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A personal loan origination fee is a one-time, upfront charge that a lender collects to cover the costs of processing and setting up a loan. They typically range from 1% to 10% of the loan amount, but you may see ads for zero origination fees. The specific amount depends on factors relating to both the lender and the borrower.

Personal loans can be a good way to receive a lump sum of cash to be used for almost any purpose, but it’s worth noting that there are usually fees beyond the interest you pay. Learn more about origination fees here.

Personal Loan Origination Fees Defined

Personal loan origination fees are an upfront, one-time charge by the lender that covers the costs of processing the loan, including the application, underwriting, and funding.

Typically, lenders charge origination fees as a percentage of the total loan amount. It’s usually 1% to 6% of the principal, but origination fees may go as high as 8%, 10%, or even 12% of the loan amount. In some instances, a lender may charge a flat fee instead.

Not every personal loan has an origination fee, and lenders may differ in how they require consumers to pay it, if it’s included.

Recommended: Should I Get a $5,000 Personal Loan?

How Do Personal Loan Origination Fees Work?

If a lender charges an origination fee for a personal installment loan, it’s usually a percentage of the loan amount, somewhere between 1% on the low end and 10% on the high end. For example, if you take out a personal loan for $15,000 and there’s a 5% origination fee, you’ll pay $750 in fees.

Lenders typically subtract this fee from the total loan amount. In our example, that means they’d offer you a loan for $15,000, subtract $750 from the amount, and give you $14,250. But you’d still have to repay $15,000, plus interest. If you truly need the full $15,000, it’s a good idea to request more than $15K to ensure that you have enough funds after the origination fee is deducted.

In other cases, a lender may require that origination fees be paid out-of-pocket by the borrower, or the fees are added to the loan total. Ask your lender to be sure of their policy.

In this case, the personal loan origination fee would be reflected in the APR, or annual percentage rate, calculation. That’s why experts often suggest comparing loans by their APRs. The APR, which includes the interest rate plus fees, represents the annual cost of a loan and will give you a true picture of what you’ll pay over the life of the loan.

How Much Are Personal Loan Origination Fees Usually?

Personal loan origination fees typically vary between 1% and 10% of the total loan amount. Depending on how much you’re borrowing, this fee can get extraordinarily high.

For example, if you borrow $100,000 with an 8% origination fee, that’s an extra $8K you’re paying on top of the loan amount and interest.

Recommended: What to Know Before You Borrow Money Online

How Are Origination Fees Calculated?

Lenders may advertise a set origination fee or a percentage range. If it’s the latter, how exactly do they determine the percentage you’ll pay?

1. Credit Score and Financial History

Unsurprisingly, lenders primarily consider your credit score and debt-to-income (DTI) ratio. The stronger your credit score and the lower your DTI ratio, the lower origination fees you might be offered. Lenders that don’t charge origination fees at all may have strict requirements that only borrowers with good or excellent credit can meet.

2. Loan Amount and Term Length

Lenders may also consider the length and size of how the personal loan works. Having a cosigner with good credit can help reduce your fees. In addition, lenders may ask your reason for borrowing or use other information from your application when setting your fees.

3. Lender Policies and Market Conditions

The lender’s policies may impact how much you’ll pay in origination fees. Some may feature a 0% offer to attract new clients; others may earn money by charging a double-digit fee.

Market conditions can also impact rates. When lenders need to compete aggressively to win customers, they may drop their fees. Conversely, when rates are high and it may seem riskier to lend, financial institutions may raise the origination fees they charge.

Recommended: Personal Loan Calculator

When Is an Origination Fee a Dealbreaker?

It’s wise to compare the loan APRs, which represent your total annual costs. A loan with no origination fee but a higher interest rate may wind up costing you more in the long run; comparing APRs can help you figure it out.

So when is a personal loan origination fee a dealbreaker? If the fee makes your total cost of borrowing higher than another offer, you should consider the better loan offer.

All lenders are required to disclose their fees as part of the Truth in Lending Act. If a lender advertises no origination fees, it’s a good idea to check the fine print to see if they’ve disguised the fee with a look-alike fee, like an “administrative” or “application” fee. If a lender does this and it gives you bad vibes, go with your gut — you should always feel good about the lender you choose.

