What Amount Can You Borrow With a Personal Loan?

A personal loan may be a good option when you need extra cash. You may use a personal loan for debt consolidation, home repairs, and even vacations.

A personal loan is a type of unsecured loan, which means it’s not backed by collateral like a house or car. You can use personal loans for various purposes, from consolidating debt to making a large purchase.

The maximum personal loan amount you can get will depend on the lender and your creditworthiness.

When you take out a personal loan, you’ll agree to repay the loan plus interest over a set period, usually 2 to 5 years.

The interest rate on a personal loan is usually fixed, meaning it won’t fluctuate with the prime rate. Personal loans are available from banks, credit unions, and online lenders. 

Borrowing Amounts With Personal Loans

This depends on several factors, including your credit score and history, income, and debts.

Credit Score

The higher your credit score, the better your chances of qualifying for a higher personal loan amount.

If your credit score is 720 or above, you may be able to qualify for a personal loan of up to $100,000.

And if your score is lower than that, don’t worry, as even consumers with a bad credit score can qualify for a loan, albeit at a lower amount and with less favorable terms.

Credit History

Lenders will want to see that you have a history of making on-time payments before approving you for a loan.

In case you have a limited credit history, you may still be able to qualify for a personal loan. But you may need to provide additional information to the lender, such as proof of income or asset documentation.

Income

Income is one of the primary factors that lenders look at when considering a personal loan. Lenders want to be sure you can repay your loan, and income is a good indicator of this.

That’s why most lenders require you to provide proof of your gross monthly income when applying for a loan.

If your income is high, you may be able to qualify for a larger loan. But even if you currently have a low income, you may still be able to qualify for a personal loan if you have a good credit score and history.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is another thing lenders will consider. DTI measures how much of your income goes towards paying debts. Lenders consider 35% or less as a favorable DTI ratio.

For example, if you make $50,000 yearly and your monthly debt payments are $500. This gives you a DTI ratio of 12%.

Let’s say you make the same $50,000 yearly, but your total monthly debt payments are $2000. This gives you a debt-to-income ratio of 48%. 

As you can see, in the second example, a debt-to-income ratio is higher, which means that more of your income is going towards debt payments. As a result, you may have a harder time qualifying for a personal loan.

Other Things To Consider

Here’s what else you should be aware of:

Monthly Repayments

Most personal loans have fixed monthly repayments, meaning you’ll need to be able to afford the same amount each month.

A budget can be a great tool to help you stay on track. You may consider using a personal loan calculator to see how much your repayments will be.

Interest Rates

Personal loan interest rates can vary, so comparing rates from multiple lenders is crucial before applying.

You may also want to consider whether you’re willing to pay a higher interest rate for a shorter loan or a lower interest rate for a longer repayment term.

Fees and Charges

Personal loans usually come with fees such as application, origination, or prepayment penalties. So, before you apply for a loan, you must check all the accompanying charges to know what to expect.

Remember that your credit score, credit history, annual income, and debts will all play a role in determining the loan size you can qualify for. And be sure to allocate a monthly budget to make your repayments on time.

Also, don’t forget to do your research and compare rates from different lenders to ensure you get the best terms on your loan.