Why High Credit Borrowers Take Larger Personal Loans

Select’s editorial team works independently to review financial products and write articles that we think our readers will find useful. We earn commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

Personal loans can undoubtedly be a great financing option for just about any consumer, as they give you access to cash fairly quickly, and often at a lower interest rate than your credit card. standard.

Although borrowers of all credit levels use personal loans, a recent study by LendingTree found that those with higher credit scores take out much higher average personal loans than those taken by their lower credit score counterparts.

Specifically, the study showed that personal loans for high-scoring borrowers (with credit scores of 720 and above) averaged $18,443, or 122.2% higher than the average for $8,301 for those with a credit score below 720. The study looked at data on closed personal loans. between April 2021 and March 2022.

The reason this data is so important is that it draws our attention to a clearer interpretation of how personal loans play different roles for different types of consumers. You might feel surprised at first that borrowers with high credit ratings take on more personal debt, but there are a few factors at play here.

Subscribe to the Select newsletter!

Our top picks delivered to your inbox. Shopping recommendations that help you improve your life, delivered weekly. register here.

Why High Credit Borrowers Can Take Out Larger Personal Loans

The LendingTree study infers a few reasons why personal loans for high-score borrowers were on average much higher than for those with lower credit scores.

First, having a better credit score generally gives you access to larger loan amounts, so it’s not as much of a barrier to getting a high loan amount as it can be for someone with a high score. lower credit. Lenders view these borrowers as likely to repay their debts.

Second, high-scoring borrowers also typically have higher incomes and therefore the ability to take out larger loans that involve larger monthly payments.

Third, borrowers with high credit ratings take on more personal debt for a good reason: they seek to build wealth. One such example includes borrowing money to finance home improvements, which in turn increase the resale value of one’s home.

“Having a greater margin of financial error allows high-scoring, high-income people to use debt as an investment,” says Matt Schulzchief credit analyst at LendingTree, within the company Press release.

The personal loan that suits you

Borrowers with good credit ratings are certainly in luck as they are more likely to receive the lowest interest rates and the best terms on a personal loan. Regardless of your credit score, however, the good news is that there are options to help just about anyone finance a major purchase.

For those with excellent credit, classified Select LightStream as the best overall personal lender. LightStream offers some of the lowest interest rates available and you can take out a personal loan for almost any purpose except for higher education and small businesses. Plus, you’ll usually receive your funds the same day and there are no origination fees, administration fees or prepayment fees.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.49% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Those with fair or good credit may consider our overall top pick: Reached. Borrowers can request up to $50,000 and the minimum credit score requirement is 600. Applicants with no credit history will also be considered. There are no penalties for prepaying your balance, although Upstart does charge origination fees (up to 8% of the amount you borrow) and late fees ($15 or 5% of the balance overdue, whichever is greater).

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

Borrowers with bad credit can try LendingPoint, which can approve applicants with a minimum credit score of 580. It also offers fast application with same-day approval and possible next-day funding (after verification and approval of final documents). Note that origination fees vary from 0% to 6% and interest rates can reach 35.99%, which is usually the case with personal loans that allow low credit applicants to apply.

LendingPoint Personal Loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, marriage, auto repair, home renovation and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

    Currently, LendingPoint does not charge late fees but reserves the right to assess late fees of up to $30. Fees vary by state.

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

About Janet Young

Check Also

How Chinese property developers got into such a mess

Placeholder while loading article actions Real estate matters a lot to China: Property construction and …