Getting a personal loan for a few thousand dollars can be fairly easy — especially if you have good credit. But if you need a significant amount, like a $20,000 personal loan, you may have to do a bit more legwork to find a loan that works for you.
Typically, you’ll need good-to-excellent credit to qualify for a loan of $20,000, or one with the best rate and terms.
Here’s what to know about finding and qualifying for a $20,000 personal loan.
- Where to get a $20,000 personal loan
- How to determine if you need a loan
- What should I look for in a personal loan?
- How much does a $20,000 personal loan cost?
- What credit score do I need to get a loan?
- How to apply for a $20,000 personal loan
- Pros and cons of a five-figure personal loan
- Alternatives to a personal loan
Where to get a $20,000 personal loan
If you’re about to begin a search for a personal loan, start by shopping around at the following types of financial institutions.
Online lenders
Online personal loan lenders are a great place to look if you want to complete the loan application process from the comfort of your own home.
Many online lenders work with borrowers with bad credit scores too, so they can be a good option if you’re struggling to qualify for a personal loan at a bank.
Banks
Many banks offer personal loans. If you go this route, start with the bank you already do your own banking with. It can be easier to get approved, and more convenient as the funding usually appears in your account quickly. But it’s still worth shopping around with different lenders, unless you’re in a rush.
Credit union
Credit unions can also offer personal loans, but more often than not you have to be a member to qualify for a loan. It can be worthwhile, however, to join a credit union, as they tend to charge lower interest rates since they’re not-for-profit financial institutions.
How to determine if you need a loan
Before taking out a personal loan, it’s important to carefully consider your options. When you borrow money through a personal loan, you’re essentially increasing the cost of your purchase. For example, if you want to pay for a vacation with a loan, the vacation will end up costing more due to interest rates and fees.
However, there are times when borrowing money is worth the cost, such as:
- Debt consolidation: If you have high-interest debt and can save money by consolidating that debt, then using a personal loan may help you financially by reducing fees, making it easier to pay off your debt faster.
- Emergency expenses: Life happens and sometimes using a personal loan to cover unexpected expenses, like medical bills or car repairs, can be cheaper than turning to a high-interest credit card.
- Moving costs: Moving to a new home can be expensive, but sometimes you can’t avoid it. A personal loan may come in handy when navigating a pricey move.
What should I look for in a personal loan?
These are some factors you’ll want to take into consideration when shopping for a personal loan.
1. Interest rates
It’s best to secure the lowest interest rate so that you spend as little as possible borrowing money. Lenders charge varying interest rates, so consider a few options. Use a calculator to determine your monthly payments on a personal loan with a specific interest rate.
2. Fees
Lenders also charge different fees and varying amounts for those fees. For example, while one lender may just charge an origination fee, another may charge an origination fee and a prepayment penalty that you would owe if you pay your loan off early.
3. Repayment terms
You’ll also come across various repayment terms with one offer working better for you than another. For example, if your budget is tight, you may want a longer repayment term that comes with smaller monthly payments.
If, however, you can afford to make larger monthly payments, a shorter repayment term will result in you paying less interest over the life of the loan.
4. Monthly payment
Again, it’s important to make sure the monthly payment you sign up for works for your budget. You don’t want to miss any payments, which could negatively affect your credit score.
5. Total repayment costs
Interest rates, fees, and repayment terms can all impact the overall cost of your personal loan. You’ll want to calculate how much each borrower will charge you in total over the life of the loan to get an idea of which lender is offering the better deal.
How much does a $20,000 personal loan cost?
The following factors can impact the total cost of your personal loan.
Personal loan rates
Lenders take credit scores into consideration because they indicate how likely someone is to default on their loan payments. Because of this, consumers with higher credit scores are seen as less risky and receive lower interest rates.
If you have a bad credit score, lenders try to offset some of their risk by charging higher interest rates. The higher your interest rate, the more money you’ll spend on your personal loan.
Personal loan fees
You can generally learn more about a loan provider’s fees by reading the fine print on its website. Make an effort to learn more about the fees they charge as the interest rate alone doesn’t tell the full story of what you’ll spend.
Monthly payments on a $20,000 personal loan
Your annual percentage rate (APR) represents how much you’ll spend on interest, fees, and other loan costs.
Let’s look at how a monthly payment can vary for a $20,000 personal loan for a few different APRs.
| Loan amount | Loan term | APR | Monthly payment |
|---|---|---|---|
| $20,000 | 36 months | 12% | $664 |
| $20,000 | 36 months | 18% | $723 |
| $20,000 | 36 months | 24% | $785 |
What credit score do I need to get a $20,000 personal loan?
It’s easier to qualify for a personal loan with a low interest rate when you have a credit score in the 670 to 739 range. FICO, which is the most popular credit scoring model, ranks scores as:
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very Good: 740 to 799
- Exceptional: 800 to 850
Can I get a $20,000 personal loan with bad credit?
Yes. While some lenders reject borrowers with poor or fair credit scores, it’s possible to find a personal loan even if you fall into the lower categories. The catch is, you’ll likely need to agree to a much higher interest rate than a borrower with good credit would.
How to apply for a $20,000 personal loan
Ready to apply for a personal loan? These are the steps you’ll take to do so.
Prequalify for a personal loan
By prequalifying for a personal loan, you’ll get an idea of which lenders will offer you a loan and what the rates and terms will be — without hurting your credit score.
What do I need to apply for a personal loan?
Once you’re ready to apply, you usually need to provide the following documentation: proof of identification, proof of address, and some sort of income verification (such as W-2s and bank statements).
How long will it take to get my funds?
It usually only takes one to six business days after approval to fund a personal loan.
Pros and cons of a $20,000 personal loan
These are some helpful points to consider when deciding whether or not to get a personal loan:
Pros
- Lets you spread out the cost of a large purchase
- Gives you lower interest rates than credit cards
- Can be used to consolidate high-interest debt into a lower interest loan
Cons
- Missed payments could harm your credit score
- Overdue payments can be sent to debt collectors
- A large loan payment can hurt your budget
Alternatives to a personal loan
A $20,000 personal loan is a significant amount of debt to take on. You may feel that a personal loan isn’t the right option for you. Here are some other ways to borrow money:
- Home equity loan: This type of loan allows you to borrow against your home’s equity. But since your home acts as collateral, you put it at risk if you default on the loan.
- Home equity line of credit (HELOC): Similar to a home equity loan, a HELOC allows you to borrow against the equity. However, instead of receiving the equity as a lump sum, you’ll draw from it on an as-needed basis, much like a credit card. This option is helpful if you’ve already paid off a solid amount of your home. But again, you risk losing your home if you default on payments.
- Retirement plan loan: Some employers allow you to borrow against your retirement plan. The main drawback of this type of loan is you must meet certain requirements. But you do tend to be charged less interest and that interest goes back into your retirement account — which doesn’t happen with other forms of borrowing.
- Peer-to-peer: Peer-to-peer (P2P) lenders often have loans available if your credit score is on the low end of the scale as they consider other factors like employment and education history. They also generally have fast approval times and low interest rates. On the downside, P2P lenders are known for trying to upsell customers on other products and P2P lenders are only available in certain states, which can make it difficult to find lenders that work for your location.
- Borrow from family or friends: If you want to borrow money from friends and family, you can skip a tedious application and can usually get a low-interest or no-interest loan. However, you risk damaging the relationship and having misaligned repayment expectations. So it’s important to discuss those items up front.