Ways to Minimize or Avoid Origination Fees

If you, like most people, want to pay as little in terms of origination fees as possible while still getting a good overall deal, consider the following.

1. Comparing Lenders and Shopping Around

Don’t sign on with the first quote you get, nor assume that a “no origination fees” offer is the best. Shop around, and see the total cost of a loan: what you will pay in terms of interest and fees. That way, you can feel confident that you are getting the best deal.

2. Negotiating Loan Terms

You can ask a lender to work with you on loan costs. They may be willing to make reductions in fees in order to snag your business. This can be especially true if you have a solid credit profile.

3. Considering No-Fee Loan Options

As noted above, some lenders offer no-fee loan options, which can help with affordability. But do your research: Take a close look to make sure that the overall cost of the loan suits your needs. You don’t want to sign on to a no-fee loan with a higher interest rate that makes the loan more expensive overall. Also read to fine print to see if origination fees are actually being charged but appear under a different name, such as application fees.

The Takeaway

When you are thinking about getting a personal loan, origination fees may be charged; these are typically between 1% and 10% of the loan amount, though some no-fee loans may be offered (and flat fees as well). The origination fee you are assessed may vary with the lender’s policies, your credit profile, and market conditions. It’s important to consider how origination fees can impact the overall cost of your personal loan.

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.

FAQ

How much are personal loan origination fees typically?

Personal loan origination fees typically range between 1% and 10% of the loan amount. Factors that impact rates include the lender’s policies, your credit score, and market conditions.

Do private loans always have origination fees?

Many private lenders charge origination fees, but that is not always the case. Before taking out any loan with a private lender, it’s a good idea to compare origination fees and APRs.

Can origination fees be negotiated?

You can often negotiate origination fees for certain types of loans, such as mortgages and personal loans. Just be sure that lower origination fees don’t mean higher interest rates and negate any savings. You’ll be in the best position to negotiate fees with a solid credit profile.

Are origination fees refundable if I pay off my loan early?

Generally, origination fees are not refundable if you pay off a loan early, according to Experian. However, you may be able to get a partial refund from some lenders.

What are other personal loan fees to consider?

In addition to interest and origination fees, personal loans may collect application fees, late fees, and returned payment fees.

Photo credit: iStock/lechatnoir

SoFi Loan Products
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.

SOPL-Q225-034

Divorce can be emotionally and financially challenging, and one of the biggest concerns people have is how to finance the process. From filing and attorney fees to establishing separate households, the costs can quickly add up.

Knowing how to pay for divorce is particularly tricky because most people don’t necessarily plan for a divorce and, as result, likely don’t have a special bank account where they’ve been saving up for a divorce. This can leave you feeling stuck in a tight corner.

For anyone scratching their head and wondering how to pay for a divorce, we have some answers. Here’s a look at how you can cover the cost of divorce while still keeping an eye on your long-term (post-divorce) financial health.

How Much Does Divorce Cost?

We’ll start with the crummy news: Getting a divorce, already a difficult experience, is also expensive. While the cost varies depending on where you live and the complexity of the divorce, the average cost of a divorce in the U.S ranges between $15,000 and $20,000. That said, a simple DIY divorce could run a lot less (as little as $200). A complicated divorce (with disagreements around child custody or dividing up property), on the other hand, could run well over $100,000. Gulp.

Factors that can affect the cost of a divorce include:

•   The state where the divorce takes place

•   Whether the couple lives in an urban or rural area

•   Whether it is contested or uncontested

•   Whether or not you hire professional legal help

•   The complexity of the couple’s finances

•   Whether or not there are child custody issues involved

How Do I Pay for My Divorce?

Ideally, every individual, couple, and family would have some emergency money set aside to cover unforeseen events. While many aren’t thinking the money would be for a divorce, that could qualify as an unexpected expense.

If you don’t have much, or any, rainy day savings, here are some steps that can help you manage the cost of your divorce.

•   Create a budget. A good place to start is to assess your financial situation and create a realistic budget for your divorce. Take a look at your income, expenses, and any debts you may have. This will help you determine how much you can allocate towards your divorce costs, find areas where you may be able to cut costs, and develop a strategy to finance your divorce.

•   Negotiate with your spouse. If possible, see if you can reach an amicable agreement with your spouse regarding the division of assets and paying expenses. This can help reduce legal fees and minimize the overall cost of the divorce process.

