What to know before applying for a $40,000 personal loan

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You may find yourself needing to borrow a large sum of money to pay for a wedding, legal fees, debt consolidation, home improvements, or even to grow your family through IVF. A personal loan is the most readily available option for securing cash for these big expenses, but should you get one?

To get approved for an unsecured personal loan, you’ll need to have a good credit score and stable income. Borrowing $40,000 via a personal loan will cost you thousands in interest and potentially affect your credit.

  • Where to get a $40,000 personal loan
  • What to consider when comparing loans
  • What credit score do you need for a large loan?
  • Cost to repay a $40,000 loan
  • Frequently asked questions

Where to get a $40,000 personal loan

While personal loans for $40,000 aren’t available from all lenders, there are still many lending options available.

Of course, $40,000 is a large debt to repay. If you can delay your reason for borrowing and save some extra cash, you won’t have to borrow as much, giving you more options and better interest rates to choose from. Taking some time to increase your credit score can also help.

With that said, if borrowing a five-figure personal loan is right for your situation, here’s where to find one.

Online lenders

The growth in the number of online lenders available is good news for personal loan borrowers. Many lenders have online applications that can be submitted and processed within a matter of minutes.

Online lenders may be your best option if you need money quickly. Most send the money around five business days after your application is approved, but some lenders will process and fund your loan within 24 hours of approval. Explore different lenders to find the best personal loan for you.

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If you already have a relationship with a bank that offers personal loans, you may find that you’re eligible for a competitive discount on interest rates, even for a $40,000 personal loan. This discount is usually referred to as a relationship or loyalty discount. Many big banks don’t offer personal loans as large as $40,000, but some do.

Chase and Bank of America don’t offer personal loans, but Citibank, TD Bank, and Wells Fargo do. If you have a bank account, credit card, or other type of account like a mortgage with a traditional bank, it’s worth checking if they offer personal loans with competitive rates after any discounts you may be eligible for.

Credit unions

Just like with banks, many credit unions offer relationship discounts or lower interest rates for members. Credit unions may have membership fees, but you may come out ahead with a lower interest rate that makes the fee to join more than worth it.

Credit union membership is sometimes limited to people who live in certain areas, work certain professions, are veterans, or belong to certain professional organizations. You may find that membership is available to you at more credit unions than you realized.

What to consider when comparing $40,000 loans

When comparing personal loan offers, it’s easy to focus solely on the interest rate. While the interest rate is one of the most important factors since it affects how much you’ll pay over the life of the loan, you should also consider fees, repayment terms, the affordability of the monthly payment amount, and the total repayment costs.

1. Interest rates

The interest rate on a loan refers to the amount of interest you’ll pay to borrow the money. The higher the interest rate, the higher your monthly payment — and the longer it’ll take to pay back the loan.

You’ll want to compare the interest rates of various lenders to ensure yours is most reasonable for you based on your credit score. If you have an excellent credit score, a good interest rate would be below 8%, according to Credible data. On the other hand, if you have a good-not-great credit score, look for a rate no higher than around 18%.

Most personal loans will have a fixed interest rate, but some have a variable interest rate. If you’re considering a personal loan with a variable interest rate, understand that your monthly payment amount can go up drastically on short notice if interest rates rise, which they’ve been doing since early 2022.

2. Fees

Most personal loans have late fees if you miss a payment or submit it after the due date. If you’ve had issues paying bills on time in the past, you may want to consider setting up autopay.

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Other fees can include prepayment penalties or origination fees. Prepayment penalties aren’t very common, but you’ll want to avoid a loan with them if you’re going to try to pay off your loan quickly.

Origination fees aren’t as common as they used to be, but some lenders still charge them. Those lenders will charge you to set up the loan, and you can pay the origination fees up front or add them to the loan balance.

3. Repayment terms

A repayment term refers to the length of the loan. Personal loans are typically paid back in one to seven years. Shorter loan lengths will cost you less in interest over time and typically have lower interest rates. Generally, you’ll want to get a loan with the shortest repayment term you can afford without falling behind on payments.

