How People With High Credit Scores Use Personal Loans

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Personal loans provide a flexible way for people to borrow money to pay for a variety of expenses. Even if you have a low credit score, chances are there’s a lender out there that can cater to your financial needs and help you get the funding you’re looking for.

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

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

Beyond just revealing that high credit score borrowers take out larger personal loans, the study also showed how they’re spending their personal loan funding. Over a third of high-score borrowers use personal loans to consolidate debt and the next biggest use is to refinance credit card debt. Here’s what the study found with high-score borrowers:

  • 39.7% took out personal loans to consolidate debt
  • 15.8% used the funds for credit card refinancing
  • 12.8% borrowed money for home improvements
  • 7.6% used a personal loan to pay for a major purchase
  • 2.8% paid for their car to be financed or repaired
  • 1.9% paid for medical expenses
  • 1.5% put the funds toward moving or business expenses
  • 1% paid for a wedding or vacation

It’s not a surprise that borrowers are taking advantage of their high credit scores to consolidate debt. Debt consolidation allows borrowers to pay off multiple debts with a new loan, often at a lower interest rate, and the higher your credit score the better odds you have of securing 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 single monthly payment versus multiple monthly payments with separate lenders. According to the LendingTree study, high-score borrowers who were consolidating debt took out personal loans that averaged $19,991.

Even when looking at low-score borrowers, debt consolidation topped the reasons for taking out a personal loan. Here’s what the study found with low-score borrowers:

  • 37.7% used a personal loan to consolidate debt
  • 5.7% put the money toward home improvements
  • 3.6% paid for medical expenses
  • 3.5% used funds to purchase or repair their car
  • 3.3% put the funds toward moving or relocation expenses

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

There are a number of personal loan lenders that cater to a variety of circumstances and financial needs — some will consider applicants with low credit scores around the 580 or 600 mark, and those with no credit history at all.

Upstart, for example, accepts applicants with an insufficient credit history; the company also considers those with credit scores of at least 600. Payoff, another personal loan lender, has a minimum credit score requirement of 550 for a personal loan, so borrowers with lower credit scores have some options to consider.

Upstart Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

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

  • Loan amounts

  • Terms

  • Credit needed

    FICO or Vantage score of 600 (but will accept applicants whose credit history is so insufficient they don’t have a credit score)

  • Origination fee

    0% to 8% of the target amount

  • Early payoff penalty

  • Late fee

    The greater of 5% of monthly past due amount or $15

Payoff Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation/refinancing

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

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

  • Early payoff penalty

  • Late fee

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

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

Paying your bills on time is the most important thing you can do to help raise your score — your payment history actually makes up 35% of your FICO® Score, so it carries a lot of weight in the determination of an individual’s creditworthiness.

Applying with a co-applicant who has a higher credit score than you can also help you get approved for a lower interest rate, and help you gain approval where you otherwise may not have been considered. That’s because it’s common for lenders to analyze your credit history, debt-to-income ratio and other credentials during the process to determine the size of the loan, interest rate and the length of your loan term.

Having a co-applicant can be helpful if you don’t have enough of a credit history under your belt to get approved for a lower interest rate. It may also help if you need to take out a larger amount of money but don’t have a steady income. Not every personal loan lender allows for co-applicants, so you’ll need to do your research to find the ones that will.

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

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 21.28% when you sign up for autopay

  • Loan purpose

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

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

PenFed Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation, home improvement, medical expenses, auto financing and more

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

While personal loans can be super flexible funding options when you need cash in a pinch, doing your due diligence in researching your options and improving your credit score before you apply can really pay off.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.



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