How Much Can I Get with a Personal Loan?
Personal loans can be a convenient financial tool to help you cover various expenses, including home repairs, car maintenance, college tuition, or utility bills. But how much can you actually get with a personal loan?
The amount you can borrow depends on several factors, including the type of personal loan you choose. Understanding these factors can help you determine whether a personal loan is right for your financial situation.
5 factors determining the maximum amount you can borrow
1. Credit score
Your credit score is a measure of how responsible you are with your finances. A high credit score, which is generally anything above 670, tells potential lenders that you tend to repay your debts on time and in full.
A low credit score, on the other hand, suggests the opposite. It implies you don’t always make on-time payments and may take on more debt than you can afford. The minimum score required for securing a personal loan will vary by lender.
In general, if your score is lower than 670, you may need to improve it to secure a personal loan through a traditional bank or credit union. This involves:
- Paying off as much of your debts as possible.
- Lowering your credit utilization ratio.
- Correcting any mistakes on your credit report.
- Monitoring your credit score and taking action as needed.
2. Income
Your current income is one of the biggest factors that will determine how much you can borrow. When you receive a consistent paycheck, you’re more likely to pay your bills on time, which includes making any personal loan payments.
Lenders typically consider all sources of income — full-time jobs, part-time work, and side hustles. You just need to prove your total income when applying, which might involve providing bank statements or recent paystubs.
3. Current debts
Having a stable income may mean little to lenders if you have a large debt-to-income ratio. This ratio is a measurement of your total debts in relation to your income. The lower your debt-to-income ratio, the more responsible you look to lenders.
A high debt-to-income ratio may automatically disqualify you from conventional loans. In some cases, you may still qualify for a personal loan from a direct lender like Advance America, although you’ll need to meet other criteria.
Either way, it’s worth trying to improve your debt-to-income ratio so you can qualify for better rates and a wider variety of loan products in the future.
4. Loan type
There are many different types of personal loans available from both conventional and alternative lenders. Borrowing limits for each loan can vary depending on the lender and regulations set by your state.
For example, Payday Loans have smaller borrowing limits that are typically no more than a few hundred dollars, although your approved amount will be based on your next paycheck.
Installment Loans offer higher borrowing amounts, usually up to $3,000 or less. Opening a personal Line of Credit could also give you access to a similar amount.
These loans are unsecured, meaning that they don’t require collateral. If you need to borrow a larger amount, you could apply for a secured loan, which is based on your collateral item’s value rather than your creditworthiness alone. Secured loan options include title loans, pawn shop loans, and home equity loans.
5. Employment
Whether you’re gainfully employed plays a significant role in determining how much you can borrow with a personal loan.
In general, it’s easier to qualify for a loan if you’ve had a full-time job for a while. If you only work part-time, you’re unemployed, or you’re self-employed, the lender will probably require additional information proving your income.
Alternatives to getting a personal loan
Credit card
A credit card allows you to spend money up to your set credit limit. Keep in mind, however, that even your maximum credit limit is subject to your employment, income, and credit score.
Help from friends and family
If you have friends or family willing to help you out financially, borrowing from them could be the easiest option. All personal loans have interest rates and fees that increase the cost of the loan. Friends and family, on the other hand, typically won’t charge extra or send the debt to collections.
Just be sure to spell out your agreement beforehand so each party understands the payment arrangement, no matter how informal. The last thing you want to do is jeopardize your relationship.
Home equity loan
If you own a home, you could apply for a loan based on the amount of equity you have in it. The more of your home you have paid off, the larger your borrowing amount could be.
Starting a side hustle
If you have extra time on your hands, think of ways you can make extra money in addition to your main income. In today’s gig economy, it’s easier than ever to pick up a side hustle in your spare time.
Personal loan borrowing FAQs
How much should I borrow?
It’s important to never borrow more money than you can afford to repay. Doing so could result in missed payments, late fees, and additional penalties that drive up the cost of the loan. Before signing any loan agreement, be sure to assess your needs and budget so you’re not overwhelming yourself with excessive debt.
What if I don’t qualify for the amount I need?
Whether you’re between jobs, have bad credit, or haven’t established a credit history, you may not qualify for a loan adequate enough to meet your needs. If your credit score is the problem, for example, you can take measures to improve it. You could also pursue alternatives to personal loans.
Explore your personal loan options at Advance America
Whatever your situation, direct lenders like Advance America offer a variety of loan amounts to suit various needs. We consider factors such as your income and ability to repay the loan in addition to your credit. Plus, our knowledge team members can guide you through the loan application process and help you understand the terms and conditions associated with the loan.
Apply online 24/7 or in-store at a location near you.
