How to get a $20,000 personal loan

You can use a $20,000 personal loan to cover almost any large expense, such as a home improvement project, a wedding or a medical bill. But before you borrow such a significant amount of money, you should figure out whether it’s the right move for you.

Before you take out a $20,000 personal loan, be aware of common eligibility requirements, where to find one and how to estimate your total borrowing costs.

How to get a $20,000 personal loan

Borrowing such a large amount requires care. Follow these steps to reduce your chances of getting an unaffordable loan.

• Step 1: Run the numbers. Figure out how much you can afford to pay each month. Then, use a personal loan calculator to see how different amounts and terms change your monthly payment. Even if the lender offers more, only borrow what you need and can repay on time.
• Step 2: Check your credit. You’ll likely need a good to excellent credit score to qualify for a $20,000 personal loan without a cosigner. In general, the higher your credit score, the better your chances of qualifying and securing a lender’s best rates.
• Step 3: Understand eligibility guidelines. Most lenders also require a debt-to-income ratio of under 36 percent and a steady source of income to approve you for funding. Some allow DTIs up to 50 percent. Your DTI ratio compares your monthly debt with your monthly income and tells lenders whether you can afford to take on new debt.
• Step 4: Get prequalified. Research lenders and get prequalified with three or more to gauge your approval odds. Doing so also helps you avoid excessive hard inquiries as prequalification only requires soft credit checks. Be sure to compare loan quotes to find the most competitive loan offer.
• Step 5: Formally apply. Submit a formal application with your chosen lender and provide the requested documents. During this step, the lender will check your credit and review your loan application and financial documentation to reach a lending decision.
• Step 6: Sign the loan agreement. If approved, the lender will send the loan agreement for your review and signature. Most modern lenders let you send electronically to speed up the closing process.
• Step 8: Receive funds. Once the lender signs off on the loan, you’ll typically receive the loan proceeds via direct deposit to the bank account provided on the application. Some lenders send funds the same day you’re approved.

Where to get a $20,000 loan

You can get a personal loan from a bank, credit union or through an online lender.

Banks

Some banks, like TD Bank, offer personal loans. If you already have a relationship with one, you may receive an interest rate discount — usually 0.25 percent. Banks offer some of the best rates for excellent credit borrowers.

A potential con, however, is that banks have strict credit requirements. You may need good credit to qualify.

Credit unions

Credit unions can also be an excellent place to get a personal loan. Since they are member-owned, not-for-profit institutions, they sometimes offer better rates and have less strict eligibility requirements than traditional banks.

In addition, the maximum rate for most credit union personal loans — which is set by the National Credit Union Administration (NCUA) — is 18 percent. However, some short-term loans from credit unions have maximum rates as high as 28 percent.

One potential downside worth noting is that you often have to become a member to qualify for a personal loan with a credit union. Online lenders don’t require this.

Online lenders

A major advantage of getting a personal loan from an online lender is that you can apply from anywhere in the world, as long as you have an internet connection. In addition, online lenders usually have more generous eligibility requirements than traditional banks.

For example, Avant offers unsecured personal loans to borrowers with fair and poor credit scores. But note that if a lender approves borrowers with bad credit, they’ll likely charge you a high interest rate and fees. Some lenders have maximum rates over 30 percent — Avant’s tops out at 35.99 percent.

You may also find that online lenders offer larger loan amounts and more flexible loan terms than banks and credit unions. Lenders like SoFi offer loans up to $100,000 to meet your funding needs.

LightStream is another option with a hefty loan limit. It features personal loans with repayment terms from two to seven years to make your monthly payments more affordable.

Here’s a closer look at the specifics of the personal loans from these online lenders, plus a few others we’ve reviewed. Happy Money specializes in debt consolidation, while Best Egg has unusual secured loan options.

Long-term costs of a $20,000 personal loan

Your overall borrowing costs depend on several factors, such as your interest rate, repayment term and any fees the lender charges. Common personal loan fees include origination fees, prepayment penalties and late payment fees.

Choosing a lender that has minimal or no fees can lower your costs. You can also reduce your borrowing costs by choosing the shortest term available. The tradeoff is that your monthly payments will be higher.

For example, say you take out a $20,000 personal loan at 13 percent and a three-year loan term. In that case, your monthly payment would be $674, and your total interest paid would be $4,259.65.

By contrast, your total costs would be more for the same loan with a five-year loan term. Although your monthly payments would be lower at $455, your total interest would be higher — $7,303.69.

To estimate your total borrowing costs, use Bankrate’s personal loan calculator.

Alternatives to $20,000 personal loans

If you can’t get approved for funding and prefer to explore other options, consider these alternatives:

• Home equity loan: A home equity loan is a second mortgage that allows you to convert a portion of your equity into cash. Rates are fixed and competitive, but you risk foreclosure if you fall behind on payments.
• Credit card: You’ll only pay interest on the funds you borrow and fail to repay within the grace period. The minimum monthly payment is likely smaller than a personal loan’s would be. However, the average interest rate of 20.75 percent means you could get trapped under a heap of ever-growing debt.
• Home equity line of credit (HELOC): This home equity product works like a credit card. You can access a revolving line of credit for a set period. The downside is that your home is used as collateral, so defaulting means it could be foreclosed.
• Loans from relatives and friends: With an amount this large, this is a less-likely option. If you do find a friend or family willing to float you, be sure to get the agreement in writing. Only commit to terms you can uphold to preserve your relationships.

How to determine if you need a $20,000 loan

Taking out such a large loan is a huge financial decision. If you take on more debt than you can afford to repay, there could be serious financial consequences, such as:

• Stretching yourself too thin financially: Before you take out a loan, review your finances to see whether you can afford to repay the loan. If you take on too much debt, you may find it difficult to contribute to essential financial goals, like retirement.
• Damaging your credit: If you fail to repay your loan, it could cause major damage to your credit score. As a result, it’ll be harder for you to qualify for future loans, like a mortgage or auto loan.

That said, in some scenarios, a $20,000 personal loan could improve your financial situation:

• Consolidating high-interest debt: Do you have $20,000 worth of high-interest debt? Taking out a $20,000 loan to consolidate your debt could make sense if you can secure a lower rate.
• Funding home improvements: Depending on the type of home improvements you make, taking out a personal loan to cover the costs could help you increase the value of your home.

The bottom line

Taking out a $20,000 personal loan is a major financial decision. Before starting your search, figure out if you actually need to take out such a large loan. Then, estimate your borrowing costs to see how much you’ll spend over the life of the loan.

If you determine that it’s the right move, be sure to compare personal loan rates and terms from multiple lenders to get the best deal.