How to get a $40,000 personal loan

Eligibility requirements for a $40,000 personal loan

To get a $40,000 loan, you will need strong credit, a low debt-to-income ratio and a regular, verifiable income.

• Credit score: You need a credit score of at least 640 and possibly higher, depending on the lender. The higher your score, the more likely you are to receive favorable rates, such as a lower interest rate or longer term. If you have a lower score, you may still qualify for a loan, but perhaps not the full $40,000.
• Income: Many lenders require an annual income of at least $25,000 to issue a personal loan, but your debt-to-income ratio is even more critical.
• Debt-to-income ratio: Lenders typically require a debt-to-income ratio of 35% or less. This means that less than 35% of your income is going to pay the minimum payments on your debts.
• Documentation: You will also need to verify your identity and your income. Expect to provide W-2s, bank statements and tax returns that show the income you are using to qualify for the loan.

» MORE: How to get a personal loan with bad credit

Comparing lenders for the best rates

Several online lenders offer $40,000 personal loans. Upgrade is one of our top picks for the best personal loan lenders because it offers fast approval and no prepayment penalties. Best Egg is another online lender that has interest rates lower than you will find elsewhere. Achieve also offers personal loans up to $50,000, but you need a credit score of at least 660 to qualify for loans over $35,000.

Steps to getting a $40,000 personal loan

Before applying for a $40,000 loan, it’s important to prepare. Taking time to review your financial situation, gather necessary documents and compare lenders can help you avoid costly mistakes and improve your chances of approval.

1. Consider your situation: First, be sure that you truly need $40,000 and that you can fit the payment into your budget. If you are using the funds to pay off existing loans, be sure to understand your current minimum payments and average interest rate so that you don't end up paying even more than before. Also, be sure to review your budget and have a clear understanding of what you can comfortably afford.
2. Gather your documents: Next, gather all the documents needed for the loan application. This will make the process smoother and less frustrating. You can expect to need:
   • Social Security number
   • Home address
   • Email address and phone number
   • Employment information
   • Income amount, with verification documents
   • Bank account number and routing number for direct deposit
   • The amount you want to borrow
   • What you will use the funds for
3. Compare lenders: Find two or three lenders that offer the terms you are looking for so you can compare their offers. Understand their interest rates, lending requirements and if there are any origination fees or prepayment penalties.
4. Get prequalified: Many lenders allow you to get prequalified so you can have an idea of what loan terms you would receive. You'll fill out most of the loan application, and the lender will do a soft check on your credit to determine if you qualify. This is a great way to see if you qualify and for what terms without affecting your credit.

   If you decide to proceed, the lender will verify the information you provided and conduct a hard credit check.

5. Review prequalified offers: If you've gotten prequalified with several lenders, compare the offers and see which one is best for you. Pay attention to the fees, interest rate, term and minimum payment.
6. Apply: This should go quickly since you've already completed most of the application to get prequalified. You'll likely have to present your documents that verify your information. It may be anywhere between a few hours to a few days to hear back after you've applied.
7. Review and accept the loan: Don't assume they are the same as the terms from the prequalification. Go back over the amount, interest rate, term, minimum payment and any fees. If the terms are acceptable, go ahead and sign the loan documents and receive your funds. Depending on the lender, you may receive your funds in a few hours or a few days.

Pro tip

When shopping around, be sure to compare interest rates and fees to make sure you are getting the best deal. Sometimes lenders will offer a low ongoing interest rate but have a high origination fee that offsets any savings you would get.

» RELATED: Are online loans safe?

Understanding loan terms and conditions

The term of the loan refers to the number of payments you will need to make on the loan. The longer the term, the lower the minimum payment will be. But this also means you'll pay more for the loan over time. Not only do longer-term loans tend to have higher interest rates, there is also more time for interest to accrue.

Pay attention to the interest rate, term, minimum payment and any fees associated with the loan.

For example, a $40,000 loan at 17.99% for five years will have a minimum payment of $1,016, and you'll pay $20,931 in interest. If you change the term to seven years, the minimum payment would be $840, and the total interest would be $30,600.

So, while a lower minimum payment might be attractive, you pay significantly more interest, even if the rate stays the same.

Interest rates

Depending on your credit and other factors, your interest rate will likely range between 7.99% and 34.99% APR. The better your credit score, the lower your interest rate will be. But other factors like your debt-to-income ratio and the amount and term of the loan.

Some personal loans have origination fees, which are typically a percentage of the loan amount and can range between 1% and 8%. This means on a $40,000 loan, you can expect to pay between $400 and $3,200.