How much of a personal loan can I get?

Maybe you want to go on that dream vacation. Maybe you want to buy an engagement ring to start a life with your perfect partner. Or maybe you have a home improvement project that you just can’t wait to get started.

Whatever the reason, sometimes you just need a little extra money. That’s where taking out a personal loan comes in, an option that can provide you with the cash you need to make your dreams come true. But personal loans can also be complicated – how much can I take out? You might wonder. What determines that amount? What is the interest rate?

You might have a lot of questions when you explore taking out a personal loan, and we’ve got answers. This article will explore the variables like your maximum loan amount, strategies for taking out a loan, and more.

How much can I get a personal loan for?

The amount you can withdraw for a personal loan varies considerably, ranging from small loans of $1,000 to larger loans of $50,000 — and even up to $100,000 (although loans of that size are rare). Rocket Loans^SM offers loans of amounts between $2,000 – $45,000. Myriad factors determine how much money you can borrow, which we’ll explore below.

Factors affecting personal loan amounts

Your ability to take out a personal loan largely comes down to two factors: your income, and your previous financial behavior. So if you make a decent salary and have paid your bills on time, the amount you can borrow will likely be higher. That’s because you’ve demonstrated that you can behave in a responsible financial manner, so lenders are more likely to take a risk on you and extend a higher loan.

This evaluation helps protect the lender, because they want to be sure they’re paid back, and the borrower, who benefits from not taking on more debt than they can realistically afford to pay back.

Income

One of the first things lenders look at when they consider your loan application is your income. That can provide deep insight into how much you can afford to pay back without overwhelming your financial situation.

For this reason, you need to show proof of income when you apply for a personal loan, which can include pay stubs, tax returns, interest/dividend statements, alimony and/or child support payments, pensions, and more.

In addition to proving how much money you have available, this income documentation enables lenders to assess your debt-to-income (DTI) ratio. This gives lenders insight into how you manage your money and how much you have available versus how much is already accounted for when you receive your paycheck. Lenders review debt payments such as car loans, mortgages, student loans, and other obligations against your monthly income.

Ideally, your DTI ratio should be 36% or less; higher DTIs may indicate that you’re overextended and are not a good financial risk.

Credit score

Another key element of your financial trustworthiness is your credit score, which indicates your creditworthiness or risk. To find this three-digit figure – which ranges from 579 and below (poor credit) up to 800 and above (excellent credit) – lenders conduct a hard credit pull that enables them to view your credit scores and full credit reports. Typically, lenders want to see a credit score of 650 or higher when approving a personal loan.

Before you take out a personal loan, it’s important to have a deep understanding of your credit score and how you got it. You can access a free credit report by visiting some websites, which can give you an idea of where you stand financially.

Taking this step can also give you the chance to correct possible errors in your report and review adverse credit actions that may impact your score. And errors do happen – if you find a mistake, address it by amassing all the relevant documents and contacting the credit bureaus. You may have to navigate a byzantine bureaucracy, but it will be worth it in the end.

In addition to providing insight into your ability to access a loan, your credit score also can also affect your annual percentage rate (APR). To put it simply, the higher your credit score, the lower your APR. (Other factors play a role, too, such as your age, income, employment status, and more.)

Loan type

There is more than one type of personal loan – there are secured and unsecured loans.

• Secured loan: This loan requires an item of collateral, and the ceiling of the loan cannot exceed the value of the collateral. If you default on the loan, the lender keeps the collateral.
• Unsecured loan: This loan doesn’t require collateral, and it may have higher borrowing limits. To determine your credit worthiness for an unsecured loan, lenders use your credit score, income, and other factors.

Calculating what you can borrow with a personal loan

Taking out a personal loan is clearly complicated, and one way you can simplify this process is to get prequalified. This can help you understand exactly how much you can borrow and at what interest rate, which will enable you to shop and budget more effectively.

Once you know how much you want to borrow, the next step is figuring out what your monthly payment will be. This calculation depends on three key factors: the loan amount (principal), the interest rate, and the loan term (how long you'll take to pay it back).

Let's say you want to borrow $10,000 for a home repair project, and you've been quoted a 10% APR for a 3-year loan. Armed with this knowledge, you can use an online loan calculator to determine how much you’ll owe each month. (Spoiler alert: Using those figures above, the Rocket Loans Simple Loan Calculator came up with a monthly payment of $322.67 over a lifetime loan of $11,616.19, including $1,616.19 in interest.)

Another variable in this instance is the length of the loan – you can get a lower interest rate (and thus lower monthly payments) if you take longer to pay it back, but the end result is you’ll pay more in the long run. So if we change the above example to a 5-year loan, the monthly payment goes down to $212.47, but you’ll end up paying $12,748.23 in total, including $2,748.23 in interest. Consider both your monthly budget and the total cost of borrowing to find the right balance for you.

