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There’s a saying that you have to spend money to make money. But what if you can’t get the money you need for a significant purchase, such as a car or a house?

Accessing credit can be challenging for borrowers who haven’t established a credit history or have mismanaged debt in the past. One option to consider: credit-builder loans.

This financial product is designed to help people with limited or poor credit histories access a modest loan amount and increase their credit scores by repaying it over time. A credit-builder loan doesn’t require a credit score for borrowers to qualify. And it provides an opportunity to restore your credit through affordable loan payments.

Here’s a closer look at this type of loan.

How Does a Credit-Builder Loan Work?

Credit-building loans use monthly repayments to help credit-challenged borrowers build credit. In other words, it’s a personal loan to build credit. Here’s a breakdown of how they work.

First, the primary purpose of a credit-builder loan is for borrowers to demonstrate responsible borrowing behavior over time. As a result, this loan type doesn’t give the borrower a large sum to immediately use, as with a traditional loan.

Instead of providing an upfront lump sum to the borrower, a credit-builder loan requires the lender to deposit the loan amount in an interest-bearing account. The borrower can’t access the funds until they pay off the loan through monthly installments. These loans range from amounts of $300 to $1,000.

Remember, credit-builder loans usually have an interest rate and fees. Therefore, your monthly payment will incorporate the principal, loan origination fees, and interest. The lender might return some of the interest to you at the end of the loan, but every lender differs on the specifics. Therefore, it’s vital to carefully read the terms and conditions of the loan agreement to understand the loan’s total cost and the perks.

The credit-building loan term typically ranges from 6 months to 2 years. Once the loan matures and you’ve made all the required payments, you’ll receive the amount (minus any interest or fees per the loan terms) in the collateral account.

Lastly, building credit takes time, so patience and consistency are key. Improving your credit through this loan can open up opportunities for future loans, credit cards, and other financial products. However, only some financial institutions offer credit-builder loans, so you may need to shop around to find one.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

How Can a Credit-Builder Loan Help You Build Credit?

When you take out a credit-building loan, you make monthly payments towards the total amount. Your lender reports your payments to the credit bureaus, contributing to a higher credit score.

The low borrowed amount (also called the principal) makes the payments small and manageable. This feature helps borrowers with limited resources successfully pay the loan. Late payments and failure to pay the loan will hurt your credit, so it’s crucial to pay on time and take on a loan with affordable payments.

How to Apply for a Credit-Builder Loan

Applying for a credit-builder loan involves gathering information and choosing the option that best fits your circumstances. Here are the steps you should take.

Check Your Credit Report

Before applying for a credit-builder loan, it’s a smart move to check your credit report. You can get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year through AnnualCreditReport.com. Reviewing your report will help you understand your current credit situation and set goals.

Research Lenders

Not all financial institutions offer credit-builder loans, so you’ll need to research various banks, credit unions, and online lenders. It’s recommended to find a lender that reports to all three credit bureaus to ensure the loan gives you the maximum benefit.

Then, you can ask each lender for information about their credit-builder loan products. Carefully read and understand the terms and conditions of the available loans. Pay attention to details such as the interest rate, fees, monthly payment amount, length of the loan term, and how much accrued interest you’ll receive at the end.

Gather Necessary Documents and Apply

Different lenders have different application requirements, but generally, you will need to provide:

•   Personal identification (e.g., driver’s license, passport)

•   Social Security number

•   Proof of income or employment

•   Information about your current financial situation

•   Monthly housing payment amount

•   References

Remember, a conventional credit check might not be necessary to qualify. Instead, the lender can review your banking history. Positive banking activity such as a checking account with a consistent balance can help your application. On the other hand, a history of bounced checks and unpaid loans can hinder your application.

Make On-Time Payments

If the lender approves your application and sets up the credit-builder loan, you’ll start making monthly payments on the agreed-upon date. Doing so will allow you to build a positive credit history.

Repay the Loan in Full

If you repay the loan successfully, you’ll finish in a span between six months and two years, depending on the loan. After you make the final payment, you’ll receive the principal plus any applicable interest. In addition, your credit history will reflect the on-time payments you worked hard to make.

Credit-Builder Loan Requirements

There are no credit score requirements for credit-builder loans because the goal is for borrowers to improve substandard credit histories. That being said, lenders may charge fees to provide the loan and impose requirements regarding your banking habits.

With credit-builder loans, lenders prefer borrowers with a banking history that demonstrates healthy financial practices. For instance, writing checks that clear instead of bounce is helpful for your application. In addition, little debt and a positive bank account balance are favorable markers. Lenders usually use a borrower activity report from a company like ChexSystems to review this information.

