The average emergency is getting more expensive, and thousands of Americans are living paycheck to paycheck without the means to cover the cost. When a home repair might run you over $2,000, a health emergency more than $1,300, and an unexpected bill over $1,800, you may find yourself in need of a large sum of money in a pinch.
There are lots of options available for getting a $5,000 loan, including payday loans, personal loans and credit cards. For those with a good credit score and favorable debt-to-income ratio, personal loans are probably your best option, thanks to their manageable interest rates and clear repayment terms.
Read on to learn more about how you might qualify for a $5,000 personal loan.
Qualifications for a $5,000 Loan
The qualifications for getting a $5,000 personal loan are much the same as any other sum. Consider standard requirements such as a good credit score and a low debt-to-income, or DTI, ratio.
“To get a personal loan, usually a credit score in the (high) 600s and proof of employment history, and an understanding of how much debt someone has versus the amount of money they make (called a debt-to-income ratio) enable a view into the person’s likelihood to be able to pay back the borrowed money,” says Katie Catlender, executive vice president, chief customer officer at Cambridge Savings Bank. “These insights help to determine qualifications for a personal loan.”
In most cases, personal loans are unsecured, so you won’t need to provide any collateral, says money coach, educator and certified financial planner Ohan Kayikchyan.
Steps to Getting a $5,000 Personal Loan
Different lenders offer varying interest rates, amounts and repayment terms for personal loans, so the first step to securing one is always doing your research — no matter the amount you need.
“Start by educating yourself — searching online to do your own research is always your best first step so that you start to form a baseline of what options are available to you and [doing so] prepares you to speak with a lender,” says Catlender.
While researching, it’s a good idea to focus on where you can get the best interest rate, as that will save you on payments over time.
“Shop around for lenders and compare interest rates just like you shop around for the best price on a new TV. Rates can vary and the lower the rate, the bigger the savings,” says Andrea Woroch, personal finance expert and author.
You can also check out prequalification tools, which can help you estimate the terms you’ll be granted without a hard pull to your credit score.
Once you’ve found the best lender for you, gather proof of employment and income as well as any personal documents you’ll need for the application.
[Read: Best Low-Interest Personal Loans]
Personal Loan Alternatives
The best personal loans are reserved for those with good credit and a low DTI ratio. If you are worried about qualifying, there are still ways you can get your hands on $5,000 if you need it.
According to Catlender, it’s a good idea to first see if your lender will allow you to use a co-signer on your personal loan application.
“Sometimes a person may be able to obtain financing if they can get a co-signer with strong credit or by the financial institution taking other factors into consideration,” she says.
Since $5,000 is a more modest amount, there are more alternatives available as well. For instance, you might qualify for a 0% APR credit card that will allow you to pay off your purchase over time before interest begins to accrue, according to Woroch.
[Read: Best 0% APR Credit Cards.]
Options with less favorable terms include borrowing from your 401(k) or payday loans. Kayikchyan warns to read the terms carefully with these options, as you may be subject to penalties or high interest rates.
If you aren’t able to qualify for a personal loan, it’s a good idea to work on your credit score in the meantime, so you have more options available if another emergent situation comes up in the future.
“Individuals can improve their FICO score by paying bills on time, using less than 30% of an available line of credit and having a mix of different types of credit,” says Catlender.
Should You Take Out a $5,000 Personal Loan?
Personal loans are a great choice for a $5,000 sum, with relatively low interest rates and simple repayment when compared to alternatives. But to qualify, you’ll typically need good credit.
[Read: Best Personal Loans.]
According to Woroch, when you find yourself in a situation where you need quick access to cash, you should consider whether you are currently living within your means and work on prioritizing an emergency fund. If necessary, consider taking on a side hustle to build up your safety net.
“When trying to set a budget and meet your goals, you may find it impossible to save any more than you already are,” she says. “Increasing your cash flow is your best bet in budgeting better and reaching your goals.”
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How to Get a $5,000 Personal Loan originally appeared on usnews.com
