Medical bills, home repairs, weddings — whether you’re facing an unexpected expense or you’re planning to make a major purchase, sometimes debt is a necessity. When that happens, getting a personal loan can be a better solution than using a credit card, especially if you need a large amount of funds relatively quickly.
According to the Federal Reserve, the average annual percentage rate (APR) on a 24-month personal loan was 11.66%, compared to 21.37% for credit cards — nine percentage points lower on average.
In this article, we’ll specifically cover the types of $40,000 loans that are available, what you need to get one, and what payments could look like.
Compare personal loan rates
Types of $40,000 loans
There are two main types of personal loans you could go with here: unsecured loans and secured loans.
Unsecured loans
To get an unsecured personal loan, lenders examine your credit profile — including debts, income, and credit score — to determine your eligibility as well as the rates and terms they’ll offer.
Most personal loans are considered unsecured because they don’t require collateral. The lender pays the loan amount directly to you (or sometimes directly to your creditors, in the case of debt consolidation).
You’re then responsible for making monthly payments over the course of the loan’s term. Once the term ends, you’ll have repaid the amount you borrowed, plus interest and fees.
Pros
- Lump-sum funding
- No collateral required
- Quick funding
- Wide selection of lenders to choose from
Cons
- Approval relies largely on credit
- Adds a monthly payment to your budget
- Rates and fees could be high, depending on the lender and your credit and income
Secured loans
These require you to use a valuable item or asset as collateral. One example of a secured loan is a home equity loan, which uses your home as collateral.
Some personal loans also fall into the secured loan category. With these types of loans, the collateral acts as a safety net for the lender. If you stop payments, the lender can seize and sell your asset in order to recoup its money.
You’ll generally need to get your collateral assessed for value in order to qualify for a secured loan. This could be as simple as looking at a bank statement, for a CD loan, for instance, or as involved as getting a full home appraisal.
Pros
- Can be easier to qualify for than unsecured loans
- Home equity loans may provide larger loan amounts than personal loans
Cons
- Requires you to have a valuable asset, such as a home or vehicle
- Adds a monthly payment to your budget
- Possibility of losing collateral if you stop payments
- May take longer to approve and fund, relative to an unsecured loan
Learn More: Secured vs. Unsecured Personal Loans
Where to get a $40,000 loan
There are three main sources for personal loans of this size:
- Online personal loan lenders: These can be a solid option if you require quick cash. For example, the typical personal loan funding time for online lenders is anywhere from the next business day to five days after you’re approved. You can also prequalify with most personal loan lenders online, which gives you an idea of the rates and terms you’ll qualify for before submitting a full application.
- Banks: If you have a long-standing relationship with your bank, you may be able to score more favorable loan terms. However, it may also have higher minimum credit score requirements to qualify. Plus, it can take up to a week to get approved for a loan with a bank.
- Credit unions: These typically have lower rates than banks, but you’ll generally need to be a member to apply. The timeline to loan funding is generally 1 to 7 days.
How to get a $40,000 loan
There are several steps you’ll need to complete to apply for a personal loan:
- Gather necessary documentation: Most lenders will require certain information, such as proof of your income, address, and identity. Having things like your government-issued ID and pay stubs, tax returns, or bank statements on hand during the application process will help speed things up.
- Check your credit score and credit report: You can check your credit score for free using Credible's credit monitoring tool. To check your credit report for errors that may be dragging down your score, go to AnnualCreditReports.com and get free weekly credit reports. Keep an eye out for identity errors, incorrect account statuses (such as a closed account that’s listed as open), and balance or credit limit errors.
- Use an online personal loan marketplace: If you want to go with a personal loan from a lender that isn’t your bank or credit union, a lending platform like Credible can be a solid place to start. Doing so will allow you to quickly compare rates and terms associated with each lender, and prequalify with multiple lenders at once by filling out a single questionnaire.
- Get prequalified: Prequalification allows you to see if you’re likely to be approved for a loan, and if so, what your rates and terms could look like. It won’t hurt your credit score, but keep in mind that prequalification is not a guarantee of the terms you’ll get, or that you’ll ultimately be approved. When you formally apply for a loan, the lender typically conducts a hard credit check that can temporarily lower your score.
- Compare costs: A loan’s APR is a better indicator of cost than the raw interest rate alone, since it includes upfront costs like origination fees. Also consider other fees the lender charges, such as late fees, as well as any discounts offered.
- Consider a cosigner or co-borrower: If you find it difficult to qualify, or the APRs you’re seeing from prequalifying are high, you may want to consider looking at loans that allow cosigners or a joint personal loan with a co-borrower. A cosigner’s good credit could help you qualify or potentially get better terms, but keep in mind that the cosigner is responsible for payments if you stop making them. A co-borrower could offer similar benefits, except both borrowers share responsibility for repayment and have access to the funds.
- Apply for the loan: Once you’ve selected your ideal lender, apply for the loan. The timeline from application to approval and payment will depend on the lender.
- Review the loan agreement and sign: If you’re approved, the lender will submit a loan agreement for your review and signature. Once signed, the lender will disburse the funds, typically within days, directly into your bank account.
Learn More: How To Get a Personal Loan
Good to know
A longer repayment term can reduce the monthly payment but also increase the total interest costs. Find a balance between a monthly payment you can comfortably afford and how much you want to pay in interest.
$40,000 loan payments and interest
Your credit score, as well as the term and loan amount, will have a significant impact on how much it costs to borrow money. Here are a few different credit score profiles and related loan costs:
Fair credit
Let’s say you have a FICO score of 600 (that means your score is considered to be in the “fair” category). The average prequalified APR for applicants with a credit score between 580 and 669 was 30.76% for a five-year loan, based on Credible data from March.
That would translate to a $1,313 monthly payment for a $40,000 loan with those terms. That means you’d pay $38,772 in interest over the life of the loan.
Check Out: Best Personal Loans for Fair Credit
Good credit
Those with a good FICO score (670-739) had an average prequalified APR of 23.03% rate on five-year loans through the Credible marketplace in March. That translates to a $1,128 monthly payment on a $40,000 loan, with $27,699 in total interest. For the very good FICO score tier (740-799), Credible data show that the average prequalified APR was 18.63% on five-year loans. On a $40,000 loan, that APR would mean a $1,029 monthly payment and $21,770 in total interest.
Check Out: Best Personal Loans for Good Credit
Excellent credit
Borrowers with excellent FICO scores (800-850) saw the best terms on five-year personal loans through the Credible marketplace in March, averaging a 16.42% prequalified APR. This equates to a monthly payment of $982 and $18,900 in total interest on a $40,000 loan.
Extending the term of your loan could help reduce the monthly payment amount, but keep in mind that would also mean you’d increase the total amount you’d end up paying in interest. Ultimately, the best term for you will be both affordable — from a monthly payment standpoint — and minimize the interest you pay over the life of the loan.
Check Out: Best Personal Loans for Excellent Credit
If you decide to take out a personal loan, use a personal loan calculator to estimate monthly payments and total interest costs over different repayment terms.
FAQ
How to get a $40,000 loan
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Where can I get a $40,000 personal loan?
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How to get a $40,000 loan with bad credit
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