Is a Credit-Builder Loan a Good Idea?

A credit-builder loan can be a good idea for individuals with limited or poor credit histories. It’s essentially a personal loan to build credit. For example, if you’re new to credit and have little or no credit history, a credit-builder loan can help you establish a positive credit history.

Similarly, if you’ve had past financial difficulties that have resulted in a lower credit score, a credit-builder loan can be a tool for gradually boosting your credit score.

However, existing high debt balances may disqualify you from a credit-builder loan. This type of loan may also be insufficient in these situations and exacerbate your current problems because it adds another monthly payment to the pile.

Remember, using a personal loan to build credit can take time, so it’s crucial to be patient and not expect immediate results. It may take several months or even longer to see significant improvements in your credit score with this loan type.

In addition, the payments will work against you if you’re late, so the loan is only beneficial if you can afford the extra monthly expense. Lastly, you can’t access the borrowed funds until you pay off the loan, meaning you won’t receive money for immediate expenses after applying. So, if you’re looking for an infusion of cash to shore up your bank account or consolidate debt, a different loan product is likely a better idea.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

The Takeaway

A credit-builder loan is an effective tool for individuals aiming to build their credit profile. By emphasizing responsible borrowing behavior over time, this type of loan differs from conventional loans, as the loan amount is securely held in an interest-bearing account until you pay it off through monthly installments.

This loan type can benefit new borrowers without a credit history. However, it may not be suitable if you have existing high debt balances or need immediate financial assistance. Ultimately, understanding your financial circumstances and goals will help determine whether a credit-builder loan is the right choice for you.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL1023015

Buying a home is likely one of the biggest moves you’ll make in your personal and financial life, and your home may represent one of your largest assets.

If you take out a mortgage to help you buy it, you will end up making mortgage payments — and if your lender ends up servicing your loan after closing, you will make payments to that lender — possibly for decades. That’s why it’s important to shop around before committing to a mortgage lender and loan program that’s right for you.

Today, borrowers have more choices than ever. With the rise of online and marketplace lenders, there’s increased competition, which fuels improvements in process, service, and cost — and can mean a much better experience for you.

With so much choice, however, finding the right lender can feel overwhelming. To help simplify the process, we’ve listed five key things you may want to consider when shopping for a mortgage lender.

1. Does the lender offer competitive interest rates?

A good first step is to get the lay of the land by looking at various lenders and the rates and fees they advertise. Taking this step may help you understand what the market looks like overall and who may be offering competitive rates.

Remember that the rates and programs you are ultimately eligible for will likely depend not only on the lender you choose but also on your needs and financial situation. However, this initial comparison can give you a baseline to start working from.

You’ll also want to look at the common loan types offered. Interest rates for fixed-rate loans do not change over the life of the loan. Interest rates for adjustable-rate mortgages (ARMs) can change over the life of the loan and are influenced by benchmark interest rates.

Hybrid adjustable-rate mortgages are mortgages that offer an initial fixed rate for a certain period of time. These hybrid ARMs often offer a low introductory rate for 1, 3, 5, 7 or 10 years. Some hybrid ARMs will also offer an interest-only payment option for a specified period of time such as 10 years.

When the initial fixed-rate period is over, the interest rate is normally reviewed on an annual basis for adjustment. Although the benchmark index tied to the ARM rate may have moved much higher, these loans typically have yearly and annual interest rate caps to control rate and payment fluctuations.

When talking to a lender about their mortgage loans, it’s a good idea to not only ask about interest rate, but also about APR, or annual percentage rate. This figure takes into account certain fees like broker fees, points, and other applicable credit charges, giving you an easier way to compare loan offers.

2. Does the lender offer loan products with terms that suit your needs?

Your needs and financial situation can play a large part in which mortgage programs you choose and are eligible for. For example, some lenders require a 20% down payment to qualify for a mortgage.

If you can’t pay 20%, lenders may require that you have private mortgage insurance (PMI), which covers them in case you default on your mortgage payments. Mortgage insurance premiums vary depending upon many factors.

It’s a good idea to ask your chosen lender how much insurance payments will add to your monthly payment. Also keep in mind that, in certain circumstances, PMI does not apply, such as with some jumbo loan programs. In addition, PMI can be eligible for removal from your home loan later if certain criteria are met.

If you can’t afford a 20% down payment, you can look for lenders who offer more flexible down payment requirements. Also, consider what term — the length of time you’ll be paying off your loan — works best for you. See what kinds of terms lenders offer and the interest rates that accompany those terms.

