If you need to borrow a sizable amount of money – such as $20,000 or more – a personal loan may be your best option. Personal loans allow you to borrow money for just about any purpose, and perhaps borrow more than you could with a credit card. Plus, the interest rates are fixed, and often much lower than credit cards, payday loans and other expensive forms of financing – especially if you have good credit.
So if you’re in need of a $20,000 personal loan, try following these steps to get approved for the full amount.
1. Check Your Credit Score.
Your first step when attempting to get a personal loan should be to check your credit score.
Lenders take into account your credit history and credit score to decide whether you are a good candidate for a loan.
Credit score requirements vary by lender, but generally, you need a score of at least 640 to get approved. However, when applying for a larger amount of $20,000 and up, you may need a higher score. A score of around 670 or more will increase your chances of being approved for a larger loan amount at the lowest rates available.
If your credit score is not high enough, consider taking some time to improve it before applying for the loan. Many banks and credit card issuers allow customers to see their FICO scores for free, either on their statements or via their online banking portal.
2. Evaluate Your Borrowing Needs.
It’s also important to consider whether $20,000 is the right amount to borrow for your financing needs. Borrowing too much means making higher payments and spending more on interest than necessary. On the other hand, borrowing too little could leave you looking for additional financing.
Once you confirm the amount you need, be sure that the potential payments will fit your budget, says Todd Nelson, senior vice president of strategic partnerships at LightStream. For example, a $20,000 loan with a 10% annual percentage rate, or APR, and five-year repayment term would cost you about $425 a month. You would also pay $5,497 in interest over the life of the loan.
If you altered the terms of the loan to 12% APR and a three-year repayment term, your monthly payments would jump to about $664, but you’d pay a total of $3,914 in interest.
As you can see, it’s important to play around with the numbers and decide what loan terms work best for your financial situation and goals.
“If the lender you’re researching has a loan calculator, be sure to check out the variables that impact your costs,” Nelson says. “For example, choosing a shorter repayment term can often save money in the long run.”
3. Shop Around For the Best Deal.
After you get an idea of what type loan you’re looking for, you can begin comparing quotes from banks, credit unions and online lenders.
“Prior to applying for any loan, an individual should compare various lenders’ available interest rates, terms and fees, if applicable,” says Brian Samelko, vice president of personal lending at PNC Bank.
Each lender will offer different interest rates and terms, so it’s important to get several quotes before making a decision. Most financial institutions allow you to get a quote online without impacting your credit score. You submit a few personal details, and the lender performs a soft credit check to give you an idea of what terms you’d qualify for. Keep in mind that the interest rate, loan amount, repayment period and other terms could change once you submit an official application and the lender performs a hard pull on your credit and goes through the underwriting process.
Also, make sure the lenders you’re considering allow you to pay down your balance early with no penalty, Nelson says. “This is particularly important in today’s economy,” he explains. “If you don’t use the entire $20,000 you’ve borrowed – or find that other funds have become available through sources like student loan forgiveness, a work bonus or tax refund – you can apply those additional dollars to pay down your loan at no additional cost.”
Find the Best Personal Loans for You
4. Gather Your Documentation.
When applying for a personal loan, there are a few pieces of information and documentation you’ll need to have on hand. The specific requirement may vary depending on the lender’s policies, but typically, you might be asked to provide:
- Identification. Valid government-issued identification such as a passport, driver’s license or national identification card.
- Social Security Number. This is usually required by lenders to perform a credit check.
- Personal contact information. The lender will need details such as your phone number, email address and physical address.
- Proof of income. This might be a recent pay stub, bank statement or tax return. If you’re self-employed, lenders might ask for additional documentation, such as profit-and-loss statements.
- Proof of employment. This could be a letter from your employer, recent pay stubs or bank statements showing direct deposits from your employer.
- Proof of residence. You can often use an official communication from a service provider, such as a utility bill, lease agreement or a mortgage statement that shows your address.
5. Fill Out an Application.
Once you’ve chosen a lender, you can fill out the application online or in person. As you complete the form, be sure all information is accurate; mistakes on your application can cause a delay in approval and funding.
Once you’re done – and assuming all information is complete and correct – some lenders may give you a decision instantly, while others may take up to a week.
6. Review Your Offer and Accept the Loan.
If your application is approved, the lender will provide a loan offer. This includes the loan amount, interest rate and repayment term. Make sure to review these details carefully and decide whether the offer fits what you were expecting.
If you agree with the terms of the loan, you can accept the offer. The lender will then distribute the funds to you, which often takes just a couple of days.
“Regardless of how much an individual is applying for, they should ensure they have a strong credit history, stable income and low debt-to-income ratio,” Samelko says. “More importantly, they should thoroughly assess their financial situation to make sure they can comfortably repay the loan.”
Personal loan interest rates increased this week for the 36-month term, while rates declined for the 60-month loan term. Here are the average personal loan rates offered to well-qualified applicants with a credit score of 720 or greater, as of May 29:
- Three-year personal loan term: 19.77% (up from 19.53% a week ago).
- Five-year personal loan term: 20.22% (down from 20.38% a week ago).
Personal loan rates vary widely based on creditworthiness. Borrowers with very good or excellent credit scores will see much lower interest rates than those with fair or poor credit. Often, borrowers with bad credit will apply for a secured personal loan that uses an asset as collateral in order to achieve lower rates: