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Loans

High vs. low credit score borrowers: This group takes out personal loans averaging over $10,000 higher

A new study highlights how different credit scores impact how much personal loan debt one takes on.

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

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

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

The reason this data is so important is because it brings to our attention a clearer interpretation of how personal loans play different roles for different kinds of consumers. You may feel at first surprised that high credit score borrowers are taking on larger personal loan debts, but there are a couple of factors at play here.

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Why high credit score borrowers may take out larger personal loans

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

Firstly, having a better credit score typically gets you access to larger borrowing amounts, so it's not as much of an obstacle to score a high loan amount as it may be for someone with a lower credit score. Lenders see these borrowers as likely to pay back their debts.

Secondly, high-score borrowers also usually have higher incomes and therefore the capacity to take on larger loans that entail larger monthly payments.

Thirdly, high credit score borrowers are taking on larger personal loan debts for good reason: they're looking to build wealth. Such an example includes borrowing cash to finance home improvements, which in turn increase the resale value of one's home.

"Having a greater financial margin for error allows high-score, high-income individuals to use debt as an investment," says Matt Schulz, chief credit analyst at LendingTree, in the company's press release.

The right personal loan for you

Borrowers with strong credit scores are certainly in luck as they are more likely to receive the lowest interest rates and best terms on a personal loan. No matter your credit score, however, the good news is there are options to help just about anyone finance a large purchase.

For those with excellent credit, Select ranked LightStream as the best overall personal loan lender. LightStream offers some of the lowest interest rates available and you can take out a personal loan for nearly every purpose except for higher education and small business. Plus, you'll generally receive your funds on the same day and there are no origination fees, administration fees or early payoff fees.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    7.49% - 25.99%* APR with AutoPay

  • Loan purpose

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

  • Loan amounts

    $5,000 to $100,000

  • Terms

    24 to 144 months* dependent on loan purpose

  • Credit needed

    Good

  • Origination fee

    None

  • Early payoff penalty

    None

  • Late fee

    None

Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.

Those with fair or good credit can consider our best overall pick: Upstart. Borrowers can apply for up to $50,000 and the minimum credit score requirement is 600. Applicants with no credit history will be considered as well. There are no penalties for paying off your balance early, though Upstart does charge an origination fee (up to 12% of the amount you borrow) and late fees ($15 or 5% of the past due balance, whichever is greater).

Upstart Personal Loans

  • Annual Percentage Rate (APR)

    7.8% - 35.99%

  • Loan purpose

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

  • Loan amounts

    $1,000 to $50,000

  • Terms

    36 and 60 months

  • 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 12% of the target amount

  • Early payoff penalty

    None

  • Late fee

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

Terms apply.

Borrowers with bad credit can try LendingPoint, which may approve applicants with a minimum 620 credit score. It also offers a fast application with same-day approval and possible next-day funding (after the final documents are verified and approved). Take note that origination fees range from 0% to 7% (varies by state) and interest rates can be as high as 35.99% — which is typically the case with personal loans that allow low credit score applicants to apply.

LendingPoint Personal Loans

  • Annual Percentage Rate (APR)

    7.99% to 35.99%

  • Loan purpose

    Debt consolidation, wedding, car repair, home renovations and more

  • Loan amounts

    From $2,000 to $36,500

  • Terms

    24 to 72 months

  • Credit needed

    Poor/Fair

  • Origination fee

    Origination or other fees from 0% to 7% may apply depending upon your state of residence

  • Early payoff penalty

    None

  • Late fee

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

Terms apply.

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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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