•   Explore mediation. Mediation is a cost-effective alternative to traditional divorce litigation. A neutral mediator helps facilitate discussions between you and your spouse, allowing you to work together to reach mutually agreeable solutions. Mediation can often be less expensive and less time-consuming than going to court.

Borrow From Friends and Family

If you need some financial assistance to cover the costs of your divorce, reaching out to friends and family is one option to consider. Loved ones who understand your situation may be willing to lend you money to help you through this challenging time.

You’ll want to approach borrowing from friends and family with caution, however. You want to be sure that you’ll be able to pay the money back and clearly communicate that you intend to repay the money. Also be sure to discuss any expectations or terms, and ensure that the arrangement is legally documented to avoid misunderstandings or strain on personal relationships.

Recommended: Am I Responsible for My Spouse’s Debt?

Is a Personal Loan a Good Option to Pay for Divorce?

Another option to finance your divorce is to consider a personal loan.

Personal loans are often unsecured (meaning you don’t have to put up an asset as collateral) and can be used for a variety of purposes, including legal costs. They can provide you with the necessary funds to cover divorce-related expenses while allowing you to make manageable monthly payments over a fixed period, typically three to five years.

If you have good to excellent credit, a personal loan can be a better choice than using a credit card for your divorce costs, since rates are typically lower. A personal loan may also allow you to borrow a larger amount than your current credit card limit allows. Personal loans also come with fixed monthly payments, which can be easier to budget for.

Before applying for a personal loan for your divorce however, you’ll want to consider the annual percentage rates (APRs) and repayment terms offered by different lenders. Be sure to carefully assess your ability to repay the loan to avoid adding further financial stress during and after the divorce process.

Putting Your Financial Health First

While it’s crucial to address the immediate financial challenges of a divorce, it’s equally important to prioritize your long-term financial health. Here are some tips to help you navigate this process.

•   Protect your credit. Divorce can have a significant impact on your credit score. To minimize the impact, you’ll want to be sure to close joint accounts and establish individual accounts. Be sure to also monitor your credit report regularly to ensure accuracy and address any issues promptly.

•   Update legal and financial documents. It’s a wise idea to review and update your will, insurance policies, retirement accounts, and other legal and financial documents to reflect your new circumstances. You’ll also want to update beneficiaries and ensure your assets are distributed according to your wishes.

•   Focus on rebuilding. After the divorce, take steps to rebuild your financial stability. Set financial goals, create a savings plan, and consider ways to increase your income or reduce expenses. Building a solid financial foundation will help you regain control of your life and prepare for the future.

Recommended: Budgeting Tips for Life After Divorce

The Takeaway

Financing a divorce can be a challenging task, but with careful planning and consideration, it is possible to navigate this process successfully. Key steps include assessing your financial situation, exploring various options such as negotiation and mediation, and, if needed, borrowing from friends and family or getting a personal loan to help cover the costs of the divorce.

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.

FAQ

How are finances split in a divorce?

Before a divorce can be finalized, couples will need to draft a legal document that outlines how they’ll split their assets. Once a judge determines the agreement fair and legal, it becomes part of the divorce settlement.

Do I have to pay my spouse’s credit card debt in divorce?

In general, you’re responsible for any credit card debt that’s in your name or for joint credit card debt. But if you live in a community property state, you may also be on the hook for a portion of your spouse’s credit card debt, as long as the debt was incurred during your marriage.

How can I prepare my finances for divorce?

There are steps you can take to prepare your finances before the paperwork is filed. One helpful strategy is to keep track of your income and household expenses, such as food, child care, home repairs, and housing. It’s also a good idea to estimate future expenses, such as your child’s school tuition. This information will come in handy as you create a post-divorce budget, but it can also help the judge determine how to split your combined assets and debts.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

SoFi Loan Products
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.

SOPL-Q225-012

Unsecured personal loans are loans provided by banks, credit unions, and online lenders that do not require any type of collateral. They provide an opportunity to borrow funds without putting any of your assets (like your home or car) at risk. The funds can be used for virtually any purpose, including debt consolidation, home improvements, and large purchases.

How do you know if an unsecured personal loan is the right choice for you? Learn the full story here.

What Is an Unsecured Loan?

An unsecured loan is a loan that is not backed by collateral, such as your home, bank account balances, or vehicle. To have a loan backed by an asset (aka a secured loan) means that a bank or lender has the right to take that asset in the event of default on the loan.

Loans backed by collateral (such as mortgages, home equity loans, and auto loans) generally pose less risk to lenders — if the borrower defaults, they can recoup the balance due by seizing the collateralized property. Because unsecured loans pose a higher risk, they tend to have higher interest rates and come in lower loan amounts compared to secured loans.

Some borrowers, however, prefer unsecured loans, since they don’t require you to put your home, car, or other personal assets at risk. You qualify for an unsecured personal loan strictly on your ability to repay the borrowed amount. Lenders assess this by looking at your income, credit scores, and borrowing history.

Top Common Uses for Unsecured Personal Loans

Unsecured personal loans can be used for a wide array of purposes. Here are some of the most common reasons why people take out unsecured personal loans.

Credit Card Payoff

Credit cards tend to have high annual percentage rates (APRs). Currently, in the first half of 2025, the average credit card interest rate is about 24.20%. Personal loan interest rates, on the other hand, can charge half that figure (if you have a high credit score, you may be able to get an even lower APR).

Using a personal loan to pay off credit card debt can potentially help you save money on interest. You can get an estimate of the potential savings of using an unsecured personal loan to pay off a credit card balance by using a personal loan calculator.

Debt Consolidation

If you make many different credit card (or other debt) payments every month, it can be difficult to keep track of all the due dates and minimum amounts owed. If you miss a payment or don’t pay at least the amount due, you can get hit with late fees and your credit could be negatively affected.

Debt consolidation is the process of taking out an unsecured personal loan and using it to pay off multiple debts, leaving you with just one monthly payment. This simplifies repayment and, if you get a loan with a lower interest rate, could also help you save money.

Medical Expenses

Unsecured personal loans can be used to pay for a range of medical treatments, including elective procedures, fertility treatments, prescriptions, surgeries, dental procedures, and more.

A number of lenders, including certain banks, credit unions and online lenders, offer personal loans for medical expenses. Though interest expenses will add to the total cost of treatment, this can be a less expensive option than putting the medical expense on your credit card.

Home Projects

Whether you’re thinking about updating your kitchen or renovating a bathroom, you may be able to use an unsecured personal loan, also called a home improvement loan, to obtain funding for the project.

An unsecured personal loan can be especially useful if you need cash quickly for critical repairs or emergencies. It also provides an alternative to taking out a home equity loan or line of credit for remodeling or repairs, both of which are secured loans and require equity in your home.

Major Purchases

Other large purchases could be funded by a personal loan. This could mean that you are buying tangible items, such as new furniture for a family room or a new water heater. Or you might want to finance a wedding or a big vacation.

Emergency Expenses

A personal loan could be a way to finance a major car repair bill, replace e home heating system that conks out during a cold spell, or other urgent emergency expense. It could also keep you a float if, say, one spouse has lost a job but you still qualify for a loan.

What Are Some Different Types of Unsecured Loans?

The most common types of unsecured loans include:

•   Personal loans Personal loans are typically unsecured vs. secured personal loans, though some lenders offer secured options. Loan amounts range from $1,000 to $50,000 or $100,000 (and occasionally more), with repayment terms of two to eight years. (Some lenders may offer longer terms for large loans.) Interest rates are typically fixed.

•   Personal lines of credit A personal line of credit is a revolving loan, which means the loan can be spent, repaid, and spent again, similar to a credit card. While some credit lines are secured, many lenders offer unsecured options. Personal credit lines typically have a variable interest rate.

•   Student loans Education loans are used to cover the cost of college tuition and expenses. Both federal and private student loans are unsecured. However, student loans usually carry more restrictions and payback instructions than other types of unsecured loans.

•   Credit cards Like a personal credit line, credit cards are a type of revolving loan that lets you access money up to a certain limit as you need it and only pay interest on the amount you borrow. While secured credit cards are available, most consumer cards do not require collateral to access a line of credit in this way.

Why Choose an Unsecured Personal Loan?

Here’s a look at some of the benefits of unsecured personal loans.

•   Fast processing time It often doesn’t take long to get the lump sum of money in your hands — often just a few days or so.

