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The average personal loan balance sits just above $11,000, according to TransUnion’s latest quarterly report. But personal loan amounts vary widely among lenders. That said, the amount you can borrow will also be influenced by other factors, including your credit score, income and overall financial health.
How much personal loan can you get?
Personal loans have different minimum and maximum amounts, depending on the lender. Some offer personal loans as small as $600. Others may set the minimum higher at $5,000.
Regardless of the maximum amount offered by the lender, the amount you qualify for will depend on your credit and finances. You are more likely to qualify for the maximum amount if you exceed minimum eligibility criteria. Otherwise, a lender may limit the total loan amount to something you can more easily afford.
What influences the amount you can borrow?
Lenders take the following factors into account when reviewing your loan application:
- Current debts. The amount of debt you already have will be one of the bigger factors in how much you can borrow. Your lenders will consider your debt-to-income ratio (DTI), which measures how much of your gross income is compromised by your debts, to determine the amount you are offered. As a rule of thumb, most lenders prefer a DTI of 36 percent and under to approve you for a loan.
- Income. Income is often an important factor to lenders. Even if you have a large amount of debt, a high enough income can offset it. As long as you have enough to handle your current debt and take on a new personal loan, a lender may not cap how much you are able to borrow.
- Credit score. Lenders use your credit score as one of the primary factors in determining how much you qualify for — and if you qualify at all. Even if you have minimal debts and high income, a past history of missed payments or defaults will limit how much a lender offers you, as you may seem like a riskier borrower. Additionally, your credit score will determine how much you pay on interest, so the higher, the better.
- Employment. While you technically only need a regular source of income — which can be from benefits or self employment — some lenders will offer larger loans to borrowers with a steady, predictable monthly income.
How much can you afford to borrow?
The amount you are eligible to borrow will depend entirely on your finances and how much you are able to spend each month. A longer loan term will result in lower monthly payments, which may be more affordable in the short term. But, overall, long loan terms mean you pay more interest.
For example, a loan of $10,000 with an interest rate of 7 percent will have a significantly different monthly and overall cost depending on the length of your loan term.
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Even if you would prefer to have a smaller payment, try to pay as much as you reasonably can toward your loan to keep total costs down.
The bottom line
Personal loan amounts vary depending on the lender you choose, your credit score and overall financial situation. That said, no matter how much a lender offers, you should only ever borrow the amount you need to cover the expense.
While it can be tempting to borrow more, especially if it is available, avoid it. You will leave yourself in a much better financial position when you keep your monthly payments and total debts to a reasonable level. If you aren’t sure, use a personal loan calculator to see how different amounts, rates and terms will affect your monthly payment.
Lastly, when shopping for personal loans, compare rates from multiple lenders to ensure you get the best deal available for your situation. When doing so, try going for those who offer prequalification, as this will allow you to see what you may be eligible for, without hurting your credit.