How To Get a $40,000 Loan

Medical bills, home repairs, weddings — whether you’re facing an unexpected expense or you’re planning to make a major purchase, sometimes debt is a necessity. When that happens, getting a personal loan can be a better solution than using a credit card, especially if you need a large amount of funds relatively quickly.

That’s because according to the Federal Reserve, the average annual percentage rate (APR) on a 24-month personal loan as of February 2024 was 12.49%, compared to 21.59% for credit cards — that's nine percentage points lower on a personal loan, on average. (On a $40,000 five-year loan, nine percentage points can mean an extra $10,000 plus saved or spent!)

In this article, we’ll specifically cover the types of $40,000 loans that are available, what you need to get one, and what payments could look like.

Compare interest rates for $40,000 loans

Types of $40,000 loans

There are two main types of loans you could go with here: Traditional personal loans, which are unsecured, and secured loans.

Personal loans

To get an unsecured personal loan, lenders examine your credit profile — including debts, income, and credit score — to determine your eligibility as well as the rates and terms they’ll offer.

Most personal loans are considered unsecured because they don’t require collateral. The lender pays the loan amount directly to you (or sometimes directly to your creditors, in the case of debt consolidation). You’re then responsible for making monthly payments over the course of the loan’s term. Once the term ends, you’ll have repaid the amount you borrowed, plus interest and fees.

Pros

• Lump-sum funding
• No collateral required
• Quick funding
• Wide selection of lenders to choose from

Cons

• Approval relies largely on credit
• Adds a monthly payment to your budget
• Rates and fees could be high, depending on the lender and your credit and income

Secured loans

These require you to use a valuable item or asset as collateral. One example of a secured loan is a home equity loan, which uses your home as collateral. Some personal loans also fall into the secured loan category. With these types of loans, the collateral acts as a safety net for the lender. If you stop payments, the lender can seize and sell your asset in order to recoup its money.

You’ll generally need to get your collateral assessed for value in order to qualify for a secured loan. This could be as simple as looking at a bank statement, for a CD loan, for instance, or as involved as getting a full home appraisal.

Pros

• Can be easier to qualify for than unsecured loans
• Home equity loans may provide larger loan amounts than personal loans

Cons

• Requires you to have a valuable asset, such as a home or vehicle
• Adds a monthly payment to your budget
• Possibility of losing collateral if you stop payments
• May take longer to approve and fund, relative to an unsecured loan

Learn More: Secured vs. Unsecured Personal Loans

Where to get a $40,000 loan

There are three main sources for personal loans of this size:

• Online personal loan lenders: These can be a solid option if you require quick cash. For example, the typical personal loan funding time for online lenders is anywhere from the next business day to five days after you’re approved. You can also prequalify with most personal loan lenders online, which gives you an idea of the rates and terms you’ll qualify for before submitting a full application.
• Traditional banks: If you have a long-standing relationship with your bank, you may be able to score more favorable loan terms. However, it may also have higher minimum credit score requirements to qualify. Plus, it can take up to a week to get approved for a loan with a bank.
• Credit unions: These typically have lower rates than banks, but you’ll generally need to be a member to apply. The timeline to loan funding is generally 1 to 7 days.

Learn More: Where Can I Get a Personal Loan?

How to get a $40,000 loan

There are several steps you’ll need to complete to apply for a personal loan:

