Key Takeaways
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You can get a $20,000 personal loan from most banks, credit unions, and through online lenders.
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Assess your needs and borrow only what you can afford to repay to avoid damage to your credit and overall financial health.
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Home equity loans, credit cards and HELOCs can be viable alternatives to $20,000 personal loans if you can’t get approved for them.
You can use a $20,000 personal loan to cover almost any major expense, such as a home improvement project, a wedding, or a medical bill. But before you borrow such a significant amount, find out if it’s the right move for you.
Before taking out a $20,000 personal loan, be aware of the typical 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. Find out how much you can afford each month. Then use a personal loan calculator to see how different amounts and terms affect 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 getting the best rates from a lender.
- Step 3: Understand the eligibility guidelines. Most lenders also require a debt-to-income ratio of less than 36 percent and a stable source of income to approve you for financing. Some allow DTIs up to 50 percent. Your DTI ratio compares your monthly debts to your monthly income and tells lenders whether you can afford to take on new debt.
- Step 4: Get prequalified. Research lenders and qualify with three or more to gauge your chances of approval. Doing this will also 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 to your chosen lender and provide the requested documents. During this step, the lender checks your credit and reviews your loan application and financial documentation to make a credit decision.
- Step 6: Sign the loan agreement. If approved, the lender will send the loan agreement to you for review and signing. Most modern lenders allow you to send electronically to speed up the closing process.
- Step 8: Receive money. Once the lender signs the loan, you will typically receive the loan proceeds via direct deposit to the bank account specified on application. Some lenders will send money the same day you are approved.
Where you can get a $20,000 loan
You can get a personal loan from a bank, credit union, or through an online lender.
Banks
Some banks, such as TD Bank, offer personal loans. If you already have a relationship with it, you may receive an interest discount: usually 0.25 percent. Banks offer some of the best rates for excellent borrowers.
However, a potential disadvantage is that banks impose 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. Because they are member-owned, not-for-profit institutions, they sometimes offer better rates and have less strict eligibility requirements than traditional banks.
Additionally, the maximum rate for most credit union personal loans – set by the National Credit Union Administration (NCUA) – is 18 percent. However, some short-term loans from credit unions have a maximum rate as high as 28 percent.
One possible disadvantage worth mentioning is that you often have to become a member to qualify for a personal loan from a credit union. Online lenders do not require this.
Online lenders
A major advantage of taking out a personal loan from an online lender is that you can apply for it anywhere in the world, as long as you have an internet connection. Additionally, online lenders typically have more generous eligibility requirements than traditional banks.
For example, Avant offers unsecured personal loans to borrowers with fair and bad credit scores. But keep in mind that if a lender approves borrowers with bad credit, they will likely charge you high interest and fees. Some lenders charge maximum rates of more than 30 percent; that of Avant is 35.99 percent.
Online lenders may also 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 financing needs.
LightStream is another option with a hefty borrowing limit. It offers personal loans with repayment terms of two to seven years to make your monthly payments more affordable.
Here we take a closer look at the specifics of these online lenders’ personal loans, plus a few others we’ve reviewed. Happy Money specializes in debt consolidation, while Best Egg has unusual loan options.
| APR range | Range of the loan amount | Minimum credit score requirement | |
|---|---|---|---|
| Avant | 9.95%-35.99% | $2,000 – $35,000 | 550 |
| SoFi | 8.99%-29.49%* with autopay | $5,000 – $100,000 | 680 |
| LightStream | 7.49%-25.49%* * with AutoPay | $5,000 – $100,000 | 695 |
| Happy money | 11.72%-17.99% | $5,000 – $40,000 | 640 |
| Best egg | 7.99%-35.99% | $2,000 – $50,000 | 600 |
Long-term cost of a $20,000 personal loan
Your total borrowing costs depend on several factors, such as your interest rate, the repayment term and any fees the lender charges. Common personal loan fees include loan origination fees, prepayment penalties, and late fees.
Choosing a lender that has minimal or no fees can help you lower your costs. You can also reduce your borrowing costs by choosing the shortest possible term. The downside is that your monthly payments will be higher.
For example, let’s say you take out a $20,000 personal loan at 13 percent and a term of three years. In that case, your monthly payment will be €674, and your total interest paid will be €4,259.65.
On the other hand, for the same loan with a term of five years, your total costs are higher. Although your monthly payments would be lower ($455), your total interest would be higher: $7,303.69.
Use Bankrate’s personal loan calculator to estimate your total borrowing costs.
Alternatives to $20,000 Personal Loans
If you can’t get approved for financing and would rather explore other options, consider these alternatives:
- Mortgage interest deduction: A mortgage loan is a second mortgage that allows you to convert part of your equity into cash. The rates are fixed and competitive, but you risk exclusion if you fall behind on payments.
- Credit card: You only pay interest on the money you borrow that you do not pay back within the grace period. The minimum monthly payment is likely smaller than that of a personal loan. However, the average interest rate of 20.75 percent means you could get stuck under a pile of ever-increasing debt.
- Home Equity Line of Credit (HELOC): This home equity product works like a credit card. You can use revolving credit for a certain period. The downside is that your home is used as collateral, so if you default, your home could be foreclosed on.
- Loans from family and friends: With such a large amount, this is a less likely option. If you find a friend or family member willing to transport you, make sure you get the agreement in writing. To maintain your relationships, you should only commit to terms that you can live up to.
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 can be serious financial consequences, including:
- Spreading yourself too thin financially: Before taking out a loan, check your finances to see if you can repay the loan. Taking on too much debt can make it difficult to contribute to essential financial goals like retirement.
- Damage to your credit: Failure to pay back your loan can wreak havoc on your credit score. As a result, it will be more difficult for you to qualify for future loans, such as a mortgage or car loan.
That said, a $20,000 personal loan could improve your financial situation in some scenarios:
- Consolidating debts with high interest rates: Do you have €20,000 in high-interest debt? Taking out a $20,000 loan to consolidate your debts may make sense if you can get a lower rate.
- Financing home improvements: Depending on the type of home improvements you are making, taking out a personal loan to cover the costs can help you increase the value of your home.
The bottom line
Taking out a personal loan of €20,000 is an important financial decision. Before you start your search, consider whether you actually need to take out such a large loan. Then estimate your borrowing costs to see how much you will spend over the life of the loan.
If you decide this is the right move, make sure you compare personal loan rates and terms from multiple lenders to get the best deal.