As you can see, the longer loan term will have a lower monthly payment but a higher amount of total interest in the end. To stay relatively inside your budget and reduce the amount of interest you’ll pay, you could choose the 60-month term, which strikes a nice balance between keeping payments somewhat affordable and not ultimately paying the maximum amount in interest.

You could also try to offset the amount of interest you’ll pay by securing the lowest rate you can qualify for. You can get prequalified with a few lenders and compare several loan offers to find the best option.

Try it out on our personal loan calculator and see what your monthly payments could look like. Knowing how much you can afford per month can help you decide which loan term might work best.

How to qualify for a larger loan amount

Sometimes, you might simply need more funding than you qualify for. If that’s the case, take a deep breath and remember that there are several other ways to come up with the capital to reach your dreams. Here are some of those options.

Shop around with different lenders

When you are considering taking out a loan, it helps to shop around to make sure when you’re getting the best deal. Look at taking out a personal loan like you’re buying a car: When you do that, you look around for the best deal. You should do the same when taking out a personal loan – get prequalified with a number of lenders, which allows you to better understand all your loan options.

Increase your income

If you’re really serious about taking out a loan but your DTI is too high, consider starting a side hustle to earn more money. This can help lower your DTI, which could allow you to secure a larger loan.

Improve your credit score

As previously mentioned, it’s crucial to review your credit report (and score) before applying for a loan. This is important for several reasons – for starters, it can help you understand if you meet the lender’s basic credit requirements. Secondly, you could find an error that could improve your score once you fix it.

That said, the most important step in boosting credit scores is to pay bills on time, as your payment history makes up the majority of your credit score.

Pay down existing debt

It might be easier said than done, but reducing your current debt is one of the most effective ways to qualify for a larger personal loan. When you pay down existing debt, you're lowering your DTI ratio, which shows lenders you have more room in your budget for additional monthly payments.

By reducing your current debt load, you prove you can handle the higher monthly payments that come with borrowing more money.

There are several methods to do this, including two proven debt payoff plans:

• The debt snowball method focuses on your smallest balances first. Make minimum payments on everything, then put extra money toward the smallest debt until it's gone. This builds momentum as you see debts disappear quickly.
• Conversely, the debt avalanche method targets your highest-interest rate debts first. You'll save more money over time, but it takes longer to see individual debts fully paid off.

Both strategies can effectively reduce your DTI and improve your loan eligibility. Choose whichever approach keeps you motivated to stick with the plan. You got this!

Use a co-signer

If you can’t to qualify for the loan amount you need on your own, adding a co-signer with strong credit and income can significantly improve your chances. Lenders evaluate the financial profiles of you and your co-signer when they make approval decisions, which means their good credit can help offset your weaker application.

However, co-signing on someone else’s loan is no small thing – they’re legally obligated to make loan payments if you fall behind or stop paying altogether. This arrangement can help you access better loan terms and higher amounts, but it also puts your co-signer's credit and finances at risk if you can't keep up with payments and you default. (Note: Rocket Loans does not offer co-signer options for loans.)

Personal loan alternatives

Personal loans aren’t the best solution for every person in every situation. If a personal loan doesn’t work out, for whatever reason, consider these options:

• Home equity loans: If you own a home, you can use a home equity loan to borrow against the equity you’ve built up – often at lower interest rates than personal loans.
• Home equity line of credit (HELOCs): A HELOC works like a credit card backed by your home's equity, letting you borrow only what you need when you need it. A HELOC is also an example of revolving debt, which is a financial obligation that you carry on from month-to-month. Other examples include credit cards and personal lines of credit.
• 0% APR credit cards: It may seem too good to be true, but many credit cards offer promotional periods with no interest for up to 21 months, making them cheaper than loans if you can pay off the balance before the rate increases. Just be sure you have a solid repayment plan, since the regular APR kicks in after the promotional period ends.
• Cash advances: You can get cash immediately from your credit card, but this option comes with high fees and interest rates that start accruing right away. Cash advances should only be used for true emergencies since they're typically the most expensive way to borrow money.

The bottom line: Many factors influence personal loan amount

Your personal loan borrowing power depends on myriad factors, including your credit score, income, debt-to-income ratio, and the lender’s specific requirements. While borrowers with strong credit typically qualify for larger amounts at better rates, you can improve your position by paying down existing debt, increasing income, or adding a co-signer.

Personal loans are serious financial commitments that work best when you have a clear repayment plan. But when used responsibly, they can help you fund important projects, handle unexpected expenses, or take other steps to improve your life.

Interested? Get started with Rocket Loans today!