If you need $5,000 to pay for medical bills, emergency renovations, or to consolidate high-interest debt, taking out a personal loan is a potential solution. Some lenders offer fast funding — in some cases, funds can be deposited into your bank account the same business day.
However, before applying for a $5,000 personal loan, you need to understand what you might need to qualify, where to get one, and how to estimate your borrowing costs.
How to determine if you need a $5,000 loan
Before taking out a loan, your first step is to determine why you need to borrow money. Is it because you need to consolidate your debts or cover an unexpected expense? Next, you should review your budget to see if you can afford monthly repayments.
Borrowing only what you need can lower your borrowing costs. Plus, it can help you avoid potential late fees and damage to your credit score.
That said, sometimes it can be beneficial to borrow more than you need. For example, if you’re borrowing money for a home improvement project and you don’t know the exact costs, it might be a good idea to withdraw a larger amount.
Conditions to benefit from a personal loan
Here are some common personal loan requirements that lenders consider:
- Credit score and history: Lenders look at your credit score and credit history to assess the likelihood of you repaying the loan. To qualify for the lowest rates from a lender, you’ll likely need good to excellent credit. If you have bad credit, a lender may charge you high interest and fees or reject your loan application.
- Debt to income ratio (DTI): Your DTI report is a percentage of the share of your gross monthly income spent on servicing debt each month. A high DTI ratio can tell a lender that you are financially overburdened and cannot afford to take on more debt. You can lower your DTI ratio by taking these two things: increasing your income or paying off your debts.
- Revenue: You’ll also need to prove to a lender that you have enough stable income to repay the loan by providing financial information, such as your bank statements, W-2s, and tax returns..
- Proof of identity and address: You may need to provide at least one piece of government-issued identification, such as your driver’s license, birth certificate, military ID, passport, or social security card. Additionally, a lender may request documents that confirm your address such as a utility bill, rental agreement or mortgage statement.
Personal lenders who offer $5,000 loans
You can get a personal loan from a bank, credit union, or online lender. Here are some financial institutions that offer loans for this amount:
|Lender||APR range||Loan amount range||Minimum credit score requirement|
|best egg||5.99% to 35.99%||$2,000 to $50,000||640|
|happy money||5.99% to 24.99% (with automatic payment)||$5,000 to $40,000||600|
|LightStream||3.99% to 19.99% (with automatic payment)||$5,000 to $100,000||660|
|Reached||5.40% to 35.99%||$1,000 to $50,000||Not disclosed|
Best Egg offers personal loans ranging from $2,000 to $50,000. You can choose a repayment term of 3 or 5 years. If you need funds quickly, this could be a good option since funds can be deposited into your account the next business day, if you are approved. But a major drawback is that the lender charges origination fees ranging from 0.99% to 5.99%. If you choose a loan term of 4 years or more, your origination fee will be a minimum of 4.99%.
If you want to consolidate high-interest debt, Happy Money may be worth considering. Happy Money offers personal loans with competitive interest rates through its partner lenders that range from $5,000 to $40,000 and can only be used for debt consolidation. You can choose a repayment term ranging from two to five years.
LightStream offers personal loans with competitive interest rates, no fees and a wide range of repayment terms. Depending on the type of loan you choose, you can borrow money for up to 20 years. If you are approved, funds can be deposited into your bank account the same business day. A potential downside, however, is that you need several years of credit history to qualify.
If you have bad credit, Upstart might be a good choice as there is no minimum credit score required to qualify. Upstart is offering a low minimum interest rate effective June 29, 2022 of 5.40% to qualified applicants. However, one potential downside is that Upstart charges setup fees, and they range from 0% to 10%.
Costs of a $5,000 long-term personal loan
The amount you will pay for a $5,000 loan depends primarily on your interest rate and repayment term. You can use our personal loan calculator to estimate your total borrowing costs.
Here are some examples of what your borrowing costs might look like for a three-year loan:
- Loan over 3 years at 5%: monthly payment of $150; $5394.76 in total reimbursement costs
- Loan over 3 years at 10%: monthly payment of $166; $5808.09 in total reimbursement costs
- Loan over 3 years at 15%: monthly payment of $173; 6239.76 in total reimbursement costs
If you choose a longer repayment, it could reduce your monthly payment. But that would increase the amount of interest you pay over the life of the loan.
For example, here’s what your borrowing costs might look like for a 5-year loan:
- Loan over 5 years at 5%: monthly payment of $94; 5661.37 in total reimbursement costs
- Loan over 5 years at 10%: monthly payment of $106; $6374.11 in total reimbursement costs
- Loan over 5 years at 15%: monthly payment of $119; $7136.98 in total reimbursement costs
At the end of the line
You can use a $5,000 personal loan for almost any purpose, such as paying for a wedding, improving your home, or consolidating your debts. Before taking out a loan, review your finances to see if you can afford to make monthly payments. If you decide this is a good decision for you, compare your options with several lenders to find the best deal.