Essential Personal Loan Amount Knowledge
Personal loans offer a quick disbursal of funds and tons of flexibility in how you can use the money. When searching for the optimal loan, it’s a good idea to consider the loan amount. How much financing do you need?
In this article, we will review what you need to know about personal loan maximums, minimums, and requirements.
What is the maximum loan amount available for personal loans?
Maximum loan amounts can vary greatly depending on your lender of choice, but most lenders don’t give out loan amounts of more than $100,000. Many lenders maintain a maximum below $20,000. Before applying for a loan from a lender, you can check what their limits are to get a clearer idea.
Regardless of the maximum loan amount the lender is willing to give, you might not be able to qualify for that amount. When you apply for a personal loan, the amount you can obtain varies based on factors such as your credit score, credit history, income, and existing debt.
How is the loan amount determined for personal loans?
Lenders assess various factors when determining the loan amount they are willing to grant each individual borrower. Creditors want to maximize the possibility of the borrower being able to repay the loan. Consequently, many of the influencing factors are associated with the repayment potential of the borrower.
Here are some important factors that lenders usually take into consideration when determining personal loan amounts:
Creditworthiness refers to how suitable you are to receive a credit extension or loan. Lenders may perform a credit inquiry to check your credit score and history.
Your FICO credit score can range from 300 (poor) to 850 (excellent). Usually, having a 580 credit score should be enough to get you considered for a $1,000 loan from major lenders.
If you want to get a large personal loan in the tens of thousands, the credit requirements are often more stringent. Secured loans are generally easier to obtain because lenders make you offer assets as collateral that can be seized if you don’t repay the loan. Unsecured loans can have harsh interest rates and late fees, especially if you have poor credit.
2. Income and employment status
Steady employment and income make a borrower seem more reliable and capable of repaying a personal loan. When you apply for a loan, you’re more likely to be approved for a large loan amount if you can show proof of stable employment.
3. Debt-to-income ratio
If you have other debt and financial obligations, it might make regular monthly payments more challenging. The debt-to-income (DTI) ratio conveys what percentage of your income is being used to repay debt.
A DTI ratio of 43% may cause lenders to reject your personal loan application. Still, there may be debt consolidation options available to you–such as through a debt consolidation loan.
4. Purpose of the loan
What you’re using the loan for can affect the loan amount you get. Lenders typically want to hear your explanation of why you’re obtaining a personal loan.
For example, if you’re trying to pay off other debt, lenders might charge you a higher rate for your purpose of debt consolidation. It may also be harder to obtain a larger loan amount.
On the other hand, if you’re financing an expensive home appliance, they might be willing to lower the rates and be more flexible with the loan amount.
If you know what you’ll use your personal loan funds for, you may want to consider finding a lender that specializes in serving borrowers with your specific needs.
Can the loan amount be increased after approval?
After your loan has already been approved and you’ve signed the loan agreement, it’s usually not possible to increase the loan amount.
It’s good to know that instead of having trouble increasing your loan amount after approval, you can consider getting an additional loan. This can help you secure more funds. However, some lenders may be more cautious when giving the same borrower extra loans. Make sure you carefully review your new loan terms if you want to get another loan.
As you shop around for loans, you can gain additional insight into what terms fit your situation and how much of a loan amount you should get.
What is the minimum loan amount for personal loans?
Generally, lenders give a minimum loan amount of $1,000 to approved borrowers. Of course with so many lenders available, you will find a great variety of minimum loan amounts.
A small personal loan amount has the advantage of not taking long to repay, which means you won’t pay as much money in interest. Monthly payments can also be more manageable if you take out a smaller loan.
In addition, smaller loans are easier to obtain. If you need fast access to funds, small personal loans can be a good option since the disbursal of funds is quick and convenient once you’ve been approved.
If you’re looking for a small personal loan for as low as $100, there is likely an option for you due to the variance in lenders–but it might not be optimal. For those who need to finance a relatively small purchase of around $100, it may be worth considering using a credit card instead of taking out a personal loan.
When you’re seeking a personal loan, make sure you shop around and compare rates to find the best loan terms for your situation. Determining the minimum funds that you need can help you figure out the suitable loan amount to apply for.
What if my lender has a higher minimum loan amount than I require?
Let’s say you found a lender with lower interest rates and better terms than others. Unfortunately, this lender has set a minimum loan amount of $5,000. If you need a smaller loan than that, is it still worth staying with this lender?
In this kind of situation, consider the following:
- Can I repay the additional funds I’d be borrowing?
- Will the extra lump sum help my situation?
- Are there other lenders with competitive offers that can help me save money?
- Does this lender have additional conditions or penalties?
At the end of the day, each individual faces their own challenges and needs. Don’t rush into a deal that sounds too good to be true–and be careful taking out a large loan amount that you suspect you can’t manage to repay. Always make sure you read the fine print in any financial or legal agreement.
How does the borrower's credit score affect the loan amount?
Your credit score, which indicates your creditworthiness, can greatly affect what loan amount you receive. Lenders are wary of lending large loan amounts to those who have poor credit.
A credit score below 580 hurts your chances of getting a personal loan with low interest rate and good terms. Bad credit typically means you have a history of failing to repay debt on time or at all.
If you have a credit score of over 670, you are considered to have good credit, which enables you to obtain larger loan amounts more easily.
A credit score above 800 is considered excellent. This is rarer to have and doesn’t guarantee that you’ll net the loan you’re looking for, but it does significantly raise your chances.
Defaulting on a personal loan damages your credit, showing up on your credit report for up to seven years. Because of the serious consequences that can result from not adhering to your repayment schedule, it’s generally a good idea to only borrow as much as you need. That way, the repayment terms may be easier for you to comfortably manage.
What is the typical loan amount for personal loans?
The average unsecured personal loan amount is around $8,000. Personal loans in general range between $5,000 and $15,000.
Mortgages, which are secured loans for financing property, average around $400,000 in loan amount.
Auto loans, which are also secured loans, average around $41,000 for financing new vehicles.
Can the loan amount be adjusted based on the borrower's income?
Yes. Income is a factor that can influence the loan amount someone receives. The higher your income, the more likely your lender will be willing to grant you a higher loan amount.
Other than your income, your debt-to-income ratio is also incredibly important. For example, many lenders won’t approve you for a mortgage if you have a DTI ratio of over 43%. Even if you make plenty of money through a salaried job each year, a high DTI may disqualify you from certain loans.
What is the repayment term for personal loans based on the loan amount?
Most loans have a repayment term between 12 and 60 months. The larger your loan amount, the longer the tenure of your loan. Some personal loans may even have a repayment term of up to 15 years, giving you plenty of time to pay back the loan.
For example, if you took out a relatively small loan of $1,000 for repairing a busted water pipe, you can expect a shorter term. If you obtained a mortgage of $200,000, your repayment term will likely only end many years down the line.
Before agreeing to your loan terms and conditions, make sure you have a good balance between your loan amount, repayment term, and interest rate.
Are there any restrictions on how the loan amount can be used?
Personal loans offer plenty of flexibility when it comes to what you can use them for. However, there are a few restrictions you should know about since they are very common:
- College tuition: Because of the strict laws regulating personal loans for the use of college tuition, many lenders will prohibit you from using the loan amount for private education. If you need funds for tuition, consider applying for federal student loans
- Down payment on a home: Many lenders don’t allow you to make a down payment on a home with funds that aren’t from a mortgage.
- Business expenses: Another restriction many lenders have is that you can’t use the loan amount for business needs. If your business needs funding, a small business owner loan might be able to help you with various expenses.
It’s important to be honest with your lender about your loan purpose. Lying about your loan purpose can result in you losing all your loan funds and in some cases, even a prison sentence.
As long as your intended purpose isn’t one of the above restricted ones, lenders will generally allow you to obtain the loan for your disclosed purpose.
How does the loan amount affect the interest rate for personal loans?
A loan amount that is either smaller or greater than usual can raise your interest rate.
Small personal loan amounts may have higher-than-usual interest rates because the lender charges more to make up for managing the loan over time.
Large personal loan amounts can also have higher interest rates if your lender assesses your creditworthiness and feels like you may be unable to repay the entire loan.
Personal loan amount FAQs
How much is the average personal loan amount?
Personal loans usually range between $5,000 and $15,000.
What factors affect personal loan amount?
Major factors include credit score, income, and loan purpose.
How do I become eligible for a higher loan amount?
Improving your credit score can help you meet lenders’ eligibility criteria for larger loans. You can improve your credit score by consolidating debt and making payments on time each month.
How much can I borrow with a personal loan?
Depending on your creditworthiness and income, you may be eligible for a loan of up to $100,000 depending on your lender.
Does the loan amount affect interest rate?
Yes. Larger- or smaller-than-typical loan amounts can raise your interest rate.
Can I get a large loan amount with bad credit?
It’s possible. Follow our tips to potentially get a loan with bad credit.
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