4. Monthly payment

Monthly payment amounts for a $40,000 personal loan will be high. You’ll want to make sure you can afford them without falling behind. Interest rates for personal loans are high, and you can find yourself in trouble quickly if you can’t make the payments.

5. Total repayment costs

When comparing loans, use the Annual Percentage Rate (APR) to get a true apples-to-apples loan comparison. This number calculates any lending fees and the interest rate to give you an accurate picture of what borrowing money will cost you. You’ll want to pick the loan with the lowest APR you can find that still has the repayment terms you need and monthly payment amount you can afford.

Plugging your potential APR and loan term into a personal loan calculator can help you estimate your potential monthly — and total — cost.

What credit score do you need for a $40,000 personal loan?

Individual lending requirements vary, but at a bare minimum, you’ll need a credit score of 560 for a $40,000 personal loan. The higher your credit score, the more likely you are to be approved for an unsecured personal loan with low interest rates. The lower your credit score, the harder it will be to get approved and the higher the interest.

With that said, if you don’t qualify for a fair credit personal loan, you might look into the following options:

Add a cosigner to your applicationAdd a co-borrower to your loanBorrow a secured personal loan

Cost to repay a $40,000 loan

How much you’ll pay depends on your interest rate — or your APR if the loan has fees — and the length of the loan. Here’s a breakdown of how much you’ll pay to borrow a $40,000 personal loan with different rates and terms. You can see other results by using our personal loan calculator.

Personal loan FAQs

Can you get a personal loan with bad credit?

Yes, you can get a personal loan with bad credit, but it’ll be harder, and you’ll pay much more in interest. If you have someone who can act as a cosigner or co-borrower, you may be able to increase your approval odds and lower your interest rate. Make sure that your co-applicant understands the risks — namely, if you miss a payment, they’ll be on the hook, and their credit score can be dinged.

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What are the requirements for a personal loan?

To get approved for a personal loan, you’ll need:

  • Good credit (or collateral, for a secured loan)
  • Verifiable income history
  • A low debt-to-income ratio
  • Income sufficient to pay back the loan

How do personal loans compare to credit cards?

Personal loans generally have lower interest rates than credit cards, which can add up to a lot of money if you have high balances. The lowest personal loan interest rates as of January 2023 were 5.40%, while the lowest credit card interest rates (aside from those for introductory periods on balance transfer cards) are always in the double digits.

What can you use a personal loan for?

You can use a personal loan for almost anything:

  • Weddings
  • Vacations
  • Debt consolidation
  • Home improvement (although a home equity loan or line of credit may be a better option)
  • Buying a car (although an auto loan may be a better option)
  • IVF
  • Adoption fees (via so-called adoption loans)
  • Starting a business
  • Plastic surgery or other medical bills
  • Investing

But just because you can use a personal loan doesn’t mean that you should. Carefully consider if what you’re taking out a personal loan for is worth paying interest and saddling yourself with debt for years. For example, borrowing a $40,000 personal loan for your dream wedding may not be worth being unable to buy a house for the ensuing seven years.

Does a $40K personal loan hurt your credit?

A $40,000 personal loan can hurt your credit in multiple ways, including:

  • When you apply, your credit report will receive a hard inquiry or credit check.
  • When you borrow, a new loan will lower your average age of credit history.
  • When you receive the funds, it will increase your debt-to-income ratio.

With that said, you may also see your credit score rise over time, particularly if…

  • You consolidate — and pay off — other debt accounts with the personal loan.
  • You continue to make on-time payments toward your new loan balance.
  • You avoid unnecessary borrowing, particularly on credit cards that can increase your credit utilization ratio, in the future.

How do you prequalify for a $40,000 personal loan?

Prequalifying for a $40,000 personal loan is simpler than you might think. You’ll need to know basic things like your name, Social Security number, monthly debt payments, and annual household income.

What is the minimum credit score for a $40,000 personal loan?

The minimum credit score for a $40,000 personal loan among reputable lenders is about 560, but the higher your score, the less you’ll pay in interest.