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- A $40,000 personal loan can be used for major events, debt consolidation, medical bills, and more.
- Good interest rates come from a high credit score, a low debt-to-income ratio, and reliable income.
- Getting approved for a personal loan could temporarily hurt your credit score.
Introduction to $40,000 loans
Personal loans can help you cover costs that you might otherwise not be able to afford out of pocket. Whether you're looking to pay down existing debt, fund a home renovation project, go on an extravagant trip, or pay your medical bills, a $40,000 loan can be a big help to cover large expenses.
However, a $40,000 personal loan comes with significant risks, and you may want to consider your other financial options before borrowing that much money.
See Business Insider's picks for the best personal loans >>
Eligibility criteria for a $40,000 loan
Credit score and history
One of the most important things lenders look for is a good credit score and a solid credit history. They'll look for "red flags" such as late payments, new credit lines, history of bankruptcy, or maxed-out cards. Having no credit is just as bad, if not worse. These days, there are many places where you can check your credit score for free. You can also get free credit reports from each of thethree major credit bureaus.
Income and debt-to-income ratio
Lenders need proof of your current employment status to confirm you have a reliable monthly income. Some lenders may set a minimum salary requirement, but that's not always specified. You can show proof of income and employment with pay stubs, W-2 forms, tax returns, or a letter from your employer verifying your hire date, job title, salary, and other details.
Your debt-to-income ratio measures the percentage of your income that goes toward monthly debt payments, like credit and car payments. You can calculate your DTI ratio by adding up all your monthly debt payments and dividing that amount by your gross monthly income.
Types of $40,000 loans
Unsecured personal loans
Most personal loans are unsecured loans. That means that lenders need to carefully scrutinize your current financial situation and history before approving your loan request in order to make sure you're creditworthy enough to repay the debt in full. Banks, credit unions, and online lender often have similar qualification requirements.
Secured loan alternatives
A secured loan is a sum of money you can borrow, guaranteed by certain collateral that you own. If you default on a secured loan, your lender will seize the collateral to minimize its losses. A few common examples of secured loans include:
- Mortgages: Secured by your home or property
- Auto loans: Secured by your vehicle
- Secured credit cards: Secured by a deposit
- Secured personal loans: Secured by a variety of financial assets
Applying for a $40,000 loan
Application process
Make sure to all of your documents lined up before setting a meeting with a lender or starting the application process online. You'll have the most luck getting approved for a $40,000 loan with at least a very good credit score (at least 740), and a DTI ratio of 36% or lower.
Choosing the right lender
When choosing between different lenders you can compare the different kinds of loans available to you, the terms, interest rates, and any fees with prequalifying. This way you can also get a better idea of whether you're likely to get approved for your loan. However, loan prequalification doesn't always guarantee that you'll get approved for a $40,000 personal loan.
Lenders examine employment status, income, existing debt, the purpose of your loan, and other items during the prequalification process. At this point, they'll will do what's known as a soft credit pull, which has no affect on your credit score. A hard credit inquiry, which comes when you formally apply for a loan, is likely to temporarily reduce your credit score.
Most credit unions, banks, and online lenders will offer prequalification to potential borrowers.
Repayment strategies for a $40,000 loan
Developing a repayment plan
The cost per month for a $40,000 loan can vary greatly based on the regular annual percentage rate (APR) and the terms of your loan. For example, a $40,000 loan, with a 10% interest rate over three years would cost you $1,014.50 per month. But the same amount with the same rate over 10 years would cost you $528.60 per month. Make sure you're in a place to be making monthly payments, or you may find yourself in a worse place than when you started.
Options in case of financial hardship
Even the best personal loans for bad credit often have very high interest rates and other costly fees attached. So if you have a bad credit score, you may want to reconsider taking out a loan and seek out other options.
Personal loans through a credit union are often a good option for folks without the best credit. APRs are capped at 18% by the National Credit Union Administration, and they're often more flexible with rates and terms than other lenders.
Avoiding common borrowing mistakes
Thoroughly understanding loan terms
A $40,000 personal loan is a large chunk of cash, so only borrowers with the highest credit scores and the income to afford it should pursue one. Although there are lots of reasons to take out a loan, including medical bills and debt consolidations, there are also significant risks involved.
