Best Personal Loans for Excellent Credit | U.S. News

Loans have become tougher to get just when people most need them, as the coronavirus pandemic puts millions of Americans out of work. Luckily, excellent credit – a FICO score of 740 or higher – can be an asset when you want to borrow money. But lenders are picky.

If you have excellent credit and need a personal loan, not only can you qualify more easily than borrowers with less-than-perfect credit, but you also get the best terms.

“The benefits of excellent credit can go a long way in helping a person be approved and benefit from the best possible interest rates available at the time,” says Chase Peckham, director of community outreach for the San Diego Financial Literacy Center.

Excellent credit assures lenders that you’re responsible when it comes to borrowing money. The less risky you appear to lenders, the more likely you are to be able to comparison shop and choose from among the lowest rates and fees.

If you want to know where to find personal loans for excellent credit, this guide can help you narrow your short list of lenders.

When you shop around for the best personal loan interest rate, you can save. Compare your personal loan offers with national average trends for personal loans to know if you’ve found a good deal.

*Rate as of May. 21, 2021

Select your desired loan amount and loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan terms.

Personal loans aren’t one-size-fits-all. The best loan for you may be different from the best one for someone else, even if you both have excellent credit. You’ll need to consider factors that make a loan ideal for your needs.

Because qualifying isn’t a concern if you have excellent credit, you may choose a personal loan based on the best deal you can get. Interest rate and repayment term could be top considerations as you make your decision.

“My mama told me, you better shop around,” according to an old hit song. Mama wasn’t talking about personal loans, but her advice holds true if you’re going to find the lowest interest rates and save yourself some money.

You can find out a lender’s rate without dinging your excellent credit. Get prequalified or do a rate check, which is a precursor to completing a full loan application. A soft credit inquiry is used for prequalification, which does not impact your credit.

You’ll want to consider whether you’re getting a fixed or variable rate. With a fixed rate, your loan payments always stay the same. You’re gambling a little with a variable rate, because rates could rise, but you save money if rates drop.

You should always shop around for rates regardless of your credit score, Peckham says. “Even if you have excellent credit, every institution with which you are applying is going to have different factors for approving and setting rates for loans,” he says.

He reminds borrowers that credit score is a big factor, but not the only one, when determining loan options and terms.

Two main things make up the cost of your personal loan: interest rate and fees. That number is expressed as your annual percentage rate, or APR, and it reflects how much you pay to borrow money on a yearly basis.

Your APR hinges on things like your credit score, income and financials. Getting a personal loan with excellent credit means your rates are likely to be on the lower end.

Fees can include origination fees, prepayment penalties or any other service fees the lender charges.

“Origination fees and the rates and terms can depend on a variety of factors,” says Caleb Cook, vice president of consumer lending at Digital Federal Credit Union.

Lenders charge you an origination fee upfront to process your loan application and underwrite the loan. This can be a flat fee or a percentage of the amount you’re borrowing, and it’s typically deducted from the loan proceeds, though sometimes it’s added to the loan.

You may also be charged a prepayment penalty if you pay off the loan early.

Ideally, you should be able to borrow the amount of money you need, but personal loans typically come with borrowing limits ranging from $2,000 to $40,000, though some lenders offer larger loans. With your excellent credit – and enough income – you could get approved for a bigger loan.

Generally, you can spend your personal loan on whatever you want, but there can be restrictions. For example, lenders may not allow you to use a personal loan for college expenses, business, investments or gambling costs. And just because you can use a personal loan for something, that doesn’t necessarily make it a good idea.

Your repayment terms lay out your APR, your monthly payment and how long you’ll be paying it. Personal loans can offer shorter or longer repayment terms, depending on how much you borrow. You might get two years to repay a smaller loan, while a larger loan may come with a repayment term of five years or longer.

Keeping the repayment term in mind is important for making sure a personal loan fits your budget. If you’re going to be making payments for several years, those payments need to fit your budget now and where it may be down the line.

When seeking personal loans for excellent credit, you have several options for borrowing, including:

Unsure where to start? Go local. Cook says to check your local community bank or credit union first.

Your local credit unions and community banks want to keep you as a customer. One way to do that is to offer you incentives to get a personal loan, such as rate discounts or a waiver of certain fees, according to the Consumer Financial Protection Bureau.

Credit unions have the reputation of offering lower rates for loans, but you have to be a member of the credit union to borrow money. Check out the credit union’s membership requirements; they vary from living in a certain area to working in a specific industry or belonging to a particular organization or even making a contribution to a distinct cause.

The application process may also vary, depending on where you choose to apply for a personal loan. For instance, if you’re applying for a loan at a bank or credit union, you may need to go into a branch to fill out a paper application. Online lenders and peer-to-peer lenders allow you to apply and upload all of your supporting documents online.

Though you already have an excellent credit score, you will likely lose a few points when you formally apply for a personal loan because the lender will perform a hard credit inquiry.

To avoid multiple hard pulls, try prequalifying first – this involves a soft credit pull that doesn’t cost you any credit score points. You can then look over various personal loan offers and apply only for the loan with the best terms for you. In any case, you’re trading a temporary credit score hit for access to needed funds from a personal loan.

On the positive side, personal loans can add diversity to your credit mix, which accounts for 10% of your FICO credit score. And making your loan payments on time contributes to a positive payment history, which makes up 35% of your credit score. Since you have an excellent score, that means you’ve already been paying your bills on time, so you may not see a big boost from adding a personal loan.

Before you start shopping for personal loans, check on whether you really do have an excellent credit score. In addition to free sources of your score, such as your credit card issuer or various personal finance websites, you could take a look at your credit scores from all three major credit bureaus – Equifax, Experian and TransUnion. Each bureau could have a different version of your score, and you might have to pay for the information.

When you consider personal loan options from various lenders, weigh these details:

Also consider what’s involved with the application process and how quickly you get your money after you’re approved. With some online lenders, you may be able to receive approval and your funds on the same day or the next business day, while a personal loan from a bank could take a little longer.

If you need money from a personal loan to cover an emergency expense, timing could affect which lender you decide to work with.

Finally, keep in mind that it’s still possible to be denied for a personal loan, even with excellent credit, Peckham says.

For example, the lender may be overrun with applications and have a backlog it’s working through. Or it may be carrying too much debt and lack capital to lend. For that reason, he says, it’s important to shop around to find the right personal loan option.