What to Consider When Getting a $20,000 Personal Loan
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Reasons to Consider a $20,000 Loan
Home improvement If you have costly home repairs that can no longer be ignored, or you’re planning a small remodel, you can use a personal loan for home improvement. Typically, this is a better option than using your credit card because interest rates are usually lower. Emergency funds If you suddenly get hit with high medical or funeral bills that would eat up all your savings, you can get a personal loan for emergencies. This can help you manage the costs while enabling you to keep some of your cash in reserve. Consolidating debt Instead of paying down multiple forms of debt with a variety of interest rates, you might want to roll all of your debts into one loan. Doing this can potentially lower your interest rate and/or monthly payment. It also reduces the number of bills you have to pay every month. Wedding costs Some young couples will charge wedding expenses on their credit cards, but this typically isn’t the best financing option. Credit card interest rates are usually much higher than personal loan interest rates. Moving costs Whether it’s across the country or just across town, moving can be a costly endeavor. You can use a large personal loan to cover the costs of moving supplies, real estate commission/fees, renting a truck, hiring a moving company, and/or purchasing items and furniture you need to set up your place. Vacation costs If you want to take your family on an unforgettable trip but don’t have the funds, a personal loan could make your traveling dreams a reality — assuming you can comfortably afford the monthly loan payments. New appliances One new high-end appliance can run over $1,000. If you need to replace a number of major appliances, and possibly also update the electrical system in your home, a personal loan of $20,000 could be useful.
Typical $20,000 Loan Terms
Average Interest Rates
Credit score Debt-to-income Income Credit history Collateral (if choosing a secured loan) Type of interest – fixed or variable Lender
Typical Repayment Terms
Typical Credit Score Requirements
$20,000 Personal Loan Monthly Payments
Repayment term This is how long you will have to repay the loan. It’s usually a good idea to go with the shortest term you can afford to keep your interest costs as low as possible. Example One: A five-year repayment term with a 15% annual percentage rate (APR) would make the monthly payments $476. The total amount of interest paid would be $8,547.92. Example Two: A three-year repayment term with a 15% APR would make the monthly payments $693. The total amount of interest paid would be $4,959.04. Thus, the three-year term will cost $3,588.88 less than the five-year term. Interest rate Your interest rate will determine how much money the bank makes on your loan. Just remember that an origination fee (sometimes called an administration fee) may be added to your interest rate. Therefore, to calculate the true total cost of the loan, you’ll need to know its APR, which includes both the interest rate and any fees. Looking at APRs for personal loans also allows you to compare rates apples-to-apples.
Qualifying Criteria for a $20,000 Loan
A strong credit score For an easy loan application process, you will want a credit score that is considered “good” (690-719). You can find personal loans for bad credit on the market, but interest rates will typically be higher. If your score is currently fair or poor, you can take steps to improve your credit score. However, it will take some time to see results. A steady source of income For each loan amount, lenders have minimum income requirements. This is to make sure you won’t have difficulty coming up with your monthly loan payments. You will need to verify your income with pay stubs, tax returns, and bank statements. Collateral This is an asset (such as cash, stocks, a car, or a home) that you put up for the loan. If you become unable to repay the loan in full, the lender can seize that asset in order to recoup its losses. You will only need collateral if you take out a secured loan. Since there’s less risk involved for the lender, collateralized personal loans typically come with lower interest rates than unsecured loans. Low debt-to-income (DTI) ratio: Your DTI ratio is the percentage of your gross (pre-tax) monthly income that is used to pay your total monthly debts. The highest DTI most lenders typically like to see is 43%. To calculate your DTI, add up your monthly debts from loans, mortgages, and credit cards and divide that amount by your gross monthly income.
Top $20,000 Personal Loan Lenders
View Personal Loan Rates
About the Author
Share this article: