Are you looking for funds to finance your wedding? Or do you need cash to cover an unexpected medical emergency? Whatever your reason, a $20,000 personal loan may be the solution. But how do you know if it’s the right choice for you? And how can you be sure that you’re getting a good deal?
A loan of this size isn’t a decision to take lightly. Read this definitive guide to $20,000 personal loans to learn everything you need to know, before you sign on the dotted line.
Requirements for a $20,000 loan
Are you eligible for a $20k loan? When you apply, most lenders will check for the following criteria:
When you apply for pre-approval with a lender, they’ll typically run a soft credit check. Then, if you decide to move forward with their offer, they’ll run a hard credit inquiry. In both cases, they’ll review your credit report to assess how responsibly you’ve managed your past debts and other financial matters. The higher your score, the better chance you have of getting approved. Additionally, many lenders list a minimum credit score requirement.
Always check your credit report before you ask for a loan this size. Make sure there are no errors or inaccuracies that are bringing your score down unnecessarily.
The reason for borrowing
Many lenders want to know why you are borrowing the money. While you can usually use personal loans for a wide variety of personal reasons, your reason may be a factor in the approval process.
Suitable income and employment status
Lenders want to see proof of your income to ensure that you can repay the debt. Also, some lenders look for a minimum income and number of years with your current job.
Every lender’s requirements are different, so it’s essential to shop around to find the best fit for your situation.
What can you use a $20,000 personal loan for?
Generally speaking, you can use a $20,000 personal loan for whatever you want. But when borrowing this much money, it’s important to spend it judiciously. You’ll have to pay all $20k back, plus fees and interest. With that said, here are some common uses for personal loans.
1. Vacations, special occassions, medical expenses, and treats
Although it can make sense to get a loan to pay expenses like this, it’s not something you should do lightly. Spending a loan on this type of purchase can dig you into a hole that is difficult to get out of. The money from your loan won’t help you repay the loan. Once the money is spent, all that’s left is the memory and a massive bill.
Investments include any expenditure that can generate a return, such as student loan, coding bootcamp, or a business loan. Investing money from a loan into an asset that will repay you in some way is a sound financial practice. These investments help to justify the costs of borrowing and help you to pay back the debt further down the line.
3. Consolidating debt
Another common use for a personal loan is debt consolidation. If you have debt and can reduce your interest and overall costs by consolidating it into a personal loan, then it may be a smart move.
Sometimes life throws you a curveball. You encounter an urgent situation like an unexpected medical problem or a death in the family. Personal loans are sometimes necessary to cover associated costs. However, if possible, it’s best to save up an emergency fund to finance these types of situations — ideally six months worth of income. That way, you won’t have to pay the borrowing costs.
In summary, you can use a personal loan for pretty much anything (within limits, depending on your lender). The real question is, should you use the loan for your intended purpose? Will it help or hurt you in the long run?
Remember, an offer for a lump sum of money may sound enticing, but the cost will haunt you for years. The best uses for a $20,000 loan are those that reduce your debt costs or help you to grow and repay the money in some way.
Can you get a $20,000 loan with bad credit?
It will be challenging to get a $20,000 loan with bad credit.
When lending institutions extend loans, they do so to earn a profit. And borrowers with bad credit are much less likely to repay the loan and associated costs. That means less (or no) profit for lenders.
If a lender with lenient eligibility requirements does approve your loan, they’ll raise the fees and interest rates to compensate for the risk. Alternately, they may offer you a loan for a smaller sum.
However, there is a workaround. If you can get a reputable cosigner, they may be able to help you get a $20,000 loan with reasonable borrowing costs in spite of your bad credit.
How to compare lenders for a $20,000 loan
Have you decided that a $20,000 personal loan is the right financial move for you? Then it’s time to shop around for the best deal. When you do, keep an eye out for the following factors:
The term is the length of time that you have to repay the $20,000 plus interest and fees. Terms often range from 1 to 7 years. The term that you select will impact your interest rate, your overall cost, and your monthly payment. The shorter the term, the less interest you’ll pay, and the higher the monthly payment.
The interest rate, or an annual percentage rate (APR), shows the percentage of the total loan amount that you’ll pay each year. Your rate depends on your credit, term, and the lender’s qualification protocol. The lower the rate, the less you will pay.
How much you’ll pay each month is determined by your loan amount, term, and interest rate. Look for a monthly payment amount that suits your budget.
Total interest cost
The total interest is the amount of interest you will pay in total throughout the full term of your loan. This is the bottom line cost of the loan, so it’s critical to find the lowest rate possible.
These are the most significant factors that you must consider. Additionally, don’t forget to look at the lender’s reputation and customer satisfaction scores. Before committing to a loan, ensure that the lender is legitimate and offers a positive experience for borrowers. Get at least three quotes before making a decision.
Where to get a $20,000 personal loan
You may be able to get a $20,000 loan from a bank, credit union, or online lender. Compare the rates and terms of at least three lenders before making a decision. SuperMoney makes it easy to compare the rates and terms of multiple lenders without hearting your credit. Once you have your offers, go through the factors we covered in this article to find the best $20,000 personal loan available to you.
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Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.