Loan payments charge interest and accruing interest on a $40,000 loan could end up costing you hundreds to thousands of dollars more. If you are able, consider all your other financial options before taking out a loan with a bank, credit union, or online lender. Also, make sure to prequalify to compare rates and terms.
If you're in a tricky financial situation, consider meeting with a financial planner or advisor about your current situation and goals.
$40,000 loan offers
If you're looking for a $40,000 personal loan, here are some lenders offering competitive rates and perks for all kinds of borrowers:
LightStream Personal Loan
LightStream offers some of the best rates compared to similar lenders. Its APRs range from 6.99% to 25.49% (with AutoPay discount, rates vary by loan purpose) and is best for borrowers with excellent credit scores. You need a minimum score of 660 to qualify.
LightStream offers loans of as much as $100,000.
SoFi Personal Loan
SoFi is another lender offering some of the best rates on personal loans, with rates from 8.99% - 29.99% fixed (with all discounts) Annual Percentage Rate. You need a credit score of at least 680 to qualify. But if you have an excellent credit score, you may be able to get a better rate with LightStream.
PenFed Credit Union Personal Loan
You only need a credit score of 580 to get approved with PenFed. Although it's usually recommended for small loans, it may be a good option for borrowers with lower credit scores. PenFed offers loans up to $50,000 and its rates range from 8.99% to 17.99%.
You must be a member to take out a loan with PenFed. Membership is open to everyone. You'll need to open a PenFed savings account with a minimum deposit of $5 to become a member.
Upstart Personal Loan
Upstart is another decent option for borrowers with bad or limited credit. It only requires a minimum credit score of 300, and is usually best for small loans. However, if you have a really low credit score, this may be a feasible option for a $40,000 loan. Upstart only offers loans up to $50,000.
Rates range from 6.40% - 35.99% fixed.
Wells Fargo Personal Loan
Wells Fargo is a good option for borrowers looking for in-person support, especially for existing bank customers. It makes loans of as much as $100,000 and doesn't charge a lot of additional fees. (It does charge significant late fees).
You'll be able to get a good interest rate on your loan if you have very good or excellent credit as range from 7.49% to 24.99% (with relationship discount). However, non-Wells Fargo customers can't apply online for a loan.
FAQs
What credit score is typically required for a $40,000 loan?
The required credit score can vary, but for a loan of this size, lenders often look for scores above 650. Higher scores can secure more favorable interest rates and terms.
Can I get a $40,000 loan without collateral?
Yes, it's possible to get a personal loan for $40,000 that is unsecured (without collateral). That said, it may require a strong credit history and stable income.
What is the usual repayment period for a $40,000 loan?
Repayment periods can vary, but they typically range from 3 to 7 years for personal loans. The terms can differ based on the lender and the borrower's creditworthiness.
Are there specific types of loans I should consider for borrowing $40,000?
The choice of loan type depends on your financial situation and the purpose of the loan. Personal loans, home equity loans, or debt consolidation loans might be suitable options.
What factors should I consider before applying for a $40,000 loan?
Before applying, consider your ability to repay, the total cost of borrowing (including interest and fees), the loan's purpose, and whether the loan aligns with your long-term financial goals.
Investing and Retirement Reporter
Tessa Campbell is an investing and retirement reporter on Business Insider’s personal finance desk. Over two years of personal finance reporting, Tessa has built expertise on a range of financial topics, from the best credit cards to the best retirement savings accounts.ExperienceTessa currently reports on all things investing — deep-diving into complex financial topics, shedding light on lesser-known investment avenues, and uncovering ways readers can work the system to their advantage.As a personal finance expert in her 20s, Tessa is acutely aware of the impacts time and uncertainty have on your investment decisions. While she curates Business Insider’s guide on the best investment apps, she believes that your financial portfolio does not have to be perfect, it just has to exist. A small investment is better than nothing, and the mistakes you make along the way are a necessary part of the learning process.Expertise:Tessa’s expertise includes:
- Credit cards
- Investing apps
- Retirement savings
- Cryptocurrency
- The stock market
- Retail investing
Education:Tessa graduated from Susquehanna University with a creative writing degree and a psychology minor.When she’s not digging into a financial topic, you’ll find Tessa waist-deep in her second cup of coffee. She currently drinks Kitty Town coffee, which blends her love of coffee with her love for her two cats: Keekee and Dumpling. It was a targeted advertisem*nt, and it worked.
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