How to Borrow a $2,500 Loan Responsibly

If you have a fair or poor credit score – generally a score below 660 – it may be challenging to get approved for a $2,500 personal loan. And those lenders that will lend you money often charge high rates and fees that can damage your finances.

Chart showing costs of a $2,500 personal loan
A look at the costs of an example $2,500 personal loan where the origination fee is deducted from your loan proceeds

A personal loan can be a handy financial tool to help you clear credit card debt, finance a major purchase, or achieve other financial goals. While you once needed a personal relationship with your bank to obtain a personal loan, over the past decade dozens of online lenders such as Lending Club, Upstart, and SoFi have emerged, offering convenient access to personal loans to everyone.

With most lenders, you can see what loan amounts and terms you qualify for online in just a few minutes, with no impact to your credit score.

If you find a $2,500 loan offer to your liking, you’ll need to provide a bit more information to complete a verification process, which may include electronically confirming your email address, bank account and pay history. In some cases, you’ll also need to verify your identity and/or employment.

Oftentimes, it takes just a few days (and sometimes less) from when you accept to your loan offer to when the lender sends $2,500 to your bank account.

How much does a $2,500 loan cost?

There are three components to the cost of your $2,500 loan – the interest rate, the origination fee, and the term of your loan (which means how many months your loan payments are spread across). All lenders are required to use these three factors to calculate the annual percentage rate (APR), and present it to you as part of all loan offers. APR standardizes the costs of a loan, so you can compare different loans on an apples-to-apples basis.

For borrowers with fair or poor credit, the APR on a $2,500 personal loan will often be between 30% – 36%. This includes the cost of an origination fee of between 3% – 7%.

Some lenders will deduct the origination fee from your loan proceeds, meaning the loans you receive will be less than your full loan amount. On the other hand, other lenders will add the origination fee to the amount of your loan, so you’ll need to repay more than you initially received. It’s important to understand how your lender handles origination fees. (A small number of lenders won’t charge an origination fee, though their loan offer may not necessarily be cheaper than a loan with a fee; be sure to compare the APRs of each loan offer you’re considering.)

Let’s look at two examples, for a $2,500 loan with a 30% interest rate and 5% origination fee, repayable over 36 monthly payments:

If the origination fee is deducted from the loan proceeds, you would receive $2,375 and make 36 monthly payments of $106. You’ll repay a total of $3,821, which includes a finance charge (interest plus fee) of $1,446. The loan has a 34.03% APR.

If the origination fee is added to the loan amount, you would receive $2,500 and make 36 monthly payments of $111. You’ll repay a total of $3,887, which includes a finance charge (interest plus fee) of $1,387. The loan has a 33.83% APR.

How can you reduce the cost of a $2,500 personal loan?

A loan with an APR above 30% is expensive. The total interest and fees may be more than half of the amount that you borrowed, and your monthly loan payments could put significant strain on your budget. Here are five strategies that can help lower the cost of a loan:

  1. Shop around. Check your rate with multiple lenders and use the APR to find the loan with the best rate and terms for you. (You can also use sites like PockBox to compare loan offers from multiple lenders online.)
  2. Take out a smaller loan. Do you need a $2,500 to achieve your financial goals? Could you borrow less, or find some help friends and family, or get some of the funds you need from a no interest cash advance app?
  3. Choose a shorter loan term. You may have several loan terms to choose from. If you choose a shorter loan term (such as two years instead of three years), you’ll have larger monthly payments, but will incur lower total finance charges. Sometimes, the interest rate and/or origination fee will be lower too.
  4. Take advantage of discounts. Some lenders will offer small rate discounts, usually 0.25%, for setting up automatic loan payments from your bank account or for moving your direct deposit to an account with that lender.
  5. Prepay your loan. If you’re able to pay off your loan early, you won’t owe any further interest on your loan. Most lenders do not charge a prepayment penalty or fee on a $2,500 personal loan.