When an unexpected circumstance arises, you may not have enough emergency savings on hand. What should you do if you need to cover a medical emergency, a last-minute trip or pressing debt? One option is to take out a personal loan. Here’s everything you need to know about getting a $10,000 personal loan.
Qualifications for a $10,000 Personal Loan
The main factor in determining if you qualify for a $10,000 personal loan is your credit history. A higher credit score will give you access to loans with better terms and lower interest rates. A low credit score means you may not even qualify at all, or you could receive a personal loan with higher interest rates. Ideally you’ll have a credit score of at least 670 before you apply for a personal loan.
“Lenders are also looking at debt-to-income ratios ideally 36% or lower,” says Jonathan Kiehl, a certified financial planner and founder of Evenkiehl, which focuses on tax-efficient planning and investment management. “Like credit scores, a less-than-ideal ratio can still be considered and some lenders allow borrowers to have ratios in the low 40s.”
Your DTI ratio compares what you have to pay each month with what you receive each month. If you owe $2,000 on a mortgage and $400 on a car payment, and make $6,000 in gross income monthly, that works out to be a DTI ratio of 40% ($2,500/$6,000 = 0.40).
Steps to Getting a $10,000 Personal Loan
By qualifying for a personal loan, you can receive $10,000 in just a few days. Follow these steps to get your loan:
1. Check Your Scores
Eliminate surprises and check your credit score before you apply for a personal loan. Calculate your debt-to-income ratio so you have an understanding of where you stand before speaking to a lender.
“You don’t want to get into the loan preapproval process only to find out that you should have been taking steps earlier to improve your credit,” says Kiehl.
2. Research Your Options
You have several different types of lenders available when applying for a $10,000 personal loan, including online lenders, banks and credit unions. Online lenders may be able to approve your loan application faster than a traditional bank, while you may get the best terms with your regular bank. Make an informed decision that is best for your individual needs.
3. Prequalify for Offers
Once you’ve researched what loans are available, you can fill out a prequalification form. You’ll be able to explore your personal loan options without affecting your credit score because lenders will only do a soft inquiry during the prequalification process. Prequalify for a few loans, then compare loan term lengths and annual percentage rates across all the lenders you consider to find the best personal loan for you.
4. Make a Payment Plan
Before you finalize your $10,000 personal loan, review your budget. Prequalifying will tell you what your monthly payment will be. Can you handle this extra burden on your finances? Missing personal loan payments will significantly damage your credit score, so you only want to take out a loan you know you can pay back.
5. Complete the Loan
If you’re ready to take on the loan, then select the option with the term length, monthly payment and APR that’s best for you and submit a full application. Once your application is approved you’ll receive your money quickly, sometimes as fast as the same day. Read the loan terms and conditions to find out exactly when loan funds will be available.
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Alternatives to Personal Loans
If you have poor credit, taking out a $10,000 personal loan may not be an option. However, you have alternatives:
- Get a secured loan. “Opting for a secured loan instead of an unsecured loan can make an applicant more desirable because it transfers risk from the lender to the individual through collateral tied to the loan,” says Kiehl.
- Find a co-signer. Another option is to get someone to sign your loan with you. A co-signer is fully liable for debt repayment, so if you aren’t able to make payments, your co-signer is on the hook. There is little reward and lots of risk for the co-signer, so be sure to ask trusted close friends or family members if you need a co-signer for your personal loan.
Kiehl cautions not to use title or payday loans as alternatives, as they can be highly predatory.
Should You Take Out a $10,000 Loan?
Taking out a personal loan has its pros and cons, like any kind of debt. The most important aspect of the decision-making process is confirming you have a plan to pay the loan back.
Before taking out a personal loan of any amount, Nadine Burns, president and CEO of A New Path Financial, a financial services firm, cautions people to consider all of their available options.
“What can you cut out? What can you do? Can you ask people for assistance?” Burns asks. Increasing cash flow by getting another job may be a better long-term financial option than taking out a personal loan.
If you are on sound financial footing, then a personal loan might be able to help you get out of a tight spot.