If you want to or plan on venturing into something big, be it a house or business, moving out, or clearing debts, a personal loan is the right choice. Based on your finances, personal loans can be borrowed. A personal loan is an amount given to borrowers by a financial firm to help them fulfill these goals. The money must be repaid every money in installments till the loan period ends. Before you apply for a personal loan, read on to learn how it works and how much of a personal loan you can get.
The purpose of taking a loan matters for many reasons and differs from person to person. Some financial firms have limitations on the usage of money. Personal loans are taken to clean debts, cover expensive costs, vacations, and more. This amount cannot be used for tuition, other student loans, or educational purposes. Most lenders don’t offer personal loans for investing or down payment on houses. Lenders will check if money can be offered based on your loan purpose.
How Much Personal Loan Can You Get?
A personal loan usually ranges from $1000 to $100,000; this range differs from lender to lender. For new borrowers, loans are offered from $1,000 to $50,000, $2,000 to $30,000, and $5,000 to $100,000. Based on a recent study, $8,200 is the average amount for new borrowers. A wide range of loans is available based on your goals and purposes. You can apply for personal loans, as they are a flexible way to borrow money.
What Influences the Amount You Can Borrow?
A few factors can affect the money you borrow for a personal loan. Here are a few.
Debt-to-income Ratio (DTI)
This is the ratio of your debt to your gross monthly income. This is the amount you have to spend on the debt you already have and is a key factor in managing your monthly payments. Calculate your DTI by
DTI = monthly debt payment/ gross monthly income
The ratio is expressed as a percentage and is calculated by lenders to check the debt you have about the money you earn. Lowering the DTI is better for the lender, and most lenders offer loans if they see a DTI that is below 36%. A higher DTI will not qualify you for a loan and might qualify for a smaller amount. Reduce your DTI by increasing your income or lowering your debt.
Income
To qualify for a personal loan, you must show proof of income. Financial firms generally want to know if you earn consistently and have money to repay the loan.
Credit Score
Lenders usually check your credit score as it tells much about your borrowing history. This is to see if you pay back your debts on time and use your credits to the maximum, showing you can easily handle big loans. Financial firms usually give loans at lower interest rates if you have a high credit score.
When taking a loan, ask for high limits on your credit score, pay all loan and credit payments on time, limit the use of credit cards responsibly, and review your credit reports frequently to avoid errors. This will help you maintain a good credit score. According to the FICO credit scoring model, 700 and above is an excellent credit score, whereas 580 and below is a poor score range.
Employment Status
Having steady employment can help you improve the criteria for a personal loan and the money that can be borrowed. The longer you’ve stayed in a job, the more secure your position is in getting a loan. Though employment history isn’t connected to your credit score, it’s a factor that lenders use to decide your capability to repay a loan.
Some can offer multiple income streams or only one annual income, depending on lenders. Before applying, check your requirements to prequalify for applying for a loan without affecting your credit.
How Much Can You Afford to Borrow?
Estimate your eligibility for borrowing loans and see how much you can afford. Financial firms and lenders use the personal loan calculator to check if you qualify for a personal loan. You must enter details like a consistent monthly income, age, work experience, profession, and loan tenure. Also, lenders will check if you have a good credit score and DTI ratio. When applying, keep documents like ID, address, and income proof.
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What is the Maximum Personal Loan You Can Get?
Sometimes, you can get a personal loan for more than $100,000. Most lenders have a limit of around $50,000 or less. To get a good loan with maximum benefits, having a good score credit and less DTI is important.
What is the Minimum Personal Loan You Can Get?
The minimum range for getting a personal loan is $300-$1,000. The actual amount you can borrow mainly depends on your credit score and other factors like income, loan type, employment status, and even your lender.
Alternatives to Personal Loans
There are 7 alternatives to personal loans:
1. Credit card basis: This means getting funds using your credit card. If you have good credit, you can get a good promotional rate.
2. Line of Credit: You can get your loan on a rolling basis and often have access to higher limits.
3. Peer-to-Peer: Instead of a single lender, some investors help fund the loan. You might have to wait until the loan is completely funded to access the capital.
4. Home Equity: Funds will be processed and given based on the equity built in your home.
5. Payday Loan: These are loans given based on your upcoming payday. These are short-term but with a high interest rate.
6. Retirement Loan: Instead of taking a loan from a traditional lender, you can borrow from a retirement account, as rates are usually low.
7. Salary Advance: Discuss with your employer and get a portion of your upcoming salary well in advance.
Conclusion
To take a personal loan, you must know its purpose and need. Lenders offer borrowers money based on income, credit score, DTI, and loan purpose. Maintaining a good credit score above 650 makes it easier to get personal loans. You can get loans quickly by using a cosigner with good credit to apply and sign loans with you. For financial support, download the Beem app.
