Banks and other lenders commonly offer both large and small loans, but there are many things to consider before determining an amount. Keep reading to find out what you should consider.
Most lenders classify a small personal loan as between $5,000 and $10,000 and a large loan as up to $50,000 or $100,000. However, your maximum personal loan amount typically depends on your income, debt, credit score, and more.
The repayment terms for a small or large personal loan can also influence how much you can borrow as well as your monthly payment. Personal loan term lengths vary by lender, but they are usually longer for big loans and shorter for lesser debts. Longer terms are usually more affordable since you have more time to pay off the debt.
For a small amount loan, lenders typically set a term length between one and five years. A large loan usually has a term of at least five years.
If you apply for a large personal loan, the lender may set up an extended term period, which results in you having a lower monthly payment. For instance, you may need five or six years to pay off a $20k loan but only two years to repay $5k.
However, lenders make more money from longer repayment periods since long-term loans collect more interest charges than the same amount repaid in less time.
Consider the following examples for a $10000 loan with a 10% interest rate:
· For a 12-month term, your monthly payment would be $879, and you would pay a total of $550 in interest charges.
· For a five-year term, your monthly payment would be $212, and you would pay a total of $2,748 in interest charges.
· For a 10-year term, your monthly payment would be $132, and you would pay a total of $5,858 in interest charges.
Lenders look at your debt-to-income ratio to determine how much you can afford to repay monthly. They may deny your application or limit your loan if they do not think you can repay the loan amount.
Most lenders prefer borrowers who spend between 43% and 35% of their income on debts. For example, if you make $45,000 annually, your total monthly debt payments for things like your mortgage, student loans, and the new personal loan should be no more than $1,612.
Loans for Less Than $10,000
The average new personal loan amount is about $7,000. Lenders consider small loans to be less risky, and they are almost always easier to qualify for than large loans. Small personal loans for bad credit or lower-income borrowers may be more accessible if you fit into either or both categories.
To get a $10000 loan, your credit score usually needs to fall between 610 and 720. You can compare rates for small loans online before applying with a bank.
Loans Between $10,000 and $20,000
For more than $10k loans, your credit score may need to be between 650 and 800. However, you can often find organizations willing to lend a large loan bad credit terms if you have a near-prime credit score, such as less than 660.
Loans for More Than $20,000
For a loan of more than $20,000, lenders usually require a good to great credit score (720 and higher) and a low debt-to-income ratio (less than 30%). You may qualify for a $20k loan even if you have a low credit score, but the interest rate may be very high.