How To Get a $20,000 Personal Loan

Are you in need of a $20,000 loan but aren’t sure how to get one? Good news — there are several possible options, from personal loans to borrowing against your 401(k) plan. 

However, each route has its pros, cons, and eligibility requirements. Read on to learn about what to consider before borrowing $20,000, the different ways to do so, and what to expect in terms of cost.

What to consider before taking out a $20,000 loan

Before you take out a $20,000 loan, it’s important to review your budget. Look over your current income as well as your expenses to figure out the maximum monthly payment amount you can afford.

When setting on an amount, be sure to consider any income fluctuations you tend to experience. You want to be able to comfortably afford the payment in your best and worst months. The payments will also likely extend for several years to come, so consider the stability of your income source in the future. Is it reliable and long-term, or is there a chance it’ll be interrupted?

Another consideration is if the cost is worth it. A $20,000 loan could cost you thousands of dollars in interest and fees. Consider how you plan to spend the money and if it will offer returns that justify those costs.

Where to find a $20,000 loan

If you decide you want to move ahead and borrow $20,000, here are some places you can turn.

Personal loan lenders

Personal loans are installment loans that provide you with a lump sum of money, typically within days of applying (some lenders offer same-day personal loans). The loans are repaid, plus interest and fees, over a set term. In most cases they’re unsecured, but some lenders do offer collateral loans, which involve you pledging an asset to secure the loan. This can improve your chances of qualification or lower your rate.

A wide range of financial institutions offer personal loans, from banks and credit unions to personal finance companies and fintech lenders. While available loan amounts can range from $600 to $200,000 (depending on the lender), $20,000 loans are a fairly common offering. It’s also common for lenders to allow repayment terms up to seven years (but choosing a shorter repayment period could reduce your overall loan costs).

As far as qualifying, you’ll often need good or better credit (a FICO score above 670), and a stable income source that shows you can afford the payments. Annual percentage rates (APRs) for personal loans typically range from around 6% to 36%, depending on your credit profile and other factors.

Check Out: Best Personal Loans

You can typically check if you prequalify with multiple personal loan lenders in minutes, without hurting your credit score. This allows you to get a better idea of the rates and terms you may be eligible for with each lender.

Prequalification is not an offer of credit, however, and your final rate may be different. When you proceed to formally apply for a loan, the lender will conduct a hard credit inquiry that can bring your score down by a few points temporarily.

Personal loan lenders that offer $20,000 loans

Where can you find personal loan lenders that offer $20,000 loans? In short, there are very many to choose from. Here’s a quick list:

Home equity loan lenders

If you’re a homeowner sitting on a bit of equity (more than 20%), another option is to take out a home equity loan or home equity line of credit (HELOC). You can find these from many banks, credit unions, and mortgage companies.

Due to the collateral required, they often have lower interest rates than unsecured loans, and more flexible eligibility requirements. 

However, there are a few downsides. If you default on a home equity loan, your home could go into foreclosure. Some home equity-based loans may also have steep closing costs. And, they can take more than a month to close.

Your life insurance company

Do you have a permanent life insurance policy with a cash value component? You may be able to borrow $20,000 from your insurer if your cash value balance is sufficient to secure the loan. 

Life insurance loans can be attractive because they come with competitive interest rates and don’t require a credit check. Your cash value will also remain intact and you won’t be required to make repayments according to any specific schedule.

But there are a couple of hazards to be aware of. If you don’t make sufficient payments on the loan, the loan’t interest could potentially eat away your cash value and cause your policy to lapse. 

That, in turn, could result in a taxable event. And if you don’t repay the loan before you pass, the outstanding balance will reduce the death benefit your beneficiary receives. Similarly, if you surrender the policy before paying back the loan, your insurer will deduct the outstanding loan balance from the cash value.

Your 401(k) plan provider

If you’ve accumulated a vested balance of at least $40,000 in your 401(k) account, you may be able to take out a $20,000 loan against it. Many plan providers offer 401(k) loans in amounts up to 50% of your vested balance or $50,000, whichever is less, with terms of up to five years (though this may be extended if used to purchase a primary residence). 

Like life insurance loans, 401(k) loans don’t require a credit check. Unlike a life insurance loan, the interest you pay on a 401(k) loan goes back into your account.

But they’re not without risks. If you leave your job before the loan is paid off, the entire amount may come due immediately, and if you default you could face severe tax consequences. Plus, you could lose out on years of gains in your retirement account, as borrowed funds are not invested.

Compare: 401(k) Loan vs. Personal Loan

How much will a $20,000 loan cost?

The cost of a $20,000 loan will depend on factors like the interest rate, repayment terms, and fees. Here are the main factors that impact your cost on a personal loan:

• Annual percentage rate (APR): The federal Truth in Lending Act requires lenders to show consumers the annual cost of credit (including interest and upfront fees) expressed as a yearly rate. APRs serve that purpose, making them an ideal way to compare between credit options.
• Fees: A loan’s fees aren’t always split up equally over the life of the loan. Origination fees, for example, are often deducted from your personal loan funds upfront. So, take note of how fees are charged and if they’ll impact your loan balance. You may need to borrow more if a fee is going to reduce the loan amount you receive. Also take note of other fees, like late or returned payment penalties.
• Repayment term: The repayment term is the number of months or years you’re given to repay the loan amount. Since the interest rate applies as long as you’re repaying the loan, longer terms generally result in higher costs.

With an understanding of the main factors that influence the costs of a $20,000 personal loan, let’s look at how the cost can vary for borrowers with different credit profiles.

Personal loan cost comparison

In summary, the lower your APR, the lower your costs per month and overall. When you apply for a personal loan, lenders will assess your credit profile to determine if you qualify. 

If you do, you’ll be assigned an APR within the lender’s range based on the amount of risk it thinks you present. In general, the better your credit profile and financial picture, the lower your costs.

Personal Loans Calculator

If you decide to take out a personal loan, use a personal loan calculator to determine interest charges over time.

How to apply for a $20,000 loan

The way you apply for a $20,000 loan is going to depend on the type of loan you’re seeking. You’ll have to contact the lender to find out its specific process. However, here’s how it typically works for personal loans:

1. Check your credit: Before you do anything else, review your credit reports and scores. You can check them for free using Credible's credit monitoring tool. Your eligibility is going to depend heavily on them, so you want to make sure they’re in the best possible shape. Correct any errors and look for quick improvement opportunities, like paying down a credit card balance or using Experian Boost.
2. Shop around: With so many lenders on the market, it pays to shop around and prequalify with multiple lenders. Focus on ones that offer the loan type, amount and terms you’re looking for — and have eligibility requirements you can meet — to help narrow your options.
3. Compare quotes: Compare prequalification quotes side by side and look for the one that offers the best overall value for your needs.
4. Apply with the best lender: Once you find the best fit, move forward with the full application process for that lender. You’ll often need to allow a hard credit inquiry and provide proof of your identity, residence, income, and employment. Soon after, the lender will provide you with its decision. If you accept the loan offer, you could receive your funds as soon as the same business day, or within a few business days, depending on the lender.

Read More:

• How Do Personal Loans Work?
• How Long Does It Take To Get a Personal Loan?
• How Much of a Personal Loan Can I Get?
• Best Personal Loans for Fair Credit
• Best Personal Loans for Good Credit
• Best Personal Loans for Excellent Credit
• Best Personal Loans With a Cosigner