How to Get a $20,000 Personal Loan

5 steps to getting a $20,000 personal loan

Before applying for any personal loan, it’s a good idea to check your credit score and review your credit report. Most lenders use your credit score to automatically approve (or decline) a personal loan, so it’s important to know where you stand before submitting an application.

1. Check your credit score and eligibility

To get a $20,000 personal loan with a low interest rate and favorable terms, you’ll generally need a very good to excellent credit score, or a FICO score of 740 to 850. It also helps to have a low debt-to-income (DTI) ratio and stable income.

While some lenders don’t require a high credit score, you may end up paying more in the long run if your credit is fair or poor. For example, if a lender has a minimum credit score requirement of 580 to qualify for a personal loan, you may end up with an annual percentage rate (APR) as high as 35%.

» MORE: What is a good interest rate on a personal loan?

2. Compare lenders for the best rates

If you want to get the best rates and terms, you’ll want to compare several lenders. While most online personal loan lenders offer competitive rates, some have lower APRs and better payment terms than others. Here’s what to look for:

• Loan amounts: Look for lenders that will let you borrow as much as you need.
• APRs: Your APR will impact your overall monthly payment on your loan.
• Type of lenders: While online lenders typically offer the best rates, some banks or credit unions may offer competitive rates or fees, or else better chances of approval.
• Multiple payment term options: More repayment term options means you can choose a monthly payment amount that will work with your budget.
• Rate discounts: Some lenders offer rate discounts, such as auto-pay discounts.
• Prequalification: Get prequalified online to see which rates and loan amounts you might qualify for if you apply.

Narrow down the best lenders to get a $20,000 loan from, and pick the one that works with your budget.

Get prequalified for a loan

You can get prequalified with multiple lenders before applying for a loan. Prequalification involves a soft pull of your credit, which won’t affect your credit score. When you’re ready to apply for a loan, the lender will do a hard pull of your credit, which will affect your credit score temporarily.

3. Understand loan terms and monthly payments

It’s important to understand the exact loan terms and monthly payment options to ensure you can afford a $20,000 loan. Most personal loans offer multiple repayment terms. Generally, the shorter the repayment term, the higher your monthly payment will be.

The most flexible lenders tend to offer repayment terms ranging from 12 months to 84 months. While longer loan terms have lower payments, you’ll end up paying more in interest in the long run.

Loan repayment example

If you get a $20,000 personal loan at a 9% APR with a 60-month repayment term, your monthly payment may be around $415. But if you choose a shorter 24-month loan term, your payment jumps to $913.

Your interest rate also affects your monthly payment. If your $20,000 loan with a 60-month repayment term has a 7% APR, your monthly payment would only be $396. If you instead have a 14% APR, your payment will jump to $465.

4. Gather necessary documentation

Once you pick a lender, you’ll need to fill out an application. This includes submitting personal and financial information, as well as proof of income and a photo ID.

Here’s a list of documents you’ll want on hand when applying for a personal loan:

• Proof of income, such as a W-2 or recent pay stub
• Proof of identification, such as a driver’s license or U.S. passport
• Proof of address, such as a utility bill
• Bank statements
• List of debt balances

As part of the application process, your lender may ask for some (or all) of these documents, so it’s a good idea to have access to them. Most lenders have an online portal that allows you to scan and upload these documents.

5. Apply for the loan

Once you’re ready to apply, you’ll submit your application online for most lenders. This process can usually be completed in about 15 minutes and requires submitting the following:

• Full legal name
• Birth date
• Address
• Social Security number
• Income estimate
• Debt monthly payments
• Whether you own or rent a home

You may also need to submit the documents you’ve gathered, including proof of income and bank statements. Once you’ve completed and submitted your application, you may get instant approval, but you may have to wait for a review. Sometimes lenders may ask for more information.

Once approved, you’ll be asked to input your bank account details to receive the funding. Most lenders send money through Automated Clearing House (ACH) transfers and can send the money as soon as the next business day.

» MORE: How long it takes to get approved for a personal loan

How to improve your credit score to get a loan

If you find that your credit score is too low to qualify for a personal loan with reasonable rates, you can take steps to improve your score.

Make on-time payments

The biggest impact on your credit score is making on-time payments to your existing creditors. If you have late or missed payments, make sure to contact your servicer and catch up on payments to boost your score.

Pay down debts

Too much existing debt can hurt your credit score. Paying off lines of credit, like credit cards or home equity lines of credit (HELOCs), can lower your credit utilization ratio and increase your score.

Don’t close old credit cards

Part of your credit score is determined by your credit history, which measures the average age of all of your credit accounts. If you have an old credit card that’s still in good standing, don’t close it. Keeping older credit lines open can improve your credit score over time.

Don’t open new credit lines

If you’re applying for a new personal loan, you might risk your chances of getting approved if you have other recently opened credit lines, such as a new credit card or auto loan. Wait until after your loan is approved to consider applying for any new credit.

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