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A $20,000 personal loan can be used to cover almost any large expense, including home improvement projects, weddings, medical bills, and more. But before you borrow such a large sum of money, you should spend some time deciding if it’s the right move for you.
Before you take out a $20,000 personal loan, know the common eligibility requirements, where to find them, and how to estimate your total borrowing cost.
How to determine if you need a $20,000 loan
Taking out such a large loan is a big financial decision. Taking on more debt than you can afford to repay can have serious financial consequences, including:
- too thin economically: Before you take out a loan, review your financial situation to see if you can afford to repay the loan. Too much debt can make it difficult to contribute to important financial goals such as retirement.
- discredit: Failing to repay a loan can wreak havoc on your credit score. As a result, it becomes difficult to qualify for future loans such as mortgages and car loans.
That said, here are some scenarios where taking out a $20,000 personal loan could improve your financial situation.
- Consolidation of high-interest debt: Do you have $20,000 worth of high-interest debt? If you can secure a lower interest rate, it makes sense to take out a $20,000 loan to consolidate your debt.
- fund home improvements: Depending on the type of home improvement, you can increase the value of your home by taking out a personal loan to cover the costs.
Requirements to get a personal loan
Although eligibility requirements vary, lenders typically consider the following factors when applying for a personal loan:
- credit score: Without a co-guarantor, you may need a good or excellent credit score to qualify for such a large loan. In general, the higher your credit score, the more likely you are to qualify and secure a lender’s best rate. However, it is important to note that some lenders specialize in providing personal loans to borrowers with poor credit.
- Debt to income (DTI) ratio: The DTI ratio compares your monthly debt to your monthly income. The lender will review your DTI to assess whether you can afford to take on the new debt. You can lower your DTI by paying off outstanding debt.
- income: To be eligible, you must show your lender that you have a stable income sufficient to meet future monthly loan payments. This is typically done by attaching financial documents such as a W-2 or bank statement to the loan application.
- collateral: Most personal loans are unsecured. That means you don’t need collateral (something of value, such as car ownership or a bank account). Some lenders offer secured personal loans that require you to post collateral to qualify.
Personal Loan Lenders Offering $20,000 Loans
Loans of this amount are available from several financial institutions, including banks, credit unions, and online lenders. Below is a list of lenders offering loans of $20,000.
APR range | Loan amount range | Minimum credit score requirement | |
Avant | 9.95% to 35.95% | $2,000 to $35,000 | 580 |
Sophie | 7.99% to 23.43% (with automatic payments) | $5,000 to $100,000 | 680 |
light stream | 3.99% to 19.99% (with automatic payments) | $5,000 to $100,000 | not disclosed |
TD Bank | 6.99% to 21.99% | $2,000 to $50,000 | 700 |
Avant
Avant specializes in providing unsecured personal loans to borrowers with fair and sub-stellar credit scores. If you meet the conditions, you can have the funds deposited into your bank account the next business day. The downside, however, is that Avant’s advertising rates are high. It ranges from 9.95% to 35.95%.
Sophie
SoFi offers a wide range of loan amounts, competitive interest rates, and no fees. Loans range from $5,000 to $100,000 for him. Interest rates range from 7.99% to 23.43% (for automatic payments). To qualify, you must have sufficient credit and sufficient income. The minimum credit score requirement is 680. The minimum income requirement is $45,000 annually.
light stream
LightStream offers a wide range of repayment terms and loan amounts from $5,000 to $100,000, with a low minimum interest rate of 3.99% (with automatic payments) for eligible applicants. Most loans have repayment terms of 2 to 7 years. 2-20 months home improvement loans, swimming pool loans, solar loans. If you need a large loan for these purposes, you can lower your monthly payments.
TD Bank
TD Bank offers personal loans ranging from $2,000 to $25,000 with no initiation fees, prepayment penalties or application fees. We offer competitive interest rates from 6.99% to 19.99%. If you meet the requirements, you can have your loan funds deposited into your account in as little as one business day. A major drawback, however, is that the loan is only available in his 15 states.
Long-term cost of a $20,000 personal loan
Overall borrowing costs depend on several factors, including interest rates, repayment terms, and fees charged by lenders. Common personal loan fees include origination fees, prepayment penalties, and late fees.
Choosing a lender with minimal or no fees can save you money. You can also reduce your borrowing costs by choosing the shortest term available. The trade-off is a higher monthly payment.
For example, take a $20,000 personal loan at 8% for a three-year term. Your monthly payments would then be $627 and your total borrowing cost would be $22,562.18.
In contrast, a $20,000 personal loan with the same interest rate and a 5-year loan term would have a higher total cost. Your monthly payment will be less, $406, but your total borrowing cost will be higher, $24,331.67.
To estimate your total borrowing cost, use Bankrate’s Personal Loan Calculator.
Conclusion
Taking out a $20,000 personal loan is a big financial decision. Before proceeding, first determine if you really 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 decide it’s the right move, compare rates and terms of personal loans from multiple lenders to make sure you get the best deal.