How Much Can I Afford to Borrow?

A new vehicle, home improvements, vacation, medical bills, recreational vehicles—these are just a few reasons people borrow money.

Getting a personal loan from a community bank can be a quick way to fund a large purchase. And bank loans are typically flexible too, allowing you to purchase a wide variety of items.

Is a personal loan right for me?

Before you borrow, you should know how much you can afford to borrow. Start by looking at your income and existing debt payments. Debt may include rent or mortgage, auto loans, credit cards, student loans, or other debts. Then, calculate the interest rate and monthly payment of the potential loan to determine if it fits into your monthly budget. 

How is my interest rate and monthly payment determined? 

Many factors go into determining an applicant’s interest rate, including credit score and history. The length of your loan and loan-to-value ratio (current value of something versus the outstanding balance) also play a part. 

Secured loans typically have a lower interest rate as the bank is taking less risk. If you’re applying for a secured loan—one that requires collateral—the bank will also want to know the collateral type and age. 

Your monthly payment will depend on the interest rate and the loan term or length. It may vary anywhere from a month to 15 years. New vehicle loans typically last 4–6 years, while small personal loans are much shorter.

The best way to determine your loan terms, including monthly payment, is to talk with your bank. You can also use a loan calculator, like the one below, to get an estimate of your monthly payment. 

Before you sign a loan, ensure you understand the cost of borrowing the money. Once you know how much the bank will lend you, take a moment to reflect. Can you comfortably afford monthly payments on a loan of this amount?