A shorter term will likely come with higher monthly payments, but lower interest rates that result in lower interest charges over time. Not everyone can afford those higher monthly payments, however, in which case a longer term may be preferable. Note that longer terms usually mean that you end up paying more in interest over the life of the loan.

Once you’ve found a loan with rates and terms that work for you, you can typically obtain a rate lock from your lender, generally for the time it takes to close on the transaction, such as 30 or 45 days.

You may have to pay a fee if you want to lock in the rate for a longer extended period of time. However, once you do, it will guarantee that you have access to the mortgage at a specific rate during the lock-in period, even if interest rates rise while your loan is being processed.

3. What type of origination, lender, and other fees might you be responsible for?

We’ve already alluded to the fact that you’ll likely be on the hook for other costs in addition to your down payment. One good idea is to request a Loan Estimate (LE) for any mortgage you’re considering to see a solid estimate of what costs you may be facing.

Keep your eye out for things like:

•   Commissions Mortgage brokers are paid on commission, which is either paid by you, your lender, or a combination of both.
•   Origination fees These fees may cover the cost of processing your loan application.
•   Appraisal fees Appraisal fees cover the cost of having a professional come in and put a value on the home you want to buy. You must have a property valuation of some type in order to borrow money to buy a home and in most cases a full appraisal is required.
•   Credit report fee This covers the cost of the bank obtaining your credit report from the credit reporting bureaus.
•   Discount points Optional fee the borrower can pay to reduce or buy down their interest rate.

Unless you receive a seller or lender credit toward closing costs, the added fees will impact the overall cost of buying the home, so doing your research and reading the fine print up front might pay off.

Depending on the loan terms and fees charged, some will be paid upfront at the beginning of the application process (such as credit report and appraisal), while other fees might be paid at loan closing (such as lender fees and title insurance).

In some cases, under certain loan programs, you can borrow the money to cover these fees, which will increase your overall mortgage payment(s). Therefore, having a clear understanding of what fees you’ll owe is critical to understanding how much you’ll end up paying.

It’s a good idea to request from your lender a quote on all the costs and fees associated with the loan. A Loan Estimate (LE) is a typical form used to disclose loan fees to a borrower. Ask questions about what each fee covers. Have your lender explain any fees you don’t understand, and then find out which ones may be negotiable or can be waived entirely.

4. How much of the process is online vs. on paper or in person?

How much facetime you have to put in to apply for a mortgage can vary by lender. Some online banks will have you complete the process entirely online, while brick-and-mortar banks may require an in-person visit.

In the past, applying for a mortgage required a lot of physical paperwork. But much of this has now been replaced by online interactions. For example, you are now likely able to send your financial information like bank statements and W-2s electronically.

Lenders who complete much, or all, of the mortgage application process online may be able to offer lower rates or fees, since they don’t have the cost of brick-and-mortar bank locations and their employees to maintain.

That said, if you’re someone who likes face-to-face help, you may consider a lender that allows you to apply in person or a lender who utilizes facetime.

5. How quickly can the lender close once you’re in contract?

Once you’ve found the home you want to buy and you’re under a purchase contract with the seller, the amount of time it takes to close on a loan can vary. Depending on the situation, you may have to wait for inspections, appraisals, and all sorts of paperwork to go through before you can close.

However, your lender may offer you ways to speed up the process. For example, you may be able to get preapproved for a loan, which takes care of a lot of potentially time-consuming paperwork upfront before you’ve even started shopping for a home.

Ask your potentiallender how much time their closing process usually takes and what you can do to expedite it. Especially if you’re crunched for time, their answer can have a big impact on which lender you choose. After all, the faster you’re financed, the sooner you’ll be able to move in.

The Takeaway

Your relationship with your mortgage lender is likely to be a long one. Finding out basic information about potential lenders, like how they operate, what kinds of fees they charge, and whether they offer loan products that meet your needs can help you make a smart decision about what lender you want to use.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How can I decide what mortgage lender to use?

When you’re choosing a mortgage lender, important factors to consider include whether the loan terms it offers are competitive, what fees you would be responsible for, whether the process is online or in-person, and how quickly the closing can happen.

Should I shop around for a mortgage lender?

Though it takes time and effort, shopping around for a mortgage can save you money. Freddie Mac research found that buyers who applied with multiple lenders could potentially save between $600 and $1,200 a year.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q225-001

So you’ve decided to get a new car. You’ve picked out everything from the color to the floor mats. But pump the brakes. Should you lease or buy? There are many factors to consider.

