April 25, 2024
Loans

How Much Personal Loan Can You Get? – Forbes Advisor


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The personal loan amount you can qualify for is typically determined by your credit score, income, debt-to-income ratio and other factors. Although loan amounts vary across lenders, the maximum amount for personal loans typically ranges from $500 to $100,000.

In some cases, you may qualify for a loan larger than what you need. Before accepting any loan, consider what you can afford to repay and be sure you don’t borrow more than what you can manage.

How Much Money Can I Get with a Personal Loan?

Many lenders offer personal loans ranging anywhere from $500 to $50,000. Some banks and financial institutions cap borrowing amounts at around $20,000, while others offer loans up to $100,000 to borrowers with exceptional credit.

How much money you can get from a personal loan will depend on your loan application, including your credit score, income, debt-to-income (DTI) ratio, among other factors. Before accepting any loan amount, consider what payments you can afford to avoid overborrowing.

While a personal loan can be a helpful tool in managing and consolidating debt or financing large purchases, borrowing irresponsibly can lead to many consequences. Use a personal loan calculator to determine how much you can afford to borrow before accepting a loan.

What Determines How Much I Can Borrow?

The amount you can borrow with a personal loan is determined by a combination of factors. These are the most common variables lenders consider and how they may impact your borrowing capabilities.

  • Credit score. Your credit score represents your creditworthiness, with a high score showing you’ve managed debt well in the past and a low credit score indicating to a lender that you’re a higher risk borrower. In general, lenders prefer a credit score for personal loans of at least 670, but this varies by financial institution.
  • Current debts. Lenders consider your current debts, including credit card balances, mortgages and other loans. A high amount of outstanding debt may lower the loan amount you’re offered.
  • Income. Your income level signals your ability to repay the loan. A higher income often leads to higher borrowing limits as lenders feel confident you can meet the monthly payments.
  • Debt-to-income ratio. Your DTI compares your monthly debt payments to your gross monthly income. Lenders use it to assess your ability to manage monthly payments and repay debts. Aim to have a DTI of 36% or lower since this shows you have enough income to afford additional debt payments.
  • Employment history. Stable employment and income are positive indicators for lenders. A strong employment history shows lenders that you have the financial means to repay the loan. Frequent job changes or a history of unemployment may lead to a lower loan amount.
  • Loan purpose. The purpose of the loan can also affect the amount you can borrow. For instance, lenders may view loans for debt consolidation or home improvement more favorably than loans for discretionary purchases.

Alternatives to Personal Loans

The best personal loans can be a viable option for many, but several other financing avenues may better suit your financial needs and circumstances. These are some of the most popular alternatives to personal loans:

  • Credit cards. Credit cards can be an alternative to personal loans, especially for smaller or short-term expenses. They offer the flexibility of making purchases now and paying them off over time. Payments can also be interest-free if you can pay off your balance in full each month or qualify for a 0% introductory annual percentage rate (APR). Keep in mind, overuse without a clear repayment strategy can lead to substantial debt.
  • Home equity loans. Consider a home equity loan if you’re a homeowner with some equity in your home. These loans allow you to borrow against the value of your home, often at lower interest rates than personal loans or credit cards. However, it’s essential to remember that your home serves as collateral for the loan. If you default on your payments, you risk losing your home.
  • 401(k) loans. A 401(k) loan can be viable if you have retirement savings. They allow you to borrow against your 401(k) balance, typically up to 50% of your savings up to $50,000. The interest rates for 401(k) loans can be lower than other options and you’re essentially paying interest back to yourself. However, if you fail to repay the loan within five years or if you leave your job, the loan could be treated as an early withdrawal.
  • Peer-to-peer lending. Peer-to-peer lending platforms connect borrowers directly with investors willing to lend money. These platforms can offer competitive interest rates and flexible loan terms. However, you might require a good credit score to qualify and the application process can be longer than traditional loans or credit cards.

Before committing to any financing option, it’s crucial to fully understand the terms, conditions and potential risks. Conduct thorough research and consider seeking financial advice to make an informed decision.

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