If you’ve ever wondered what personal loans are all about, and have been overthinking what they could be used for, just know this simple goal: personal loans help borrowers with a significant number of diverse financial needs.
Personal loans can be used to consolidate debts, complete home renovations, purchase vehicles, take vacations, finance weddings, alleviate medical expenses, and support many other expenses. However, not everyone knows how much they should borrow. Coincidentally, not everyone can qualify for the loan amount they’re looking for as well. Learning how much to take and what fees are involved in a personal loan is a sure-fire way to stay on top of your spending financing goals while minimizing risks with a loan.
If you are considering applying for a personal loan, it’s essential to know what to expect from a personal loan. But how do you determine what is a good interest rate? What other fees should you expect to pay for a loan? And how much can you borrow from a personal loan lender? In this guide, we answer those questions, learning more about what fees borrowers should know about personal loans, finding out how much borrowers should ask for on a personal loan application, and what you can do to leverage your personal loan to its fullest.
Table of Contents
- Personal loan amount rules
- Loan borrowing tips
- Credit score
- Increasing loan limits
- Personal loan limits
- Dollar limits
- Quantity limits
- Personal loan fees
- Application fee
- Origination fees
- Returned payment fee
- Late payment fee
- Payment protection insurance
- Prepayment penalty
How Much Can I Borrow With A Personal Loan?
Most people who get approved for a personal loan can borrow anywhere between $1000 to $50,000 at a time, depending on factors such as their credit score and existing debt.
There are a number of factors that directly impact how much a person can borrow for a personal loan. Their credit score, credit history, annual income, debt-to-income ratio, and credit report directly contribute to the approval of borrowed funds. Also included in these factors is the type of lender you’re applying to, whether it’s a traditional banking corporation (such as banks or credit unions) or different financial institutions (online lenders, non-banking lenders).
However, before you start asking yourself “what is the maximum loan amount I can qualify for”, you should be thinking if you can even qualify for a loan. Second, think about the obligation that you’ll have to a personal loan. It’s important to understand the risks and responsibilities that come with borrowed financing and how it will affect your credit score.
The amount you can (and should only) borrow
Once you’ve found a lender you like, decide on how much financing you actually need from your lender and stick to the loan terms. Each year, thousands of borrowers look to borrow the maximum personal loan amount offered to them by a lender, but this can become a costly mistake that most don’t realize until it’s too late.
In the long run, most people who borrow more than they can pay off begin to fail at meeting their monthly payment obligations; this can snowball into mounting debt and may threaten their bank account balances, credit scores, and financial goals.
Since the interest rates on personal loans are determined by credit scores and how much a person is borrowing, the higher the loan amounts you receive will determine how large your interest rate on a personal loan will be. Only borrow what you need instead of asking for more on a loan, since the more money you borrow, the more you’ll have to pay back.
How your credit score affects your loan
Borrowers who are seeking a low-interest personal loan don’t necessarily need a very good credit score. In fact, according to Experian, those with a credit score between 670-739 usually see interest rates on a loan range from 5% to 15% on average. Although, borrowers with an excellent credit score see better loan offers than those with a common credit score; borrowers with a credit score higher than 800 typically receive the best loan options with low-interest rates.
Having a solid credit score means everything for a personal loan. It allows you to gain access to higher loan amounts from most lenders, gives way to lower interest rates, and unlocks the door to longer repayment terms.
While it can be an uphill battle for those with poor credit, they’re not necessarily excluded from the same benefits; poor credit borrowers also have access to secured loan options, which gives the lender a personal guarantee that the borrower will pay back the loan on time and in full. With a personal guarantee on a secured loan, those with poor credit can then enjoy the same freedoms as other higher-credit borrowers enjoy.
Can I borrow more money on my personal loan?
If a personal loan has already been disbursed to a borrower’s bank account, but they decide to add more funding to an existing loan amount, most borrowers cannot increase their loan amount. However, if borrowers are eligible for a second personal loan, they may apply for additional funding if they meet the conditions needed. You still need to qualify for the second personal loan before a lender will disburse it into your bank account.
Unlike most credit card products, which allow cardholders to increase their borrowing power by applying to increase their credit limit by a few thousand dollars, a personal loan cannot be modified once it’s been distributed. With personal loans, borrowers have the ability to borrow all of the cash they qualify for at once, making monthly payments on the maximum loan amount they’ve borrowed.
