If you’re short on cash, a personal loan can come in handy. But how much can you get with one? According to data from TransUnion, the average new loan amount at the end of 2022 was $8,018. But how much you qualify for depends on your credit profile, income, current debt, and the lender. Learn how each of these can impact your loan amount.
What do you need to get a personal loan?
First, you need to understand basic loan requirements to figure out how to maximize the amount you’ll qualify for. When you apply for a personal loan, lenders take a look at your financial situation to determine how much they think you can pay back and how likely you are to pay it back. This minimizes their own risk and determines your interest rate and the amount you’ll qualify for.
Most personal loan lenders will look at a few key pieces of information when you apply for a personal loan:
- Credit score: Your credit score tells lenders about your borrowing history. Lenders see a higher score as an indication of more responsible borrowing. Lenders are more likely to give you a loan — and a lower interest rate — if you have a higher credit score.
- Income: Generally, you need to show proof of income to qualify for a personal loan. Lenders want to know you’re consistently earning money and have the funds to repay your loan.
- DTI: Your debt-to-income ratio (DTI) is the ratio of your debt to your gross monthly income. Having a lower DTI shows lenders you have available income to put toward a new loan — in other words, your income isn’t already tied up repaying existing debt.
How credit score impacts loan amount
Lenders use your credit score to get an idea of how risky you are as a borrower. Since a higher credit score indicates a history of paying back debt on time and in full and minimizing your credit utilization, it signals that you’re a less risky borrower who can potentially handle a larger loan amount.
Most lenders use the FICO credit scoring model, which assigns the following credit score ranges on a scale of 300 to 850:
- Below 580: Poor
- 580 to 669: Fair
- 670 to 739: Good
- 740 to 799: Very Good
- 800 or higher: Exceptional
The credit score you need to qualify for a personal loan depends on the lender. Some lenders offer loans for bad credit, but most require fair credit, or a score of at least 580, to qualify for a loan.
To get the best rates and highest loan amounts, however, you likely need to have a good, very good, or exceptional credit score.
Personal Loans Calculator
Personal loan debt-to-income ratio (DTI)
Your DTI indicates the amount of gross income you have to spend on existing debt each month, and is a major indicator of how much of a monthly payment you can handle. For example, if your gross monthly income is $7,000 and your monthly debt payments total $2,000, your DTI would be:
- $2,000 / $7,000 = 28.6% = DTI
Expressed as a percentage, it’s the ratio of monthly debt obligations you have compared to the amount of money you earn. From a lender’s perspective, a lower DTI is better.
Lenders generally like to see a DTI of less than 36%. The higher your DTI, the less likely you may be to qualify for a loan — and the smaller the amount you’ll likely qualify for.
How to increase the amount you can borrow
If your credit score, DTI, and income are such that you’re struggling to qualify for the loan amount you need, there are few things you can do:
- Improve your credit score
- Lower your DTI
- Apply for a loan with a cosigner
Improve your credit score
You may not be able to increase your credit score overnight, but taking the following actions can have it trend in the right direction:
- Ask for higher limits on your credit cards (this can potentially have a big impact to your credit score in a short amount of time)
- Make all your loan and credit card payments on time
- Lower your credit utilization by spending less on your cards
- Keep old credit cards open, even when they’re paid off
- Check your credit report regularly, and dispute any errors
Related: How To Build Credit
Lower your DTI
There are two levers you can pull to lower your DTI: increase your income, or lower your debt. To increase your income, you may be able to negotiate a raise, start a side hustle, or find a higher-paying job. Usually much easier said than done, but it could be well worth the effort.
To lower your debt payments, put extra money toward paying off individual loans and credit cards, try negotiating lower interest rates, or consolidate your debt at a lower interest rate. A debt consolidation loan can potentially lower your overall monthly payments (thereby freeing up money), and can decrease your credit utilization ratio (thereby increasing your credit score).
Apply with a cosigner
Finally, applying for a loan with a cosigner is probably the quickest way to qualify for a bigger loan. A cosigner is someone, ideally with good credit, who applies for and signs a loan with you.
This can make your application more attractive — and less risky — to the lender. Both you and the cosigner will be on the hook, however, if you default on the loan.
All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | SoFi Disclosures | Read more about Rates and Terms
The risks of borrowing more than you need
Receiving a loan in the form of a large lump sum can be both an excitement and a relief — it can fund a large vacation, pay for important medical expenses, cover you during an emergency, or help you consolidate your debt. But even though qualifying for a loan can feel great at first, keep in mind you have to pay it all back — plus interest.
Borrowing more than you need isn’t usually a good idea. It can increase your debt burden, monthly payments, and interest payments. With more debt on your plate, you may have a harder time keeping up with payments, which is important for maintaining a healthy credit score. Not to mention more debt on your plate means less money going toward other expenses, fun purchases, and goals.
Make sure you only borrow what you can afford to pay back. Running the numbers with a personal loan calculator can help you gauge your future monthly payments and total loan cost to avoid biting off more than you can chew.
FAQ
How much can you typically get for a personal loan?
Open
Is it hard to get a $50k personal loan?
Open
Can a personal loan hurt my credit score?
Open
Read More: