What Are the Best Uses for a $5,000 Personal Loan?

Fact checked by Vikki VelasquezReviewed by David KindnessFact checked by Vikki VelasquezReviewed by David Kindness

A $5,000 personal loan, with a fixed interest rate and a fixed monthly payment, can help you finance various purchases and expenses, such as debt consolidation, an emergency car repair, a home improvement project, or even a vacation. You’ll have to pay back the money over a set timeline you agree to ahead of time.

Key Takeaways

• A variety of lenders offer $5,000 personal loans online, some with instant approval.
• Eligibility requirements for personal loans vary by lender, although you’ll have the best chances of approval if you have a reliable income and a good credit score of 670 or higher.
• Some of the best lenders with $5,000 personal loans include SoFi, Discover, Upgrade, Upstart, and PenFed Credit Union.

Uses for a $5,000 Personal Loan

While you can use the funds from a $5,000 personal loan for a variety of needs, some of the best uses for this money include:

• Adoption expenses
• Big-ticket purchases
• Debt consolidation
• Emergency expenses
• Funerals
• IVF fertilization
• Medical expenses
• Moving expenses
• Vacation funding
• Vehicle repairs
• Wedding expenses

That said, there are some expenses you shouldn’t (or won’t be able to) cover with a $5,000 personal loan. For example, lenders usually won’t let you take out a personal loan to pay for college expenses or pay off student loans, and you typically can’t use a loan to fund a down payment on a home.

How Do People Use Personal Loans?

Investopedia commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, and Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures.

Eligibility Requirements for a $5,000 Personal Loan

Approval requirements for a $5,000 personal loan vary from lender to lender. In fact, some personal loan companies offer loans only to those with strong credit profiles and incomes, whereas others offer personal loans for fair credit or even bad credit.

Personal loan companies consider the following factors for approval:

• Collateral: Most personal loans are unsecured, meaning they don’t require any collateral. However, secured personal loans require you to put down collateral to secure the loan funds.
• Credit score: Your credit score will also play a role in the personal loan terms you can qualify for, and the best rates and terms go to those with a good credit score (FICO score of 670 or higher) in most cases.
• Debt-to-income ratio: Lenders will also look at other debts you have when determining $5,000 personal loan eligibility, and most prefer a debt-to-income ratio (DTI) of 36% or below.
• Income: You need to prove consistent income to qualify for funding. Some lenders also have minimum income requirements as well. For example, Discover requires a minimum income of $25,000 to be eligible for its personal loans.

As shown in the chart below, many of the best personal loans have a minimum borrowing requirement of $5,000 or less. These companies still have their own eligibility requirements, so do your research to ensure one of the better options will be something you can qualify for before applying.

How to Get a $5,000 Personal Loan

Because so many personal loan companies let you compare options and apply online, getting funding is easier than ever. The following steps can help you apply for and receive a personal loan for $5,000 or more.

• Step 1: Compare lenders: Spend some time comparing the best personal loans from top lenders based on their interest rates, fees, and eligibility requirements. Ensure you also check for hidden loan fees, such as administrative or origination fees.
• Step 2: Get pre-qualified: Some personal loan companies let you get pre-qualified online before you apply. This step allows you to gauge your approval odds without a hard inquiry being recorded on your credit report, and it can show how much you might be eligible to borrow in addition to the interest rates you would pay.
• Step 3: Gather information: Gather information for your loan application, including your Social Security number (SSN), your annual income, and other personal details. Make sure you know where your most recent pay stubs and copies of your tax returns are.
• Step 4: Apply online: Decide on a lender and submit an online application. You’ll need to share your full name, address, income, SSN, information on other debts, and more. You may also have to upload identification documents, pay stubs, and tax returns to complete the process.
• Step 5: Receive your $5,000: If approved for a $5,000 personal loan, you’ll typically see your loan funds transferred to your bank account within a few business days. Some lenders even offer same-day or next-day funding.

How Much Does a $5,000 Cost Over Time?

The cost of $5,000 personal loan payments will vary based on the interest rate you qualify for and how long you want to be paying your loan off. You can use a personal loan calculator to see how much you’ll need to pay each month based on your desired loan terms.

The chart below shows the monthly payment for a $5,000 personal loan based on several interest rates and repayment timelines.

Is It Hard to Get a $5,000 Personal Loan?

You will almost certainly have no problems qualifying for a $5,000 personal loan if you have a substantial income and good credit. However, you may struggle to get approved if your income is inconsistent, you have a low credit score, or you already have considerable debt.

What Is the Minimum Credit Required to Get a Personal Loan?

Some lenders don’t have a minimum credit score, whereas others require a minimum credit score of 580 or 660.

What Is the Max Amount in a Personal Loan?

The most personal loan companies will typically lend at one time is $100,000. You may or may not be able to qualify for a loan amount this high based on your income, credit score, and other factors.

The Bottom Line

Because personal loans come with fixed interest rates and set monthly payments, they offer a convenient and predictable way to borrow the money you need. Further, most personal loan companies offer loans for $5,000, with many letting you borrow less or significantly more than that.

Before you apply for a personal loan, you should review your budget and bank statements to determine whether you can afford the personal loan payments.

Read the original article on Investopedia.