•   Consistent payments Personal loans are a type of installment loan, which means payments will be fixed and follow a set schedule.

•   Less costly than credit cards With good credit, interest rates on unsecured personal loans are typically lower than interest rates on credit cards.

•   Flexibility An unsecured personal loan can be used for almost any purpose, including credit card consolidation, a large purchase (like a kitchen appliance), a wedding, travel, medical expenses, home repairs, and more.

•   No collateral You don’t need to put anything of value at risk of repossession in order to secure the loan.

How to Apply for an Unsecured Personal Loan

Before you apply for an unsecured personal loan it’s a good idea to check your credit score, since it will play a role in your loan eligibility and interest rate.

Next, you’ll want to research and compare lenders, including banks, credit unions, and online lenders. It can be a good idea to compare loan amounts, interest rates, terms, and fees. Also check loan requirements, if they are available. Some lenders have a minimum credit score or income requirements.

In some cases, you may be able to pre-qualify for a personal loan, which lets you see the loan terms you may qualify for. This involves a soft credit check, which won’t impact your credit.

Once you find a loan you like, it’s time to officially apply. Often, you can do this online, though some lenders may require you to apply in person. Either way, you’ll need to provide personal and financial information (such as your name, home address, and employment information). In addition, you may need to provide the following documents:

•   State-issued photo ID

•   Proof of residence

•   Proof of income (like a bank statement or pay stub)

•   Tax return

Once you submit your application, you may receive a decision within a few minutes or a few days, depending on the lender. In some cases, the process may take a week or more.

What Lenders Look for in Unsecured Loan Applications

If you’re applying for an unsecured loan, lenders tend to look for the following, among other factors:

•   A strong credit score. While some people with a score of 580 or higher can qualify for a loan, most lenders look for a score of 700 or above to start to offer their most favorable interest rates and terms to lenders.

•   A favorable credit history. In other words, prospective lenders want to know that you’ve handled debt responsibly in the past. If you have events like bankruptcy in the past, a lender may hesitate or charge you higher interest rates.

•   Financial factors. Lenders will want to see that your earning power and debt-to-income ratio, or DTI, are in the right balance to allow for repayment of the loan.

Unsecured vs Secured Personal Loans: Key Differences

The key difference between unsecured and secured personal loans is that, with a secured loan, you provide a form of collateral to secure the loan. This could be money in the bank, a vehicle, investments, or art and collectibles. The idea is that the lender knows they could claim that item if you were to default on the loan.

This makes lending less risky for them. For this reason, it could help a loan seeker who has a less than ideal credit history qualify, even if they can’t access an unsecured loan. With an unsecured loan, you don’t put up any collateral. Instead, factors like your credit history, income, and assets typically reassure the lender that you are not a risky borrower.

The Takeaway

For some of life’s many curveballs — or opportunities — the occasional need for an unsecured personal loan might come up. Unlike a secured loan (like an auto loan or mortgage), an unsecured personal loan doesn’t require you to provide anything of value to guarantee it. You qualify based only on your ability to repay the borrowed amount to the lender.

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.

FAQ

What credit score do I need for an unsecured personal loan?

According to the credit bureau Experian®, you need at least a credit score of 580 to qualify for an unsecured personal loan, and a score of 700 or higher to get the most favorable rates and terms.

How much can I borrow with an unsecured personal loan?

Unsecured personal loans can offer a lump sum of anywhere from $1,000 to $100,000 or even more, depending on the lender’s guidelines and the borrower’s creditworthiness.

What are the disadvantages of unsecured loans?

Disadvantages of unsecured loans for borrowers can be that they may be harder to qualify for or charge higher interest rates than secured loans. The reason: They may be riskier for lenders, since if the borrower defaults, the lender doesn’t have a form of collateral to claim and use to offset their loss.

How long does it take to get approved for an unsecured loan?

The timing of getting approval for an unsecured loan can vary depending on the borrower and the lender. At its fastest, it could happen within a day. At the other end of the spectrum, it might take a week or two.

Can I pay off an unsecured loan early?

Yes, you can usually pay off an unsecured loan early. This can help you save on interest fees, but check your lender’s policies. You might owe what’s known as a prepayment penalty, a fee which goes to the lender. This feel helps compensate the lender for the loss of the previously projected interest they would have collected over the life of the loan.

