When you take out a personal loan, you'll need to decide how much to borrow. The loan amount is going to depend upon what you're using the funds for -- but also, on how much a lender is willing to give you.
Lenders typically have both minimum and maximums for their loans. This means you can't borrow too much, or too little. Here's more on the least you can borrow with a personal loan.
The minimum loan amount can vary substantially from one lender to another. For the majority of personal loan lenders, the minimum loan amount is a few thousand dollars.
Because there is so much variation from one lender to another, your best bet when you need to borrow is to shop around and check rates and loan terms from multiple different lenders. You should be able to find a lender who is willing to make a loan for your desired amount, provided that you have reasonable credit and aren't looking to borrow a very small sum.
When you're deciding how much to borrow, it makes a lot of financial sense to borrow the minimum that you need to accomplish your financial goals. Here's why:
By figuring out the minimum funds needed, you'll be able to determine exactly how large of a loan you need to take out.
Sometimes when you don't need to borrow a fortune, you may have a limited choice of lenders willing to make a loan that's small enough for you. And those lenders may not offer the low interest rates you were hoping for.
If you find yourself in this situation, it may make financial sense to choose the lender with the best terms, even if you need to borrow a little more than you set out to take on. However, the caveat is that you should do this only if you can immediately repay the additional sums you were forced to borrow.
If you want to borrow $1,000 and the lender you prefer offers $5,000 loan minimums, for example, you could decide to borrow the full $5,000 you need to qualify for a loan and then pay back $4,000 right away.
Before you decide that this is the best approach, make sure you read the fine print on the loan carefully. Some lenders have prepayment penalties, so you would need to make sure that you are not charged a fee for paying back more than you intended.
If you prepay $4,000 in principal because you borrowed more than necessary, this doesn't mean your monthly payments will go down since you only have a $1,000 remaining balance. Your monthly payments will stay the same for most loans, but you'd just pay back the loan much more quickly since you'd only have a small amount left to pay.
This can be a good thing if you become debt free sooner, but the monthly payments on the higher loan balance may not be as affordable.
Ideally you'll be able to find a lender that will allow you to borrow only the amount you need, and that will give you a loan with a reasonable monthly payment and good terms. Just be sure not to borrow more than is necessary to accomplish your goals and to shop around among lenders to find the best deal so you don't spend more money on interest than is necessary.
Here are some other questions we've answered:
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.