$5,000 Loans

A $5,000 personal loan can be used to fund all sorts of things, from holidays to weddings, or even small home renovation projects. 

There are a number of options on the market but how do you actually get a personal loan?

Start with these simple steps:

• Think about the amount and loan term
• Consider interest rates and fees
• Use a calculator to weigh up the costs
• Compare a few loans before making an application.

Okay, so let’s learn a bit more about that last point - comparison!

How to compare $5,000 personal loans

Comparing any type of personal loan begins with the interest rate. But there are also some other important factors as you'll see below.

Interest rates:

When comparing $5k personal loans, the interest rate is paramount. The lower the interest rate, the less you’ll pay in the long run. 

Comparison rate

To get a better idea of the true cost of the loan, you’ll want to check the comparison rate. The comparison rate factors in both the main interest rate plus any additional fees that come with the loan.

Fixed or variable

Interest rates on personal loans can be fixed or variable and it’s worth checking how these rates differ. For example, while you might find some variable loans at a relatively low interest rate, bear in mind that variable rates are vulnerable to interest rate hikes made by the Reserve Bank.

Secured personal loans:

With a secured loan, you’ll need to put up an asset like a car or house against the loan as collateral. This gives the lender assurance that you’ll make your regular repayments - or your assets could be repossessed. 

Since they carry less risk, secured personal loans tend to have lower interest rates than their unsecured counterparts.

Unsecured personal loans:

An unsecured loan on the other hand does not require you to use an asset as collateral against the loan. Instead, you are assessed on your credit score and other criteria. 

As unsecured loans are considered more risky for the lender, their interest rates tend to be higher. However, not requiring a collateral asset could be a suitable trade-off for a higher interest rate, depending on your financial needs and circumstances.

Credit score

It’s worth noting that in recent years, many personal loan providers have adopted risk-based pricing, so if you have a good to excellent credit score, you might qualify for a loan with a lower interest rate than someone who doesn’t.   

Loan fees

Whether you’re after a $5,000 loan or more, you’ll likely have to pay a few fees. Two of the most common ones you’ll find with a personal loan are upfront and ongoing fees.

An upfront or application fee is charged at the start of your loan and is usually a one-off payment. This can be up to $600, so make sure the benefits of the loan outweigh this cost.

Ongoing fees are kind of a maintenance fee and are usually either charged on a monthly or annual basis. Other fees you may come across are late payment or discharge fees.

How much interest will I pay on a $5,000 personal loan?

The amount of interest you’ll pay will depend on a number of factors, such as the loan term and the interest rate.

Let’s take a simple example using the Mozo personal loans calculator:

Amount borrowed:  Interest rate:  Loan term:  Monthly repayments:  Total interest paid:

$5,000  10.15% p.a 3 years $162 $821

Of course, a lower rate would result in lower repayments than the above, and lower total interest paid overall. So, if you’re ready to start comparing personal loans, jump back up to the top of the page to see some of the best loans in the Mozo database. 

Otherwise, our Mozo experts have also selected some of the top personal loans on the market for a Mozo Experts Choice Award. 

Pros and cons of $5,000 loans snapshot

Pros: 🟢 A cash boost you might need       Low interest rates for creditworthy borrowers       Build up your credit score when paid off promptly. Cons: 🛑 Higher interest rates for less creditworthy borrowers       Potential credit damage if you’re not diligent       Repayments are another regular bill to add to the pile.

More on the pros and cons of a $5,000 loan

Pros

• A cash boost you might need: Whether it’s for debt consolidation or a holiday, the one obvious advantage of taking out a personal loan is having some extra cash on hand to fund an upcoming expense.

• Lower interest rates for better borrowers: If you have a good to excellent credit score, you might qualify for a lower interest rate on your personal loan. The lower your interest rate, the less you’ll pay on your loan over time.

• Fast application process: If you have all the required paperwork ready, applying for a personal loan can be a relatively quick process (particularly when done online). Some lenders even offer same-day application decisions, and you could receive your loan in as little as 24 hours.

• Build up your credit score: Taking out a loan and making on-time repayments over the course of your loan can help build up a positive credit profile, which could come in handy if you need a larger loan in the future, like a home loan. 

Cons

• Additional bill: While the extra cash might be nice, you’ll eventually have to pay it off. Taking out a personal loan means committing to repaying it off over a set term. 

• Higher interest rates for less credit-worthy borrowers: While you might see a loan being advertised with low interest rates, keep in mind that such rates may only be available to borrowers with a good credit score. If your score isn’t up to scratch, you could find yourself given a higher interest rate than anticipated, making the loan more expensive over the long term. 

• Potential credit damage: Every time you miss a payment or even just apply for a loan, this is all recorded on your credit report. Keeping a clean credit history is essential if you want to borrow in the future. So, before you apply for a personal loan, first make sure you crunch the numbers.

Bottom line: Is a $5,000 personal loan right for me?

Taking out a $5,000 loan, or any personal loan for that matter, requires thorough research. Comparing a few loans side by side is a great place to start.

Besides this, you first need to meet the lender’s set criteria for borrowing money and this can include:

- Meeting specific personal finance requirements
- Having a good credit history and rating

If everything lines up, that's great. But also knowing how personal loans work and why borrowing $5,000 is a commitment, should be part of your decision making process.