What Are the Monthly Payments on a $5,000 Personal Loan?

If you're reading this, it's probably because you're curious how much the monthly payment on a $5,000 personal loan will be. Unfortunately, the answer involves one of the most frustrating phrases in the English language: "It depends."

Your monthly payment depends on how much you put down on the loan and your credit score. Stick with us here, though. We'll help you approximate your interest rate, which, in turn, allows you to approximate your monthly payment.

Skin in the game

Let's say you're selling a classic car for $20,000 and have agreed to allow the buyer to make monthly payments. You haven't quite settled on how much interest you will charge. There are two parties seriously interested in buying the car. One does not plan on putting any money down. The other is making a $5,000 down payment and only intends to borrow $15,000.

Both parties understand that the car acts as collateral. In other words, if they miss payments, you can repossess the vehicle, sell it to someone else, and recoup your money. In light of that, you recognize that the buyer putting $5,000 down will likely work harder to make payments because they have more to lose. Because you feel you're taking less risk with the buyer putting money down, you're willing to loan them the remainder at a lower interest rate.

When determining your interest rate, some lenders consider how much you're putting down on the loan. The more you put down, the lower the rate.

That three-digit number

Your credit score may only be a three-digit number, but it's what lenders use to decide whether you qualify for a loan and what your interest rate will be. To a lender's eye, the higher your credit score, the lower the risk that you'll stop making loan payments. The lower your score, the higher the interest rate.

FICO and VantageScore are the two big consumer credit-scoring systems in the U.S., and FICO® Scores are most commonly used by lenders. According to FICO, here's how much you can expect to pay for a 48-month, $5,000 loan with a fixed rate:

Ever-changing interest rates

The bottom line is how much a loan ends up costing you. As the table shows, the lower the credit score, the more interest you'll pay. The monthly payment for someone with a credit score of 500 is only $24 more than that for a borrower with a near-perfect score -- which doesn't seem so bad. However, the borrower with the lower score ends up paying $1,156 more over the life of the loan. That's $1,156 that could have gone into an emergency savings account or retirement fund. In other words, a higher score would have left them more money to invest in their future.

Trying to pin down a precise interest rate before applying for a loan is like trying to catch a toddler who's just gulped down a handful of Pixy Stix or catch a greased pig at the county fair. As of today, rates range from a low of 5.20% to a high of 35.99%. In terms of monthly payment, that's a difference of $116 versus $198. However, the total interest paid on 5.20% is $549. At 35.99%, the total interest is a whopping $4,497, for a difference of $3,948. Imagine having an extra $3,948 to fund an IRA or pay toward your child's education.

If your credit score is lower than you would like and you don't need the money right away, there are steps you can take to boost your score quickly. If you need the money now, make it a point to pay the loan off as soon as possible. The faster you pay the loan off in full, the less you'll pay in interest.