“I recently purchased a house that I would like to renovate, ” the Redditor wrote. “I figure 100K will cover everything. Unfortunately, I do not have any equity in the property yet to go that route. What are my options for a loan that large, if any?”
Personal loans are installment loans, like an auto loan or mortgage — you borrow a specific sum of money then pay it back at a fixed interest rate over a set period of time. They can be appealing in certain instances, given, unlike a credit card, there’s a definitive end date to the debt repayment and, depending on your credit score, your interest rate may be lower than a credit card. Alternately, unlike an auto loan, mortgage or home equity line of credit, personal loans can be unsecured (meaning you don’t have to worry about losing your car or home if you fall behind on payments).
But, while it’s theoretically possible to score a personal loan for a large sum of money, the odds aren’t exactly in your favor.
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First off, options are limited. Many lenders dealing in personal loans will put caps on how much they will lend. (Discover, for instance, offers personal loans up to $25, 000, while the maximum amount for a loan with online marketplace Lending Club is $35, 000.) And those companies that will lend larger sums of money typically only do so to consumers who meet a very select criteria. For instance, you’ll likely need an established relationship with a financial institution’s private bank.
“If you just walk into a branch, you’re probably not going to be able to just borrow a $100, 000, ” Elizabeth Grahsl, a private banker with Prosperity Bank, said. Lenders are going to also want to see that you have a stellar credit score and enough income and/or assets to support your payments. They’ll look for “two to three times the amount of loan in liquidity” during underwriting, Grahsl said.
Another possible wrinkle in a prospective borrower’s plan: If you are approved for a big chunk of personal loan change, you probably won’t be given much time to pay your lender back. Personal loans typically have loan terms of three to five years, but ones that involve that much money tend to be even shorter — meaning, yes, they will have a very high monthly payment associated with them.
“Often, these loans are usually just one-year loans, ” Grahsl said. “You either pay the loan off or you have to refinance it.” And there’s no guarantee a lender will renew the loan once its term is up.
Given these hoops and parameters, personal loans of $50, 000 and over are typically pursued only by high net worth borrowers looking to bridge a gap. “They don’t want to liquidate their savings or they’re waiting for a bonus, ” Grahsl said. “It’s that usual cliché of we lend money to people who don’t need it.”
What Can You Do If You Need Big Cash Fast?
If you’re looking to borrow lots of money quickly, you may want to carefully consider if borrowing such a high amount of money is something that your bank accounts and credit scores can truly afford. (You can check your credit reports for free each year at AnnualCreditReport.com and see your credit scores for free each month at Credit.com.)
If you do decide the move is a good one, you could alternately consider selling some of your investments. “This is where creative financing comes into play, ” Marguerita Cheng, a certified financial planner and chief executive officer at Blue Ocean Global Wealth, said. “Do [you] have any non-retirement assets that make sense to sell at a gain or loss?”
When it comes to borrowing from home improvements, specifically, consumers who do have the option may be better off looking into a home equity loan or home equity line of credit, Cheng said, since they may carry better terms and offer more flexibility than a personal loan anyway. You could also look for ways to drive down the costs of the project you are looking to fund.
Ultimately, however, when looking to borrow a big amount of cash, it could be in your best interest to consult an expert, like a certified financial planner, certified public accountant or other accredited money expert.
“There are different types of planners that can go over all of your options for things like this, ” Grahsl said.
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