1. Gather necessary documentation: Most lenders will require certain information, such as proof of your income, address, and identity. Having things like your government-issued ID and pay stubs, tax returns, or bank statements on hand during the application process will help speed things up.
2. Check your credit report: Not only will this show where your credit score stands, but you can also check for errors that may be dragging down your score. You can check your report weekly on AnnualCreditReport.com for free. Keep an eye out for identity errors, incorrect account statuses (such as a closed account that’s listed as open), and balance or credit limit errors.
3. Use a lender platform: If you want to go with a personal loan from a lender that isn’t your bank or credit union, a lending platform like Credible can be a solid place to start. Doing so will allow you to quickly compare rates and terms associated with each lender, and prequalify with multiple lenders at once by filling out a single questionnaire.
4. Get prequalified: Prequalification allows you to see if you’re likely to be approved for a loan, and if so, what your rates and terms could look like. It won’t hurt your credit score, but keep in mind that prequalification is not a guarantee of the terms you’ll get, or that you’ll ultimately be approved. When you formally apply for a loan, the lender will conduct a hard credit check that can temporarily lower your score.
5. Compare costs: A loan’s APR is a better indicator of cost than the raw interest rate alone, since it includes upfront costs like administrative or origination fees. Also consider other fees the lender charges, such as late fees, as well as any discounts offered.
6. Consider a cosigner: If you find it difficult to qualify, or the APRs you’re seeing from prequalifying are high, you may want to consider looking at loans that allow cosigners. Depending on the situation, a cosigner’s good credit could help you qualify or potentially get better terms. (Asking someone to cosign is a big deal, as it means they’ll be responsible for payments if you stop making them. Not all lenders accept cosigners.)
7. Apply for the loan: Once you’ve selected your ideal lender, apply for the loan. The timeline from application to approval and payment will depend on the lender.
8. Review the loan agreement and sign: If you’re approved, the lender will submit a loan agreement for your review and signature. Once signed, the lender will disburse the funds, typically within days, directly into your bank account.

Learn More: APR vs. Interest Rate on a Personal Loan 

$40,000 loan payments

Overall, personal loan interest rates have been on the rise since late 2022, which means you’re likely to pay more to borrow now than you would have then. But your credit score, as well as the term and loan amount, will have a significant impact on how much you pay, too. Here are a few different credit score profiles and related loan costs:

Fair credit

Let’s say you have a FICO score of 600 (that means your score is considered to be in the “fair” category). The average interest rate for applicants with a credit score between 600 and 639 is around 29% for a five-year loan, based on the Credible data from January 2024. That would translate to a $1,270 monthly payment for a $40,000 loan with those terms. That means you’d pay a whopping $36,180 in interest over the life of the loan.

Very good credit

Those with a credit score of 780 (which is considered to be “very good” credit), however, might qualify for a 19% rate on a five-year loan. That translates to a $1,038 monthly payment, which includes a total of $22,257 in interest.

Excellent credit

Those with the best credit saw the best terms on three-year personal loans at an average rate around 13.5%. This equates to a monthly payment of $1,357 per month, but only $8,867 in interest.

Extending the term of your loan could help reduce the monthly payment amount, but keep in mind that would also mean you’d increase the total amount you’d end up paying in interest. Ultimately, the best term for you will be both affordable — from a monthly payment standpoint — and minimize the amount you’ll pay for the loan.

Personal Loans Calculator

If you decide to take out a personal loan, use a personal loan calculator to determine interest charges over time.

$40,000 loan FAQ

How to get $40,000 loan

To get a loan of this size, you’ll need to meet lenders’ minimum credit score and income requirements. Lenders also typically look at your debt-to-income (DTI) ratio, which measures your monthly debt payments to your monthly income. In general, you’ll want to have a credit score of at least 670 and a DTI ratio below 35% to qualify and get good rates.

Where can I get a $40,000 personal loan?

You can find $40,000 loans from banks, credit unions, and online lenders. There are different pros and cons associated with each (such as available rates, discounts, and terms), so you’ll want to start your search more broadly before narrowing things down to a preferred lender.

How to get a $40,000 loan with bad credit

Getting a $40,000 loan with bad credit is difficult, but could be possible depending on the lender — some cater to borrowers with lower credit scores — and your overall financial situation. That said, a lower credit score will usually mean you’ll have a higher APR, meaning you’ll pay more long term. You may want to consider lenders that allow you to add a cosigner or secure the loan with collateral to qualify or gain more favorable terms.

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