What is a good credit loan?

If you need to borrow money, a good credit score can be on your side. Not only will you have access to a wider range of lenders, but you are also more likely to get a personal loan with competitive terms and interest rates.

But even if you have good credit, there are some factors you should consider before applying for a personal loan. This includes your overall financial health and monthly budget, as well as how much money you need and whether or not what you are offered meets your exact needs.

The main points

Good credit loans generally offer more competitive terms and interest rates than fair credit or bad credit loans.

Banks, credit unions, and online lenders all provide good credit loans.

To apply for a good credit loan, you will need a FICO score of at least 670, in addition to meeting income and other eligibility criteria set by that particular lender.

Before submitting a formal application for a loan, you should compare offers from at least three different lenders, to make sure that you get the best loan for your situation.

What is a good credit score?

Your credit score evaluates factors such as payment history, amounts owed, and credit mix to determine how good you are for a borrower. The most common credit score model used by most lenders is FICO. These range from 300 to 850. If you have good credit, that means you have a credit score between 670 and 739 - anything above that is considered either "very good" or "exceptional".

A good credit score is essential to securing affordable credit products, such as loans or credit cards, as lenders will offer you better terms and interest rates. This is because borrowers with good credit have a lower risk of default, which means their loan repayments are higher than those with a defect on their credit report.

What are good credit loans?

A good credit personal loan usually comes with more competitive loan terms, including lower interest rates, longer repayment terms, and more money than you would get with fair or bad credit.

The average interest rate on personal loans is currently 11.29 percent. But interest rates on personal loans can range from about 5 percent to 36 percent. If you have good credit, you may qualify for a loan with an interest rate as low as 11 percent.

Although having good credit can help you get a lower rate, it does not mean that you will get the lowest rate available. These rates are usually reserved for borrowers with very good and excellent credit — scores above 740. In addition, lenders will consider other factors, such as your income, how long you've worked at your current job, and your debt-to-income (DTI) ratio. Determine your eligibility and rates.

Where to get a good credit loan

There are three forms of lenders that provide good credit loans: banks, credit unions, and internet lenders.

Banks

Banks cater to borrowers with good or excellent credit scores. They offer larger loans and terms ranging from 24 to 72 months in many cases. Some banks also offer checking account holders perks, such as reduced interest rates, to help maximize savings.

Credit unions

You will need membership to apply for a personal loan from most credit unions. Their loans often come with the same terms as the banks but with lower interest rates.

To be clear, the national average interest rate on a three-year, fixed-rate, unsecured personal loan is 10.32 percent for credit unions and 11.04 percent for banks, according to the National Credit Union Administration.

Online lenders

Online lenders typically enjoy a streamlined digital application process, faster approval, and financing times. Many of them also offer pre-qualification to see your loan offer without affecting your credit score.

You'll also find that online lenders have more flexible lending standards than traditional banks, with some even taking into consideration alternative factors like your educational background and employment history to approve you for a loan. In addition, some online lenders also offer lower fees, as they can reduce the operational costs associated with physical branches.

How to get a good credit loan

The process for applying for a good credit loan is basically the same as for applying for any other type of personal loan.

Check your credit. Get a copy of your credit report to see where you stand with creditors. If you see something wrong, like a closed account that appears to be open or a paid account that appears to be past due, complain to each of the credit bureaus (TransUnion, Equifax, Experian) to remove it. It can take up to 30 days for the office to respond, but once you do, you may see your score increase by a few points.

Shop around. It is never ideal to accept the first personal loan option you come across. Do some research to determine which personal loans from traditional banks, credit unions, and online lenders might meet your needs.

Get pre-qualified. Pre-qualify online with at least three lenders to see potential loan offers without affecting your credit score.

Compare loan offers. When comparing your options, keep in mind the interest rates, loan terms, fees, and financing times offered by each lender. Also note any incentives, such as auto-pay discounts.

Gather your documents. Most lenders will require a number of documents, including a copy of your government-issued ID, proof of address, recent payment slips or bank statements, and information about your employer.

Apply for a loan. Complete the final application and submit the documents required by the lender to make a loan decision. Many lenders provide same-day or next-day loan decisions, and some offer express financing options.

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

Personal loans are a big financial decision. Before applying, consider the pros and cons of a personal loan and ask yourself the following questions:

Do you have a strong credit score? If yes, do you meet the requirements for a low interest rate?

How do you plan to use the money? Do you need a personal loan urgently or can you save the money you need over time?

Do you have enough space in your budget to pay the monthly loan repayments? Did you use a Personal Loan Calculator to determine this?

Are you planning to consolidate high interest debt? If so, do the savings outweigh the borrowing costs you would incur when taking out a personal loan? Are you disciplined enough about your spending to avoid further credit card debt once the balance is cleared?

Your answers to these questions will help you decide whether a personal loan makes financial sense or if you should explore other options.

Good credit loan alternatives

A personal loan is not the only way to get the money you need. Some viable alternatives include lines of credit, credit cards, taking advantage of your retirement plan, and secured loans.

Personal lines of credit. Lines of credit work like credit cards. You can use the money again when you pay off the balance. And unlike personal loans, you will only pay interest on the amount you borrow.

0 percent APR credit card. These cards come with an interest-free introductory period - usually between 12 and 18 months, which can make borrowing more affordable. This can be an ideal option for smaller expenses, such as a $500 car repair. However, if you have a regular credit card, you can use it as well. Some cards may also allow you to take out a cash advance, but they carry higher interest rates and fees than regular credit card purchases.

401(k) Loan or Draw From an IRA Although it is generally not recommended to borrow money from your retirement account, because you could miss out on more income, there may be cases where taking a 401(k) loan or drawing early from an account may be difficult. An IRA makes sense. Before considering it, make sure you understand the fees and conditions associated with it.

Home equity loans and (HELOCs). Both home equity loans and HELOC loans allow you to borrow against the capital you have built up in your home. They often have lower interest rates because you are using your home as collateral. But because of this, you may lose your home if you default on your loan. However, it can be a great solution for larger projects like home renovations.

Bottom Line

Personal loans with good credit can be a great financing option if you are short on money or if you do not want to take advantage of your savings. However, a personal loan is still a form of debt, so it is important to carefully evaluate your options, as well as your finances beforehand.