An unexpected bill, car repair, or emergency is never a welcome event, especially if you don’t have the savings to cover it. In these cases, a $5,000 loan can help.
Even if you have a credit card, a $5,000 personal loan could save you hundreds in interest — that's because average credit card rates are about nine percentage points higher than average two-year personal loan rates.
What to consider before taking out a $5,000 loan
Don’t rush into getting a loan — instead, stop and think about the following first:
- Consider your income: There’s a reason lenders want to know your income before approving you for a loan — they want to know you’ll be able to make your loan payment every month. You should do the same by considering whether or not your current income will be able to cover loan payments for the next several years.
- Consult your budget: In addition to your income, consider your expenses, too. Check your budget to see how much cash you have available — after paying your monthly bills — to put toward a loan payment. If there isn’t any wiggle room in your budget, you may not be able to afford a loan.
- Check your credit: Your credit affects the loans and interest rates you can qualify for. The better your credit, the less you’ll generally pay in interest when borrowing. If your credit isn’t great, you can work on building your credit or consider applying for a loan with a cosigner.
Tip: Have a repayment plan in place before taking out a $5,000 loan. Making late payments or defaulting on your loan can hurt your credit score, which can make it harder to borrow in the future.
Where to get a $5,000 loan
Banks, credit unions, and online lenders all offer personal loans. When shopping around for a loan, compare loans from a variety of the best personal loan lenders. Different types of lenders may have varying funding times and fees, plus their own individual pros and cons.
- Banks: Many traditional banks offer loans as part of their extensive list of services, which you may like if you prefer to keep all your finances under one roof. While they may offer discounts to existing customers, traditional banks often charge higher fees than other types of lenders. Online banks, however, tend to charge fewer fees.
- Credit unions: Credit unions are nonprofit organizations that have a reputation for more affordable financial services. They tend to be very member-focused, which may mean a more personable customer experience and more lenient eligibility requirements. But you have to be a member of a credit union before borrowing.
- Online lenders: Online lenders make the loan application a breeze, but only for those who don’t mind an entirely digital process. You can find online lenders with virtually no fees, but you typically have to have decent credit in order to qualify.
It’s always smart to compare various options before deciding on a lender. If you don’t know where to start, consider some of our partner lenders offering $5,000 loans:
All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | SoFi Disclosures | Read more about Rates and Terms
How much will a $5,000 personal loan cost?
The cost of a $5,000 loan depends on several factors, including the loan’s terms, interest rate, and fees:
- Interest rates: Interest rates are expressed as a percentage of the loan’s principal amount. The higher the interest rate, the more it’ll cost to borrow.
- Fees and charges: Depending on the lender you work with, you may have to pay a variety of fees when taking out a loan. Common fees include loan application fees, origination fees, late fees, and prepayment fees.
- Loan term: Your loan term is the amount of time you have to repay it. Generally, lenders offer a range of terms to choose from. Most lenders offer terms from 1 to 7 years. The longer the term, the more it’ll incur in interest — and the more you’ll end up paying.
When you’re shopping for a loan, keep an eye out for the loan’s APR, or annual percentage rate. This number, expressed as a percentage, includes the interest rate and upfront borrowing costs, and tells you how much you’ll pay to borrow money.
When shopping for a loan, comparing APRs and estimating payments with a personal loan calculator can give you a good idea of what various loans will cost.
For example: Let’s say you’re comparing two different $5,000 loans, each with five-year terms. One lender offers you a rate of 8.99% APR, while the other offers a rate of 10.49% APR. Even this slight difference in APR has an impact on the cost of your loan over five years:
As mentioned above, your term length impacts the cost of a $5,000 loan, too. The following example shows how a difference of two years affects your monthly payments and the total cost of a $5,000 loan at an 8.99% interest rate:
Personal Loans Calculator
If you decide to take out a personal loan, use a personal loan calculator to determine interest charges over time.
How to qualify for a $5,000 personal loan
To qualify for a $5,000 personal loan, you’ll need to meet your lender’s minimum eligibility requirements. These typically include the following:
- Credit score: Your credit score is a measure of your borrowing history — the higher your score, the more responsible a borrower lenders assume you to be. Lenders may have a minimum credit score requirement — typically in the “good” range (a FICO score of 670 and above).
- Income: Lenders usually require you to have a stable income — and enough of an income to make your monthly loan payments. You may have to meet certain minimum income requirements and submit proof of income when you apply for a loan.
- Debt-to-income ratio (DTI): Your DTI measures the amount of debt you have compared to your gross monthly income. The lower your DTI, the more likely lenders consider you to be able to afford monthly loan payments. Lenders generally like to see a DTI of 36% or less.
Learn More: What Are the Requirements of a Personal Loan?
How to apply for a $5,000 loan
You can apply for a $5,000 loan by taking the following steps:
- Check your credit: Grab a free copy of your credit report from Credible's credit monitoring tool. Then check it for any errors that might be negatively impacting your score. If your credit is in bad shape, consider taking steps to improve it before getting a loan.
- Compare lenders: Consider a variety of lenders, including banks, credit unions, and online lenders. Compare interest rates, terms, fees, and customer reviews. Some lenders may allow you to prequalify, which can give you a better idea of borrowing costs before the lender performs a hard credit check. Prequalification won't hurt your credit, but it's not an offer of credit either. You'll have to apply to see your final rate.
- Submit your application: When you settle on a loan, complete the application and submit the necessary documents. Typically, you’ll need to provide proof of income, proof of address, proof of employment, and an ID. At this point the lender will conduct a hard credit check, which could temporarily lower your score by a few points.
- Receive your loan and begin payments: If the lender approves your application, they’ll provide a loan agreement for you to review and sign. After you complete the paperwork, you’ll receive your loan. Depending on the lender, this can take as little as a day, though some can take up to a week. Then you’ll begin making monthly payments as outlined in the loan agreement.
Check Out: How To Get Approved for a Personal Loan
Alternative options for a $5,000 loan
Taking out a $5,000 loan is a significant financial decision that may not always be the best move. Before you start an application, consider these other options:
- Credit card: If you have a high enough credit limit and are able to repay the balance quickly, using a credit card can help you avoid a loan’s application process and fees. However, you don’t want to carry a large credit card balance month to month, since most credit card interest rates are relatively high.
- “Buy now, pay later”: With this option, you can split your purchase and make a payment every two weeks with little to no interest. Some BNPL lenders offer to split your payments into monthly installments instead, allowing you to pay off the amount, plus interest, in 6 or 12 months.
- Borrow from friends or family: If you have a generous financial support network, you may be able to avoid working with a lender altogether by borrowing from a friend or family member. Make sure you both agree on repayment terms, then put them in writing.
Check Out: Personal Loan Alternatives
FAQ
Can I get a $5,000 loan with bad credit or no credit history?
Open
Can I use a cosigner or collateral to improve my chances of getting a $5,000 loan?
Open
How long does it typically take to receive the funds after being approved for a $5,000 loan?
Open
Read More: