Personal loans are a popular choice among those looking to borrow cash for unexpected expenditures. Many individuals prefer personal loans (as opposed to other financial tools such as credit cards or home equity) when they want to fund a large purchase. That's because they either don’t have the available credit on their credit cards to make the purchase with or, simply, they would like a lower interest rate than the one currently offered on their card.
What is a personal loan?
A personal loan is a fixed-rate, installment loan taken from a financial institution. You pay it back in fixed amounts, over a set period of time (typically 12-48 months.) Personal loans are accessible to all, but the better your credit score, the better interest rate you’ll receive.
Personal loans offer many advantages over credit cards including a fixed monthly payment, set repayment term, and quick disbursement of funds directly into a checking account. Because it's a loan, rather than revolving credit, once the debt is repaid, you can’t use it again. Many like the fact that they know how much they’ll need to pay each month and that the debt will be repaid at the end of the term, which minimizes the risk of getting into an even deeper debt hole.
There also aren’t many restrictions on what you can use personal loan funds for, but many popular uses are for home repair, debt consolidation, wedding costs, and medical bills.
What do I need to get a $5,000 personal loan?
In order to get a personal loan you’ll need to:
- Provide proof of steady income/employment (Tax return or W2).
- Meet the lender’s minimum credit score (varies by lender).
- Meet the lender’s minimum debt-to-income ratio (varies by lender).
Also, some online lenders may not be authorized to loan money in your state, which is why it’s important to check their qualifications thoroughly before wasting time on the application process.
Regardless of your credit score, providing proof of income is one of the most important parts of getting approved for a $5,000 loan. Since most personal loans are unsecured, this means you won’t have to put down any type of collateral for the loan, but this means your income is an even more important piece of qualification criteria.
Where can I get a $5,000 personal loan?
For those with good to excellent credit and steady employment, these lenders offer some personal loan options with low fees:
- SoFi (680 minimum score).
- Marcus by Goldman Sachs (660 minimum score).
- Payoff (640 minimum score).
- Earnest (680 minimum score).
- Discover Personal Loans (660 minimum score).
Those who struggle with poor credit have fewer options, but there are lenders who will make personal loans to those with credit scores at 600 or below:
- Upstart (580 minimum score).
- Avant (580 minimum score).
- OneMain Financial (no minimum score required).
Keep in mind, those with poor or fair credit may be asked to provide additional information such as numerous checking account statements or be asked to add a co-signer with good credit. Low credit applicants may get a better interest rate when applying for a secured personal loan with some type of collateral (like a car, for example.)
Tips for personal loan shopping
No matter what your credit score is, it’s important to “rate shop” with at least three different lenders to ensure you’re getting the most competitive interest rate.
Also, watch out for hidden fees, such as high loan origination fees or pre-payment penalties. You don’t want to be charged money or penalized just for being able to repay your balance early.