Personal Loan Limits
So what are the limits on how much you can borrow for a personal loan? Some high-end lenders offer up to $100,000 for personal loans, but most borrowers won’t qualify for anywhere near that amount. Since personal loans can be a risky product for traditional banks to take on, most borrowers that apply don’t meet their loan requirements.
For most lenders, since the average loan amount is anywhere from $1,500 to $5,000, borrowers will try to make up for the difference in the cash they need, often opening multiple loans to get closer to the dollar amount they need. With exceptional credit health and long, spotless credit history, borrowers can qualify for even more.
Despite only being able to borrow a certain amount from one lender, it does not stop borrowers from opening additional loans. Lenders only want to make sure that borrowers maintain a maximum debt-to-income ratio of less than 43%. For each lender, the total amount open to borrowers is usually two. Be cautious; multiple loans can get out of hand quickly, and the addition of too many hard inquiries will take your credit score down a few points each time.
Personal Loan Fees
In addition to the interest rate, what else are you paying on top of a personal loan? Any lender that offers personal loans may charge additional fees for taking out a loan, but the cost of the fees may also not be the same. This process requires a careful examination when reading over the loan terms in your contract.
This fee is for the cost it takes to run your credit and the administrative costs necessary to file it. Many lenders do not charge this dying fee anymore, because it used to be a feature of the traditional banking era, but this introductory incentive is still alive and well for some lenders who charge you for doing business with them.
An origination fee is a cost of underwriting the loan from the lender to the borrower, usually priced as a percentage of the overall loan. Origination fees are the charges for drawing up the loan, approving it, and sending it to your bank account, and most lenders operate on this fee for their services. Although this fee sometimes turns away borrowers, many do not know that they can sometimes negotiate the percentage of the origination fee if their credit is better than the average.
Returned Payment Fee
A returned payment charge is a penalty for the payment on a loan not going through (sometimes referred to as a “bounced check” fee). For most people, banking institutions cover returned payments, but sometimes you’ll have to pay your banking institution (or the lending institution) a flat fee for a returned payment if it exceeds the number of funds in your account.
Late Payment Fee and Credit Default
With returned payment fees also come late payment fees, which is a penalty that is attributed to missing a loan payment. Late payment fees can range from flat fees to charges with interest. This fee can lead a borrower to end up in spiraling debt or, even worse, into credit default, which can ruin a borrower’s credit score and their chances of getting approved for other credit products for the next few years.
Payment Protection Insurance
Payment protection insurance (PPI) is not normally required on most personal loans as it is often for home loans. However, it is not a wrong choice if you anticipate that you may be in financial disorder any time soon or if you want to rest easy knowing that you planned for a speculative life event. This fee is commonly only 1% of the total loan amount and is worth every penny to anxious borrowers.
Prepayment fees happen when you want to pay off your loan before the agreed-upon end date stated in the loan term. Lenders want to be sure that they will receive at least a portion of the interest they would have otherwise accumulated through your loan duration.
The process of getting a loan can be confusing and stressful, but it doesn’t need to be. Multiple lenders (such as LoanMe) offer personal loans specifically designed for those who need them, and our approval process requires fewer documents than other traditional loan programs. Our loan application is simple, and you can have your money in as little as one business day.
With LoanMe offering same-day funding, applying for a personal loan is an easy process. If you feel that LoanMe is the lender you need, then we’d be happy to help you find the right financing options and support you through the entire loan process.
Learn how LoanMe may be able to help you and see if you pre-qualify for a personal loan today. Happy hunting and good luck!
*This article has been prepared for general information purposes only. The information presented is not legal, financial, tax, or accounting advice, is not to be acted on as such, and is subject to change without notice. Credit approval is subject to LoanMe’s credit standards, and actual terms (including actual loan amount) may vary by applicant. LoanMe requires certain supporting documentation with each new application. If you have any questions regarding this, call us at 844-311–2274. California loans are made pursuant to LoanMe’s California Department of Business Oversight Finance Lenders Law License #603K061. LoanMe also offers loans in certain other states which may have higher minimum loan amounts. Wires are sent out by 5:30 pm EST Monday-Friday. The funds should appear in your account shortly thereafter, however, this is subject to your bank’s policy and procedures with receiving incoming wires. Copyright © 2022 LoanMe, Inc. All rights reserved.