How To Get a $5,000 Personal Loan

A personal loan is money borrowed from an online lender, bank or credit union to fund various needs from debt consolidation to medical bills to home renovations. Money received from personal loans may be as high as $100,000.

But you're only looking for $5,000. Is that too small a financial need to warrant a small personal loan? Not at all.

However, before you apply for a $5,000 loan, let's first make sure you understand:

How Do Small Personal Loans Work?

No matter the size of the personal loan, a personal loan works as follows:

Let’s take a closer look.

Requesting a $5,000 Loan

You must apply at a lending institution, such as a bank, online lender or credit union, to receive a personal loan. The lender will then approve or deny your request based on your eligibility and creditworthiness (i.e., the likelihood that you can and will pay the loan back, in full and on time, including interest). Creditworthiness is based on your credit score, credit history, history of late payments and debt-to-income ratio among other factors.

The lending institution may offer you an unsecured loan if you qualify. However, if the lender views you as potentially uncreditworthy, they may require a co-signer on the loan to compensate for the higher risk. Alternatively, they may offer a secured loan (i.e., a loan for which the lender is guaranteed possession of a borrower's asset in the event of default).

Either way, if your loan application is approved, the lending institution may offer you a $5,000 personal loan with repayment terms and interest rates based on your previously determined creditworthiness.

Repaying a $5,000 Loan

Upon approval, the $5,000 granted under the personal loan will typically be provided in a single, lump-sum payment, typically as a direct deposit to your checking account. The proceeds can now be used to pay medical bills or credit cards, cover the costs of home improvement projects and so much more.

But now that you have the funds, it is time to repay the bank.

Over the repayment term, you'll make monthly payments, at a fixed amount, to repay the borrowed $5,000 and interest accrued.

Where Can You Get a $5,000 Personal Loan?

As mentioned before, a personal loan may be obtained from a bank, an online lender or a credit union. And every lender will have its own way of evaluating loan applications for eligibility as well as its own terms and conditions to offer.

Because of this, it's important to research all available options before applying for a $5,000 loan, to find the offer that works best for you. One quick way to compare options is via an online marketplace, which shares personal loan offers, including rates and terms, from various online lenders, credit unions and banks. Let's take a look at each type of lender.

Banks

If you already have an account in good standing with a particular bank, you may be eligible for a more competitive interest rate. What's more, the bank may offer a discount for automated payments.

However, because banks typically involve a more traditional, in-person process for loan applications, the additional logistics may make borrowing from a bank not worth the hassle if you don't have an existing account with them. Moreover, because the process is more manual with banks, the approval and dispersal of funds may take longer. Plus, although applying with your neighborhood bank offers a familiar environment, it also requires getting to and from the bank and waiting until the banker is available - potentially costing you a precious resource: time.

Finally, some banks have stricter requirements than online lenders for determining an applicant's eligibility for a small personal loan. So if you want to apply for a loan through a bank, be sure to understand where your creditworthiness stands in advance, as they may require a co-signer or collateral for approval if your credit score is low.

Online Lenders

With the entire loan application process online, online lenders help make the process efficient and accessible. At the same time, online lenders typically have available loan terms and interest rates displayed on their websites, making shopping around for the most competitive interest rates a comparative breeze.

Likewise, online lenders may allow you to pre-qualify without a hard credit check, so you can see what your options might be before applying. Plus, because there is little to no in-person contact with the online lender when you submit a loan application, the loan approval process could take as little as one day, with the funds issued as soon as the next business day, in some cases.

The application process for a $5,000 loan may be easier than at a bank or credit union due to its digital nature. However, it's important to remember that the lender will still run a hard credit check.

Credit Unions

Credit unions, because they’re not-for-profit and member-owned, can often offer lower interest rates on loans compared to banks. In addition, before applying for a small personal loan from a credit union, you may need to have an existing account.

As with banks, applying for a $5,000 loan through a credit union may be a manual process for both parties. So if you need a personal loan quickly, check to see if you can apply online. If not, be sure to budget time for traveling, scheduling and waiting for appointments, and for your application to be circulated across multiple desks for review.

Like banks, credit unions may also offer a discount for automated payments.

How Much Will a $5,000 Personal Loan Cost?

For many, extra fees on top of interest and monthly repayments come as a total, costly surprise. Others might not consider that the total amount repaid over time will be more than what was borrowed, thanks to interest. So it's worth taking time to thoroughly understand the total cost you may incur by securing a small personal loan.

The costs of a $5,000 loan may include:

Let's look at an example to illustrate how different terms may impact the total costs incurred on a $5,000 loan.

In the table above, a longer repayment term means lower monthly payments now, but higher total costs over time. In contrast, a shorter repayment term means higher monthly payments now, but lower total payments over time.

Note: Additional fees may be charged on a $5,000 loan in the event of a late payment or early repayment in full. Review the terms of any loan before applying to fully understand the financial implications.

Closing Remarks

Whether you're looking to pay off an unexpected medical bill or replace leaky plumbing, a small personal loan can help you cover these costs. As a bonus, on-time monthly payments on a personal loan may give your credit score a boost, making future loan requests that much easier.