Check out this overview of leasing vs. buying, plus get help deciding how to save for your next set of wheels.

Owning vs. Leasing a Car

When you own a car, you purchase the vehicle outright from a dealer or private owner with cash or by financing it. You can keep it for as long as you want, and you can sell it in the future, if you wish.

When you lease a car, you do not own the vehicle. Instead, you make monthly payments to the owner for the right to use the vehicle. You must return the car at the end of your lease agreement or buy it at that time.

Initial Costs

When buying a car, the upfront costs are fairly obvious. You either need enough money to buy the car outright, or you need a big enough down payment to start financing the vehicle. Financing will also involve taxes, registration fees, and other charges.

When financing a car, it’s a good idea to look at the total cost: Multiply the monthly payment by the number of months in the loan, add the cost of taxes, fees, and add-ons, and finally subtract the value of any trade-in or down payment. The result is your total cost.

With leasing, the upfront costs can vary. Typically, the initial costs to lease a car include at least the first month’s payment, a security deposit, taxes, registration fees, and an acquisition fee.

Some lease charges are negotiable, according to Edmunds. They include the cap cost, or basically what the vehicle would sell for, and sometimes the “money factor,” or interest rate.

If you suspect that a dealer is marking up the money factor, you could ask for a lease based on its “buy rate” — the rate you could get from one of the dealer’s lending partners without the dealer markup.

Many other factors that may be negotiable during the leasing process are the mileage allowance (you can always try to get a higher allowance without paying extra fees); the trade-in value of any car you’re trading in; and, if you plan to buy the leased vehicle after the term, the buyout price (you can try to haggle for an amount lower than the anticipated value of the vehicle at the end of the lease).

Monthly Costs

If you buy a vehicle outright, you will not have to make any monthly payments, of course. If you take out a loan, you will need to make a payment toward the principal, plus interest, each month. You’ll also need a good credit score to finance a car.

When leasing a car, you will be required to make monthly payments that include interest charges and taxes.

Regardless of whether you lease or buy your car, remember to budget for recurring costs, such as fuel and auto insurance.

Recommended: Car vs Truck Value: Comparing How They Depreciate

Better to Lease or Buy a Vehicle?

When you own your car, it’s yours, and you can drive it as often as you’d like. If it’s a new purchase, you’ll get a manufacturer’s warranty for three years and sometimes longer.

When you lease, typically for three or four years, the number of miles you can drive in a given year is usually limited to 10,000 to 15,000. If you exceed the mileage limit, you will pay an additional fee per mile.

Beyond mileage, you may have to be more careful when driving a leased car. Any scratches, dents, or dings could come with wear-and-tear penalties.

What about repairs? A leased car is usually still covered by the manufacturer’s warranty. Basic maintenance may also be covered.

Two other broad thoughts:

Consider Your Lifestyle

If you’re someone who simply loves to go on road trips with your mountain bike, surfboard, and camping gear in tow, owning may be a good option. That way, you never have to worry about how many miles you’ll log or the scratches your car will get during your adventures.

If you’re looking for a commuter car, or if you like to have the newest model with the latest tech accessories, leasing a car may be the way to go. When your lease is up, you can look for something new.

Just realize that when the lease ends, you may face a turn-in fee if you don’t lease another car from the dealer.

Recommended: How to Spot Good vs. Bad Car Value Estimates

Consider Your Finances

Before deciding to buy or lease a car, it’s crucial to look at your current financial situation.

If you have enough money tucked away to purchase the car outright, would you still have money in savings?

Or if you’re looking to take out a loan, do you have enough money coming in each month to cover the payments? Do you have enough money in an emergency fund to cover unforeseen events? If you can answer yes to these questions, you may be in good shape to buy a vehicle.

As for leasing, you should assess whether you have enough income to cover the lease payments for the entire term. Breaking a lease can be an expensive proposition: It means paying the balance due, including any penalties and fees.

You also want to ensure that you have enough money to cover any unexpected expenses, including costs for going over your mileage limit.

Recommended: Does Paying Off a Car Loan Help Your Credit?

Dollars & Sense of Leasing or Buying a Car

The monthly cost of leasing a vehicle is often lower than auto loan payments. But to parse it further, consider the costs of buying a new vs. used car. (Buying a high-mileage car has its own pros and cons.)

In one detailed comparison of leasing a car, buying a new car, and buying a used car, over the course of six years the total costs for a used car were the lowest (the comparison did not include any repairs). Leasing was the next lowest. Buying a new car had the highest total costs.

