What Good Credit Loans Are & How To Get One

Image by Getty Images; illustration by Richard Tran/Bankrate

If you need to borrow money, having a good credit score can work in your favor. Not only will you have access to a bigger pool of lenders, but you also have higher odds of getting the best personal loan rates and terms.

But even with good credit, your overall financial health and monthly budget — in addition to how much money you need — will determine what personal loan options you qualify for.

What are good credit personal loans?

A good credit personal loan generally comes with more competitive loan terms than you would get with fair or bad credit, including:

• Lower interest rates
• Longer repayment periods
• Higher maximum loan amounts

Personal loans currently have an average interest rate of 12.31 percent. However, standard interest rates on personal loans can range from about 8 percent to 36 percent. If you have good credit, you could qualify for a loan with an interest rate below 12 percent.

Lenders often give you better terms and interest rates if you have a good credit score because, statistically, borrowers with good credit pose a lower risk of default. That means they’re more likely to repay their debts than those with negative marks on their credit report.

Although having good credit can help you secure a lower rate, that doesn’t mean you’ll get the lowest rate available. Those rates are generally reserved for borrowers with excellent credit — FICO scores above 800.

What is considered a good credit score?

Your credit score expresses how well you’ve handled credit in the past. It is based on factors like your payment history, amounts owed and credit mix.

The FICO model is used by most lenders and scores borrowers on a scale of 300 to 850. If you have good credit, you have a credit score between 670 and 739. Anything above that is considered either very good or exceptional.

Lenders may also use the VantageScore model. Similar to FICO’s good credit range, a prime credit score using the VantageScore model ranges from 661 to 780.

Where to get a loan with good credit

Good credit loans are available through three types of lenders: banks, credit unions and online lenders.

• Banks: Banks cater to borrowers with good or excellent credit scores. They generally offer larger loans and terms that range from 24 to 72 months in many cases. Some banks also offer perks to current account holders, like interest rate reductions, to help maximize savings.
• Credit unions: You’ll need a membership to apply for a personal loan from most credit unions. Their loans often come with similar terms as banks, but they tend to have lower interest rates. The national average rate on a three-year, unsecured, fixed-rate personal loan is 10.78 percent for credit unions versus 11.37 percent for banks, according to the National Credit Union Administration.
• Online lenders: Online lenders generally have a streamlined digital application process with rapid approvals and funding times. Many also offer personal loan prequalification and more flexible lending criteria than traditional banks. Some even consider factors like your educational background and job history for approval.

Common personal loan requirements

When it comes to loans for good credit, many lenders will consider your income and DTI in addition to your credit score.

• Income: Lenders will need to see sufficient income to meet your monthly payments on top of other bills. While some simply want to see a stable source of income, others may require you to meet a specific income threshold.
• Debt-to-income ratio: Any existing debt you have and how it compares to your income, typically matters as well. If your debt-to-income ratio (DTI) is high, you may struggle to get approved.

How to get a good credit personal loan

Like any other type of credit, applying for a good credit personal loan involves knowing your finances, getting prequalified and comparing offers before submitting a full application.

1. Check your credit: Remember to check your credit score and credit report regularly. This way, you’ll know exactly which lenders — and what interest rates — you could qualify for.
2. Shop around: It’s never ideal to settle for the first personal loan option you find. Do some research to identify personal loans from traditional banks, credit unions and online lenders that could meet your needs.
3. Get prequalified: Get prequalified online with at least three lenders to view potential loan offers without impacting your credit score.
4. Compare loan offers: When comparing your options, be mindful of the interest rates, loan terms, fees and funding times each lender offers. Also, take note of any perks, like autopay discounts.
5. Gather your documents: Most lenders will request several documents. Collect a copy of your government-issued ID, proof of address, most recent pay stubs or bank statements and information about your employer.
6. Apply for a loan: Complete the final application and send over the documentation the lender requests to make a lending decision. Many lenders provide same-day or next-day lending decisions, and some offer rapid funding options.

How to decide if a good credit loan is right for you

Consider the benefits and drawbacks of a personal loan and ask yourself a few questions before taking on additional debt.

• Do you have a solid credit score? If so, do you qualify for a competitive interest rate? Typically, a good credit score is in the range of 670 to 739. This makes you more likely to qualify for competitive rates, sometimes as much as two to three times lower than those who have a fair or bad credit score.
• How do you plan to use the funds? Is there an urgent need for a personal loan, or could you save the money you need over time?
• Do you have enough wiggle room in your budget to afford the monthly loan payments? Have you used a personal loan calculator to make this determination?
• Do you plan to consolidate high-interest debt? If so, do the savings outweigh the borrowing costs you’ll incur with a personal loan? Are you disciplined enough with your spending to avoid racking up more credit card debt once you’ve cleared the balances?

Your answers to these questions will help determine if a personal loan makes financial sense or if you should explore other options. If you aren’t able to afford regular payments, or if a personal loan would cost more than simply paying off your credit cards, it may be worth considering alternatives.

Alternatives to a good credit loan

A personal loan isn’t the only way to access the funds you need. Some viable alternatives include lines of credit, credit cards, tapping into your retirement plan and secured loans.

Personal lines of credit

Personal lines of credit work much like a credit card. You can reuse the funds as you pay down the balance. And, unlike personal loans, you’ll only pay interest on the amount you use, not the total amount available to you.

0% APR credit card

You may want to consider a 0 percent APR credit card since they come with an interest-free introductory period — usually between 12 and 18 months. This can make borrowing more affordable or let you consolidate existing debts. This strategy is best for expenses you believe you can pay off before the introductory period ends. Otherwise, if you could end up paying interest at a high rate once the card’s standard rate kicks in.

Standard credit card

Regular cards are also an option, but be wary. If you carry a balance, the rate is likely higher than you’d get on a personal loan. Some cards may also allow you to withdraw a cash advance, but these often carry higher interest rates — and there’s no interest-free grace period.

401(k) loan or IRA withdrawal

Borrowing money from your retirement account is usually not advised, as you can miss out on higher earnings. But sometimes, taking out a 401(k) loan or an early IRA withdrawal can make sense. Before you consider this, make sure you understand the fees and conditions associated with this.

Home equity products

Both home equity loans and HELOCs (home equity lines of credit) allow you to borrow against the equity you’ve built up in your home. They frequently have low interest rates because you use your home as collateral. But because of this, you could lose your home if you default on your loan. However, these can be a great solution for bigger projects such as home renovations.

Bottom line

Good credit personal loans can be a great financing option if you’re tight on money or if you don’t want to tap into your savings. That said, a personal loan is still a form of debt, so it’s important to evaluate your options carefully, as well as your finances, before committing to one.