Taking out a personal loan is a big financial decision that requires careful consideration of the costs involved. When you borrow money you have to pay interest on the loan in addition to repaying the principal amount. The total interest paid over the life of the loan contributes significantly to the overall cost.
So if you’re considering a $20,000 personal loan, one of the first questions you’ll want to have answered is – how much would the monthly payments be? The answer depends primarily on two factors – the interest rate and the loan repayment term or length of the loan. Let’s take a closer look at how these two key factors affect monthly costs for a $20,000 personal loan
Interest Rates
The interest rate is the cost of borrowing money, expressed as an annual percentage of the loan amount. Personal loan interest rates can range anywhere from around 5% to 36%, depending on your credit score and other qualifications The higher your credit score, the better interest rate you can qualify for.
With a $20,000 loan amount, a 1% difference in interest rate can make a big difference in your monthly payment. For example:
- At 5% interest with a 5-year term, the monthly payment would be around $368
- At 6% interest for 5 years, the payment jumps to $382 monthly
- At 10% interest for 5 years, the monthly payment would be $425
As you can see, the lower the interest rate, the more manageable the monthly payment. Improving your credit score before applying for a personal loan can help you secure the lowest rate possible.
Loan Term Length
The loan term or length of the loan also significantly impacts monthly costs. Personal loans typically have term options ranging from 1 to 7 years. The longer the term, the lower the monthly payment because the loan costs are spread out over more months. However, you ultimately pay more interest with a longer term.
Here’s an example of how the monthly payment on a $20,000 loan at 6% interest changes depending on the loan term:
- 1 year term: $1,721 monthly payment
- 3 year term: $609 monthly
- 5 year term: $382 monthly
- 7 year term: $290 monthly
As you extend the term, the monthly costs decrease but the total interest paid over the life of the loan increases. It’s important to strike the right balance between an affordable monthly payment and minimizing total interest costs when choosing a loan term.
Estimating Your Monthly Cost
You can get a ballpark estimate of loan costs by using an online loan payment calculator. To get started:
- Enter the loan amount you need (e.g. $20,000)
- Estimate your interest rate based on your credit score
- Choose a few different loan term lengths to compare
The calculator will show estimated monthly payments for each loan scenario you input. Pay attention to both the monthly costs and total interest estimates.
Once you have an idea of potential costs, you can shop lenders and apply for loan offers. Comparing personalized loan quotes rather than just estimates will give you the most accurate picture of what a $20,000 personal loan would really cost per month based on your financial profile.
Here are a few tips for minimizing costs on a $20,000 personal loan:
- Improve your credit score – Aim for a score of at least 680 to qualify for the lowest rates
- Choose the shortest term possible – Opt for a 3-year term over 5 years if you can afford higher payments
- Take only what you need – Borrowing less than $20,000 reduces the costs if possible
- Compare lenders – Rates and fees vary, so shop around for the best loan offer
With some preparation and shopping around, you can find affordable monthly payment options for a $20,000 personal loan. Carefully evaluate both monthly costs and the total interest paid over the loan term when choosing the right loan for your needs and budget.
What is a good personal loan payment?
Personal loans have the widest APR range of just about any loan product. That makes it especially important to see how much the payment can vary based on your loan term and rate.
The table below gives you an idea of what your payment might look like on a 3-year and a 5-year term with a $6,000 loan amount and estimates of your possible APR at different credit scores.
| Repayment term | Credit tier | APR | Monthly payment |
|---|---|---|---|
| 3 years | Excellent | 8% | $188 |
| Good | 12% | $199 | |
| Fair | 20% | $223 | |
| Bad | 30% | $255 | |
| 5 years | Excellent | 8% | $122 |
| Good | 12% | $133 | |
| Fair | 20% | $159 | |
| Bad | 30% | $194 |
How to make your decision
Pick the 5-year term if you need the lowest possible payment. Pick the 3-year term if you can handle the higher payment and want to pay your loan off faster.
How to make the most of this calculator
Ready to crunch some numbers for a debt consolidation loan to finally clear out your credit card debt? Considering a home improvement loan to update your home without tapping your homes equity?
A personal loan calculator can give you a snapshot of the monthly payment and total cost of a personal loan. Try different loan amounts, repayment terms and interest rates to find a combination that fits your budget.
A personal loan calculator can be a great tool if you want to:
- Personal loan rates range between 6.5 percent and almost 36 percent. Looking at how the payment changes at different rates can help you narrow down the terms youre willing to accept. Personal loan rates range between 6.5 percent and almost 36 percent. Looking at how the payment changes at different rates can help you narrow down the terms youre willing to accept.
- Want to pay your debt off as quickly as possible? If you can manage the payment, some lenders offer terms as short as one year. On the flip side, many personal loan lenders offer terms as long as seven years to give you the lowest monthly payment. Want to pay your debt off as quickly as possible? If you can manage the payment, some lenders offer terms as short as one year. On the flip side, many personal loan lenders offer terms as long as seven years to give you the lowest monthly payment.
- An extra $5,000 might not dent your budget on a seven-year term, but it could become a problem if youre adamant about a three-year term. You may decide its better to use some extra cash-on-hand to borrow less for a short term. On the other hand, you could add the extra money to the loan amount for a longer term so you dont have to dip into your emergency savings. An extra $5,000 might not dent your budget on a seven-year term, but it could become a problem if youre adamant about a three-year term. You may decide its better to use some extra cash-on-hand to borrow less for a short term. On the other hand, you could add the extra money to the loan amount for a longer term so you dont have to dip into your emergency savings.
- If you have time-specific financial goals for retirement, savings or education funds for college, make sure the total cost of your personal loan doesnt cut into them. Alternatively, you may need to adjust your timelines if you need to choose a longer payment term. If you have time-specific financial goals for retirement, savings or education funds for college, make sure the total cost of your personal loan doesnt cut into them. Alternatively, you may need to adjust your timelines if you need to choose a longer payment term.
How much is a 20 000 loan over 5 years?
FAQ
What would a $20,000 loan cost per month?
| Loan amount £20,000 | Monthly repayments £385.18 | Length of agreement 60 months |
| Total amount repayable £23,110.80 | Representative 6.0% APR | Fixed Annual Rate of Interest (nominal) 5.8411% |
What’s the monthly payment on a $20,000 personal loan?
| Payoff period | APR | Monthly payment |
|---|---|---|
| 12 months | 15% | $1,805 |
| 24 months | 15% | $970 |
| 36 months | 15% | $693 |
| 48 months | 15% | $557 |
How much is $20,000 financed over 5 years?
A $20,000 loan at 5% for 60 months (5 years) will cost you a total of $22,645.48, whereas the same loan at 3% will cost you $21,562.43. That’s a savings of $1,083.05.
How long would it take to pay a $20,000 loan?
| Amount | Time to pay off | Total interest |
|---|---|---|
| $5,000 | 12 months | $602.96 |
| $10,000 | 26 months | $2,604.82 |
| $20,000 | 72 months | $15,806.49 |