1.5% spent the funds on moving or business expenses
  • 1% paid for wedding or holiday

It’s no surprise that borrowers are taking advantage of their high credit scores to consolidate their debts. Debt consolidation allows borrowers to pay off multiple debts with one new loan, often at a lower interest rate, and the higher your credit score, the better your chances of getting that new low rate. Consolidating your debt is a good way to streamline your finances, as it means you only have to account for one monthly payment versus multiple monthly payments with separate lenders. According to the LendingTree study, high-scoring borrowers who consolidated their debt took out personal loans with an average value of $19,991.

Even when looking at low-scoring borrowers, debt consolidation tops the list of reasons to take out a personal loan. Here’s what the study found with low-scoring borrowers:

  • 37.7% used a personal loan to consolidate their debts
  • 5.7% invested in home improvements
  • 3.6% paid for medical expenses
  • 3.5% used funds to buy or repair their car
  • 3.3% spent the funds on moving or relocation expenses

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You don’t need a high credit score to get a personal loan

There are a number of personal lenders to suit a variety of circumstances and financial needs – some will consider applicants with low credit scores around 580 or 600, and those with no credit history.

Reached, for example, accepts applicants with poor credit history; the company also considers those with credit scores of at least 600. Payanother personal lender, has a minimum credit score of 550 for a personal loan, so borrowers with lower credit scores have a few options to consider.

Beginner personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, credit card refinancing, marriage, moving or medical

  • Loan amounts

  • Terms

  • Credit needed

    FICO or Vantage score of 600 (but will accept applicants whose credit history is so poor that they have no credit score)

  • Assembly costs

    0% to 8% of target amount

  • Prepayment penalty

  • Late charge

    Greater of 5% of monthly amount past due or $15

Repayment of personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation/refinancing

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

    0% to 5% (based on credit score and application)

  • Prepayment penalty

  • Late charge

    5% of the monthly payment amount or $15, whichever is greater (with a 15-day grace period)

It’s important to keep in mind, however, that the higher your credit score, the more likely you are to receive favorable interest rates at the lower end of the lender’s range. In other words, you will be able to save money on your monthly repayments. If you want to take advantage of lower rates, you will need to improve your credit score.

Paying your bills on time is the most important thing you can do to increase your score – your payment history actually makes up 35% of your FICO® score, so it carries a lot of weight in determining a creditworthiness. individual.

Applying with a co-applicant who has a higher credit score than yours can also help you get approved for a lower interest rate and help you get approved where you might not have been. otherwise taken into account. Indeed, it is common for lenders to analyze your credit history, debt-to-equity ratio, and other identifying information during the process to determine the loan amount, interest rate, and term of your loan. .

Having a co-applicant can be helpful if you don’t have enough credit history to get approved for a lower interest rate. It can also be useful if you need to withdraw a larger amount of money but don’t have a stable income. Not all personal lenders allow co-applicants, so you’ll need to do your research to find which ones will.

SoFi and PenFed are just two solid options that allow you to have a co-applicant. SoFi lets you request up to $100,000, while PenFed allows a maximum of $50,000 – this lender’s $600 minimum makes it an extremely flexible option for those who need to borrow small amounts of money. silver.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 21.28% when you sign up for autopay

  • Purpose of the loan

    Debt consolidation/refinance, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

PenFed Personal Loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, home improvement, medical bills, car financing and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

While personal loans can be super flexible financing options when you need cash on the fly, doing your due diligence in researching your options and improving your credit score before applying can really pay off. its fruits.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

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