Here’s another wrinkle if you do lease: If you decide to buy the car at the end of the contract, you’ll likely pay thousands of dollars more than if you had bought it from the get-go.

The Takeaway

The decision to lease vs. buy a car can rest on factors like total costs, annual mileage, and the urge to drive the latest model every few years. As you weigh your options, consider how you plan on using the car and what your financial situation will allow.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
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SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q225-005

If you need to send money with a credit card, there are several ways you can complete the transaction, including taking a cash advance, using a peer-to-peer (P2P) app, or using a money transfer service. While it’s convenient to send money by credit card, it may be costly and it could impact your credit.

Before you transfer money, here’s a rundown on how to send money with a credit card and what you need to know about doing so.

Transferring Money From a Credit Card to a Bank Account or Debit Card

You usually have three methods to choose from in order to send money by credit card. Here’s a breakdown of how each one works.

1. Cash Advance

The first way you can send money using a credit card is through a cash advance, which is one of the ways credit cards work. Essentially, a cash advance is like a personal loan that you can use to pay bills or make purchases.

Since you’re borrowing money from your creditor, the cash advance will begin accruing interest immediately. Also, you must pay a fee. Therefore, it’s best to be timely when repaying the loan amount.

Depending on your credit card issuer, you may have several options for taking a cash advance, including:

•   Visiting an ATM

•   Requesting a convenience check

•   Going to a bank branch in person

•   Getting a cash advance from a loan agency (though you’ll need a credit card PIN for the agency to distribute the funds, which is different from the CVV number on a credit card)

If you’re requesting a cash advance from your local bank, they may allow you to visit a bank branch and deposit the funds directly into your bank account. A convenience check works similarly to a traditional check, except the funds come from the line of credit on your credit card instead of directly from your bank account. You can then deposit the money into your bank account or use it to pay for another expense.

2. Peer-to-Peer Applications

Another option is to download a P2P app like Venmo, Cash App, or PayPal. Then, you can link your account to your credit card and send money to another receiver.

It’s important to note that all P2P apps have different requirements for sending funds, and they can charge a fee to do so. For example, if you choose to use the Cash App to send money with a credit card, you’ll pay a 3% fee.

3. Money Transfer Services

Lastly, you could use a money transfer service to send money by credit card. For example, Western Union allows customers to pay for a money transfer using a credit card. You can do so via the app, in person, or online. But, like the other solutions for transferring money with a credit card, a money transfer service may charge a fee.

You may also be able to transfer funds from your credit card to your bank account through your bank.

Banks vs Money Transfer Providers for Credit Card Payments

Here’s a difference to consider if you are deciding between how a bank vs. money transfer service may look at credit card payments.

•   Usually, if you decide to transfer money using your bank, your creditor will categorize the transfer as a cash advance. Your creditor will charge a fee, and if you’re sending the money internationally, you also may have to pay a foreign transaction fee. A cash advance interest rate — which is usually higher than the average credit card interest rate for purchases — will also apply.

You can request that the cash advance get directly deposited into your bank account, or you can take the cash advance from an ATM or request a convenience check. Once you receive the funds or the check, you can deposit the money into your bank account.

•   On the other hand, when you use a money transfer service, you will link a credit card to your account. This gives you the ability to send money, often within minutes. However, depending on the company, you may have to pay a fee for the transaction. Creditors generally treat this transaction just like any other purchase transaction, meaning the purchase APR on a credit card will apply.

Things to Consider When Transferring Money From a Credit Card

Although using credit cards to send money is a convenient solution, it’s not always advisable. When you have the choice, using cash or your savings is a better option since you can avoid paying high fees or going into debt that might not be easy to shake (here’s what happens to credit card debt when you die, for instance).

But, if you find yourself in a bind and have limited options, you may need to send money with a credit card. Before you do so, however, here are a few considerations to keep in mind.

Credit

When you take a cash advance from your credit card, it can negatively impact your credit. Credit bureaus use your credit utilization ratio to determine your credit score, which is the amount of credit you’re using versus the amount of credit you have available. Ideally, you want your credit utilization ratio to fall under 30%, ideally closer to 10%.

If you take a cash advance, there’s a chance it will spike your credit utilization ratio and ding your credit. For example, let’s say your credit limit is $5,000, and you take a $3,000 cash advance. This would make your credit utilization ratio 60% — double the recommended benchmark. Keeping your credit limit above this threshold for too long can affect your credit score.

