Key Takeaways
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Lenders review credit history and score to determine loan eligibility and interest rates. So it is important to have a good credit score.
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Personal loans can be obtained from banks, credit unions and online lenders, each with its own requirements and benefits.
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It’s important to consider the long-term costs of a personal loan, including interest and repayment terms, before choosing a lender.
If you need $5,000 to pay for medical expenses, home improvements, an emergency, or to consolidate high-interest debt, taking out a personal loan is a possible solution. Most lenders offer fast financing. In some cases, the money can be deposited into your bank account the same working day.
However, make sure you understand what you may need to qualify, where you can get one, how to find the best rates on personal loans, and how to estimate your borrowing costs before you apply.
How to Get a $5,000 Personal Loan
With $5,000 on the line, it’s essential that you have a good understanding of the financing process and what you’ll agree to in the long run. The process of obtaining a personal loan requires you to check your credit, compare lenders, pre-qualify, and submit your application.
Keep in mind that lenders review your credit score and credit history to assess how likely you are to repay the loan. The average interest rate on personal loans was between 10.73 and 12.50 percent for excellent borrowers and up to 32 percent for poor credit applicants. If you have minimal credit history, comparing bad credit rates for personal loans is essential.
You need good to excellent credit to qualify for the lowest rates from a lender. If you have bad credit, a lender may charge you a high interest rate or deny your application. When you apply, you must provide proof of identity and necessary documents confirming your address.
Where can you get a $5,000 personal loan?
You can get a $5,000 personal loan by applying for financing from a bank, credit union, or online lender. Each potential lender has its own eligibility requirements, such as a minimum credit score or a debt-to-income ratio limit. You just need to show the lender that you have the ability to effectively manage and repay the loan.
Banks
Working with a bank often provides a personalized experience that choosing an online lender does not. A bank-backed personal loan is an especially strong choice for borrowers who already have an account with an institution that offers a personal loan that meets their needs. This can simplify the application process and may even provide additional discounts.
TD bank
Bankrate’s opinion
TD Bank offers loans starting at $2,000 and has a starting interest rate of 8.99 percent. It also earns a high Bankrate Score of 4.7 for its 24/7 customer service, perks and benefits.
Plus points
- Competitive starting APRs.
- Fast financing.
- Customer service.
Disadvantages
- Limited state availability.
- Few requirements have been disclosed.
Credit unions
A credit union differs from a bank in that it is a nonprofit organization owned by its members. To borrow from a credit union, you must first become a member, which usually only requires a small fee. Often, credit unions offer more competitive rates than other lending options.
A fixed-rate unsecured loan with a 36-month term had a national average of 10.78 at a credit union versus 11.37 percent at a bank, according to the National Credit Union Administration (NCUA).
Pen Fed
Bankrate’s opinion
If you’re interested in borrowing from a credit union, PenFed is well-regarded for its competitive rates, starting at 7.99 percent, and its extensive customer support. Borrowers can also apply with a co-borrower, which can increase approval chances for those with minimal credit.
Positives
- Fast funding timeline.
- Minimal costs.
- Joint applications.
Disadvantages
- Membership required.
- Undisclosed eligibility criteria.
Online lenders
When borrowing from an online lender, the financing process can be faster than other routes – in some cases within one day. This is a strong option for those who feel comfortable navigating their finances online and without in-person customer service. Additionally, shopping online can make it easier to compare potential rates, all from the convenience of your computer.
When shopping with online lenders, pay extra attention to the company’s reputation by checking reviews and using reliable sources such as The Better Business Bureau.
LightStream
Bankrate’s opinion
LightStream, part of Truist Bank, is a fully online lender with few restrictions on loan usage. The lender has a loan of at least $5,000 and a low origination rate. The most competitive rates will be given to those with strong credit.
Positives
- No fees.
- Rate-beat program.
- Fast financing.
Disadvantages
- Long credit history required.
- Minimum loan amount on the higher side.
Cost of a $5,000 personal loan over the long term
How much you pay for a $5,000 loan depends largely on your interest rate and repayment term. You can use a personal loan calculator to estimate the total cost.
Here are some examples of what your borrowing costs might look like for a three-year loan:
| Interest | Monthly payment | Total interest |
|---|---|---|
| 8 percent | $157 | $640.55 |
| 12 percent | $166 | $978.58 |
| 16 percent | $176 | $1,328.27 |
If you choose a longer loan term, your monthly payments may be lower, but the amount of interest you pay may increase over the life of the loan. For example, here’s what your costs might look like for a five-year loan:
| Interest | Monthly payment | Total interest |
|---|---|---|
| 8 percent | $101 | $1,082.92 |
| 12 percent | $111 | $1,673.33 |
| 16 percent | $122 | $2,295.42 |
Alternatives to $5,000 Personal Loans
Obtaining a personal loan to cover a $5,000 expense isn’t the only route. For some, it may be better to consider a credit card or mortgage loan. Consider some alternatives to a personal loan and which option best suits your needs.
- Credit cards: Although this option becomes riskier as expenses increase, credit cards can be a good choice if you’re looking for payment flexibility. But to keep your credit score in check, make sure you don’t overextend your credit utilization ratio and work toward paying it off in full each month.
- Peer-to-peer lending: With this option, you apply directly to a group of investors rather than to a financial institution. You have a greater chance of approval than with a traditional lender.
How to determine if you need a $5,000 loan
First and foremost, you should consider whether you should take on debt or save for the costs. If you decide you need to borrow, review your budget to determine if you can afford the monthly loan payment. By borrowing only what you need, you can keep overall costs low. Additionally, by making sure you can make your payments, you can avoid potential late fees and damage to your credit score.
Learn More: How Does a Personal Loan Affect Your Credit Score?
That said, there are times when it can be helpful to borrow more than you need. For example, taking out a larger amount can be useful if you borrow money for a renovation project and do not know exactly what the costs are. If this is the case for you, look for a lender with no prepayment fees so you can reimburse any additional costs.