Likewise, not handling your credit card usage responsibility can harm your credit. So, even when using a P2P app to send money, it’s important to make on-time credit card payments (ideally of more than the credit card minimum payment) to avoid late fees or potential damage to your credit score.

Fees

Most options for using a credit card to transfer money will involve your paying transfer fee. This may be a fixed amount or a percentage of the cash advance.

While you can compare options to identify the cheapest solution, it’s best to find a solution that doesn’t charge any fees. This way, you don’t have to worry about losing money on the extra fees you must pay.

Interest

In addition to fees, you must pay interest on all of your credit card purchases — including money transfers — if you don’t (or can’t) pay off your balance in full each billing cycle given what a credit card is and how it works.

And, if you take a cash advance, your interest rate is usually higher on those transactions. Further, interest on cash advances starts accruing immediately. (You may have noticed these points when applying for a credit card and reviewing the disclosures.)

So, even if it is an emergency, you must consider the interest you’ll pay if you choose to send money with a credit card.

Pros and Cons of Sending Money With a Credit Card

Understanding the advantages and disadvantages of sending money with a credit card will help you make a more informed decision. Like with most financial decisions, there are pros and cons to using a credit card to send funds.

Pros

•   Rewards. You could earn credit card rewards if you have a card that offers cashback, miles, or bonus points when you spend money. Purchases may include a money transfer if you decide to use a money transfer service.

•   Convenience. Using a money transfer service can help you transfer funds from your credit card to another party within minutes. So, if you need money fast, this could be a good solution.

•   Security. Using a credit card is often more secure than using a debit card. Credit cards typically have stronger fraud protection and other security features to keep your money and identity safe, especially when sending money abroad. For instance, if you believe a charge is fraudulent, you can request a credit card chargeback.

Cons

•   High interest rates and fees. If you choose the credit card cash advance route, you must pay the cash advance fee and cash advance interest rate. Even if you use a money transfer service, you’ll usually pay a fee.

•   Not accepted everywhere. Some companies may not accept a credit card as a form of payment for a money transfer.

•   Potential impact to your credit. If you’re unable to pay off the cash advance or your credit card balance, it could impact your credit score. This can make it harder to get approved for a loan or a mortgage in the future.

Alternatives to Using Credit Cards for Sending Money

Again, if you send money with a credit card, you’ll have to pay fees and interest. With this in mind, there are other alternative solutions that can help you save money. Some other options you may consider include:

•   Low-interest personal loan. If you have a good credit score, you could qualify for a competitive interest rate, potentially one that’s lower than your credit interest rate. Also, personal loan approval can happen quickly, so you may not have to wait too long for the money to come through.

•   Credit card with 0% introductory offer. Some credit cards offer promotional periods where the APR is 0%. Some may simply offer a good APR on a credit card that’s lower than the standard APR. This means you could make purchases and not have to pay interest. However, you’ll still have to pay the transfer or cash advance fee if you go this route, and that introductory period will end at some point.

•   Home equity line of credit. A home equity line of credit (HELOC) lets you access the equity you have in your home. You may have a lower interest rate compared to unsecured lines of credit, and your lender may even waive the closing cost for the line of credit. Keep in mind that this loan is secured by your home though, so if you fail to repay it, your home may be on the line. An unsecured credit card, meanwhile, doesn’t require any collateral.

The Takeaway

It is possible to send money via a credit card in certain situations. However, this can involve significant fees. It may be wise to consider your options before sending money with a credit card. Doing so can help ensure you use your credit card wisely.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you transfer money with a credit card?

Yes, you can transfer money using a credit card via a cash advance, P2P app, or a money transfer service. But, many of these options come with extra fees, so before you choose one, make sure you understand the costs involved.

Is it secure to use a credit card to transfer money?

Yes, usually credit cards provide fraud protection and additional security features to protect your money. This can make them more secure to use than debit cards, for instance.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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Retirement goals — whether they include traveling or relocating to a desired area — are achievable if you can plan for the expenses that need to be covered during those years.

However, not all Americans know what to expect regarding living expenses during their retirement. They may not know how to budget for ordinary costs in retirement, like housing and transportation, or make the most out of retirement income. Here’s a look at typical retirement expenses so individuals can get a handle on how much they’re likely to spend, and how much they need to budget for retirement, and how that might inform their strategies for padding their retirement and investment accounts.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.

Average Monthly Cost of Retirement Expenses

According to the Bureau of Labor Statistics’ 2023 Consumer Expenditures report, Americans age 65 and over spent $60,087 on average during 2023, while those aged 65 to 74 spent $65,149, and those 75 and over spent $53,031.

Looking at those figures by month, a retiree aged 65 and over spent just above $5,000 on average each month, while those aged 65 to 74 spent about $5,400 per month, and those 77 and over spent close to $4,400 per month.

Retirees generally spent less than the average American in 2023, which was $77,280 (or about $6,440 a month). Retirees also spent less than people nearing retirement, those aged 55 to 64, who spent an average of $83,379 that year (just under $7,000 a month).

💡 Recommended: Average Retirement Savings by Age

5 Common Retirement Expenses by Category

The typical budget for retirees needs to cover expenses for a retirement that could stretch over two or three decades. Drilling down to specific categories can help retirement savers determine benchmarks for their own budget.

1. Housing

Housing expenses, such as mortgage payments, insurance, and maintenance costs, are among the highest costs retirees face.

In 2023, Americans over the age of 65 spent an average of $21,445 on housing. Those between the ages of 65 and 74 spent an average of $22,216, and those 75 and over spent $20,370.

These expenses can vary dramatically by location and housing type. For example, housing costs are typically much higher in a coastal California community than in a real estate market in a state with relatively low property taxes, such as Wyoming, South Carolina, or Colorado. This might be a factor to consider when weighing the best states to retire in.

2. Transportation

Many retirees want an action-packed retirement full of entertainment, socializing, visiting family, and traveling the country. That means that transportation costs can be a significant factor in retirement expenses, especially early in retirement.

Americans over 65 spent an average of $9,033 on transportation during 2023, and that figure was $10,899 for those between 65 and 74. For those 75 and over, the average was $6,448.

Retirees who don’t own a car may still need to factor the cost of public transportation into their annual retirement costs. Buses, subways, and other public transportation sources cost older generations hundreds of dollars per year.

3. Healthcare

Americans’ healthcare costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s. Americans spent an average of $4,976 on healthcare annually between 2016 and 2020, but this is one area where retirees spend more than their younger peers.

Americans’ health care costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s.

Americans over 65 spent a tad more than $8,000 annually, on average, on health care during 2023. Those between 65 and 74 spent an average of $7,942, and those 75 and over spent $8,145.

Costs vary from person to person depending on their genetics, injuries, and lifestyle choices. For example, if heart disease runs in the family or you are a smoker, you may want to save extra for retirement health care costs. If you have a high deductible health insurance plan, consider saving with a health savings account (HSA), which offers tax-advantaged savings to cover health care costs.

4. Food

When it comes to food expenses, Americans spent $7,714, on average, for those 65 and older, $8,566 for those between 65 and 74, and $6,508 for those 75 and over in 2023.

An individual’s food costs will vary depending on their diet and habits. For example, people who buy organic vegetables will likely spend more on produce than people who don’t. There’s also a good chance that eating at home more frequently will cost less than eating out five times per week.

5. Entertainment

Having fun isn’t just for the young. In 2023, Americans over age 65 spent an average of $2,898 annually on entertainment, which could include fees and admissions to places like museums, theater performances, and movies. Entertainment expenses also include hobbies and pet costs. Those between 65 and 74 spent an average of $3,447, and those 75 and over spent $2,131.

What Is the Most Costly Retirement Expense?

Of all of the expenses in retirement, the most expensive is generally housing. While of course exact retirement costs will vary from individual to individual depending on their situation, the average cost of housing even far exceeds costs like health care.

There are steps retirees can take to potentially reduce this expense though. For instance, they may aim to pay off their mortgage before they retire. Or, they could consider moving to a less costly state with lower taxes.

What Are Some Unexpected Retirement Expenses?

Even a well-laid retirement plan can leave someone open to surprise. Some unexpected retirement expenses that retirees might want to factor into their retirement planning include:

•   Uncovered health care costs: Health care might not cover anything, and to get total coverage, it might be necessary to get multiple plans under Medicare. However, it’s important to weigh the cost of that over any out-of-pocket costs. Of course, it’s hard to predict the future and because of that, it can be challenging to get the math just right.

•   Long-term care: This retirement expense can be steep, and the costs involved continue to rise. Especially for retirees who don’t have family to turn to for assistance, this can constitute a significant portion of a retirement budget. In-home care aids may cost tens of thousands of dollars per year, and a private room in a nursing home facility could easily run more than $100,000 per year.

•   Unanticipated housing costs: Retirees’ budgets might also get thrown off by housing costs they didn’t factor into their calculations. For instance, while a retiree may have noted the cost of their monthly mortgage payments, they may not have taken into account potential home repairs and maintenance, or needed additions, like a wheelchair-accessible ramp.

What Will You Spend Less on in Retirement?

We’ve talked a lot about the costs of retirement, but there are some areas where you’ll spend less in this stage of life. One place you’ll shell out less is on insurance (due to Medicare) and taxes (less income to be taxed) — though that’ll depend on each individual’s specific situation.

Other areas where costs might be lower in retirement include on pets and pet supplies; alcohol and tobacco; clothing; and, if you’re giving up your rush-hour commute, transportation.

5 Steps to Set Up a Retirement Budget

Once you have an idea of potential retirement expenses, you can start to save and comprehensively budget for them. Since every retirement looks different, there’s no average retirement budget — a good monthly retirement income for a couple will be different than for a single person. Nonetheless, these are the steps to create a budget that may work for you.

Step 1. Contribute to a Retirement Account

You may already have retirement savings in your company-sponsored 401(k) or a similar retirement plan. But those who don’t have access to a 401(k) or want to increase their savings can also save in an individual retirement account like a Traditional IRA or Roth IRA. These accounts can provide tax-advantaged ways to start retirement with adequate savings to build a budget.

💡 Recommended: Roth IRA vs Traditional IRA: Key Differences and How to Choose

Step 2: Make a List of Expected Monthly Expenses

Most expenses can fit into one of three categories: fixed, variable, and one-time. Fixed expenses are payments that occur regularly and stay the same from month to month, like mortgage/rent payments, property taxes, and car payments.

Variable expenses change from month to month, depending on personal usage and price fluctuations. Standard variable costs include utility bills and groceries. Likewise, any entertainment expenses, medical expenses, pet care, and personal care expenses may be variable.

One-time or non-recurring expenses are costs that don’t occur regularly. These might include a new roof, a vacation, or a wedding. You may want to set aside money in an emergency fund for unexpected expenses (like that new roof) and have other funds earmarked for non-essential, one-time expenses (like a wedding or vacation).

To get an idea of your various expenses, gather payment information from bank statements, credit card statements, receipts, and bills. Take a look at what you spend now, then deduct expenses you won’t have at retirement (perhaps you’ll eliminate a car payment or pay off your mortgage). Then you can tally what’s left to get an estimate of your projected expenses and build a line-item budget.

Step 3: Estimate Retirement Income

To get a sense of your potential retirement income, look at projected monthly withdrawals from Social Security, retirement accounts, pensions, real estate investments (like a rental property), and any savings or part-time income. Total them up to figure out what your monthly income will be.

Step 4: Compare Expected Expenses to Expected Income

Ideally, your expected income will be larger than your projected expenses. If this is not the case, you can remedy this issue by reducing costs or increasing income.

To reduce expenses, you may consider downsizing your home or going from owning two cars to one. You may also consider streamlining entertainment expenses as a better way to cut costs.

To increase income, you may consider taking on a part-time job when you retire or look to passive income sources to boost the money that you have to spend during retirement.

Step 5: Figure Out When You Can Retire

Once you know how much money you may need in retirement and how long you’ll need to save to get there, you can plan a realistic timeline for when you can retire.

Keep in mind that the plan will likely change over time as you get closer to retirement, depending on how much you’re able to save and how your retirement goals change. Along the way, it could be necessary to boost your retirement savings if you decide you want to retire sooner than later, or you find you’re not quite on-track for your planned age.

The Takeaway

Budgeting for retirement can feel overwhelming, but taking it step by step allows you to create a plan for a retirement you’ll enjoy. It’s helpful to know the average monthly costs and to know in which major categories retirees regularly spend. You might be surprised by where you need to budget more, or where costs might be lower than expected.

Ready to start saving to cover your retirement expenses? Consider an investment account with SoFi Invest®. Investors can trade stocks, exchange-traded funds, and even fractional shares. SoFi members also have access to SoFi Financial Planners, who can provide personalized insights and financial advice so members can make the most of their retirement savings.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What are common expenses in retirement?

Common expenses in retirement include housing, health care, transportation, food, and entertainment. Of course, where you spend — and how much you spend in each category — will vary from retiree to retiree.

What is a reasonable retirement budget?

This depends on a person’s anticipated expenses and the lifestyle they’d like to lead in retirement. That said, the average American over the age of 65 spent just over $60,000 during 2023.

Which is the biggest expense for most retirees?

The largest cost in retirement is generally housing. In 2023, Americans over the age of 65 spent an average of $21,445 on housing.