SoFi Loan Products
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.

SOPL-Q225-038

As the cost of college continues to rise, many students turn to private student loans to help cover expenses not met by federal aid. However, securing these loans can be challenging without a strong credit history or steady income. That’s where parents often come in — as cosigners.

While cosigning can help a student access the funding they need, it also comes with serious financial responsibilities. Keep reading to learn the key considerations parents should weigh before agreeing to cosign a student loan.

Why Are Student Loans Cosigned So Often?

It’s no secret that the cost of college education has skyrocketed. Consider these statistics:

•   The average cost of college has doubled since the year 2000.

•   The current average cost for one year of college at a public institution is $38,270, including living expenses. Average tuition and fees at four-year in-state colleges is $9,750; for out-of-state students, it’s $28,386 per year.

•   For a private, nonprofit university, that number rises to $56,628 on average, with tuition and fees accounting for $38,421 of that sum.

There are many kinds of funding and different types of student loans to contemplate when budgeting for college. When savings, federal student loans, federal work-study, and scholarships or grants can’t fill the gap, students may look to private lenders to help them cover the rest.

Unfortunately, students just starting out usually don’t have the credit history needed to get a loan from a private lender, so cosigners sometimes step in.

But do students have to have a cosigner for a private student loan? Almost always. Since many lenders won’t lend money to young adults with no or little credit history, they typically require cosigners. Roughly 90% of all private undergraduate student loans have a cosigner.

Recommended: A Complete Guide to Private Student Loans

What Are the Downsides to Cosigning My Child’s Loan?

If you’re looking to privately fund your child’s education costs, it means you likely need the help to pay for college, just like many Americans do. But cosigning for your child’s private student loan is not without potential repercussions. Think over the following:

•   When wondering if you should cosign a student loan, consider your relationship with your child. If something goes wrong — missed payments, extended unemployment, or worse, default — the potential for financial stress could create the possibility of misunderstandings and hurt feelings. If your relationship with your child is already tenuous, bringing financial stress into it will likely not help.

•   Cosigning could put your own finances at risk. You may have the most responsible young adult in the whole state, but if something goes awry and the loan goes into default, the lender may sue you or hire a collection agency to try to recoup the debt.

A student loan default might also tarnish your credit score. Simply signing the loan also affects your score. Even if you’re not the one making payments, you’re still responsible for the loan, according to the major credit bureaus.

Recommended: What Is a Credit Bureau?

What Are Alternatives to Cosigned Loans?

Do parents have to cosign student loans? Not necessarily. Below are some options to think over instead of cosigning your child’s student loans.

Fill Out the FAFSA®

Filling out the Free Application for Federal Student Aid (FAFSA®) is the first step to figuring out how much federal (and frequently state) financial assistance your child is eligible for. You’ll add your financial information that will determine the amount of federal assistance, which includes Direct Subsidized Loans, Direct Unsubsidized Loans, and other student aid from the federal government, like grants and work-study.

Some states and colleges also base merit aid on FAFSA information, so the application is an important one for all types of financial aid, not just federal.

Help Them Establish Their Credit Score

There are also some other pathways to consider when trying to find loans without a cosigner. One good idea is to have your child start building their credit history. A credit score is typically enhanced over time as the record of their successful payments grows, along with other factors like their outstanding debt, credit mix, and more. A couple of pointers:

•   Your student might start by either getting a secured credit card at a credit union or other financial institution, then showing they can make timely monthly payments on a purchase.

•   If your student is trustworthy and mature, you could also consider adding them as an authorized user to a credit card you already have. You’ll be responsible for making the monthly payments, but they could benefit from your financial behavior.

Look into Scholarships

The FAFSA will help colleges determine what federal student aid, scholarships, and grants your child might qualify for, but don’t let your student stop there.

Merit scholarships come in all sizes and from diverse sources, including local and national organizations, heritage associations, and various writing and other contests sponsored by nonprofits and other organizations. It might help to look at groups that your family might be closely associated with, such as unions, professional associations, or alumni organizations.

Keep in mind that your child can apply for scholarships while they are still in college, because some are tied to college majors, and your student is likely to have settled on a major after the first year or two. This could open up scholarship options that couldn’t be considered before they declared a major.

Create a Budget

You might also be able to forego cosigning a student loan by making strategic decisions about education costs. Can your student reduce the overall cost of college by ditching the meal plan, living off campus, or even attending a significantly less expensive college?

Or, instead of paring down expenses, maybe your student could consider boosting their income to avoid the need for a cosigner on a student loan. One idea might be to start a low-cost side hustle. Another could be to take a year off to work — this may be enough to close the gap, avoiding the need for a loan altogether.

Consider Parent Loans

Parents who don’t mind shouldering more of the cost can also take out their own federal student loans with the Direct PLUS Loan, sometimes referred to as a “parent PLUS loan.”

Even though your student benefits from the loan, they are not the borrower, and you’ll be solely responsible for paying it back. Some parents may consider working out a repayment arrangement between themselves and their student. If this will be the expectation, however, it’s a good idea to discuss the arrangement with your student before taking out this type of loan.

Direct PLUS Loans can also be taken out by graduate or professional students. Whether a parent or a graduate student, there is a downside for the borrower. The interest rate for Direct PLUS Loans is often higher when compared to other federal student loans — 9.08% for the 2024-2025 school year versus 6.53% for Direct Subsidized Loans and Direct Unsubsidized Loans.

Recommended: Comparing Subsidized vs Unsubsidized Loans

The Takeaway

Deciding whether to cosign on a student loan is a significant financial commitment that requires careful consideration. While cosigning can help a student qualify for a loan and potentially secure better terms, it also means the parent is equally responsible for repayment.

If a parent is not wanting to cosign, students can look into other financing options, as well. This includes cash savings, scholarships and grants, federal student loans, and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What does it mean to cosign a student loan?

Cosigning a student loan means a parent or other adult agrees to take equal responsibility for the loan. If the student fails to make payments, the cosigner is legally obligated to repay the debt.

Why might a student need a cosigner for a loan?

Many students have little or no credit history or income, which can make it hard to qualify for a private student loan on their own. A cosigner with good credit helps improve their chances of approval and may result in lower interest rates.

What are the risks of cosigning a student loan?

The biggest risk is that if the student misses payments, the cosigner’s credit could be damaged, and they would be responsible for repaying the loan. It can also affect the cosigner’s ability to qualify for other credit, like a mortgage or car loan.

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Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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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.

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Your personal loan agreement is the document that contains everything you need to know about the deal you’re making with your lender, including your rights and responsibilities as well as theirs. It’s a fairly long and complex form, but breaking it down can make it easier to understand.

Here, take a closer look at personal loan agreements.

Personal Loan Agreements Defined

A personal loan agreement, as mentioned above, is a document that details exactly what is being agreed to on both sides of a personal loan — lender and borrower. At the very least, it will state how much money is being loaned and the terms and conditions of the borrower’s repayment responsibilities.

But what about a personal loan that is not with a traditional lender? Private lenders can be individuals or organizations that make loans to individuals, sometimes without the qualification requirements of traditional lending institutions. A private personal loan agreement is drafted as part of a private personal loan — one made between a private lender and a borrower.

Any personal loan agreement is a legally binding document, so it’s important to understand it in full before you apply your signature.

Key Elements of a Personal Loan Agreement

Say you’ve applied for a personal loan. If you qualify, you’ll move along to a personal loan agreement. Among the key elements of a personal loan agreement are:

•   Parties involved: The lender and borrower, including their legal names and addresses.

•   Loan amount: The amount of money being borrowed, also known as the principal.

•   Interest rate: This is typically expressed as an annual percentage rate (APR), which reflects the total cost of borrowing over a year.

•   Repayment terms: How and when the loan will be repaid, including the payment schedule, payment frequency, and loan term.

•   Default provisions: The consequences of failing to make payments, such as late fees and potential actions the lender can take. Also, you may want to be sure severability clauses are spelled out, stating what happens if one aspect of the agreement is deemed unenforceable.

•   Governing law: Specify which jurisdiction’s laws will govern the agreement in the event that there are disputes.

•   Signatures and date: These are needed from both the lender and borrower.

You might also include details on any loan collateral, late and early payment (prepayment) penalties, and guarantors or cosigners, as needed.

Why Is a Loan Agreement Needed?

A personal loan agreement is essentially a protective document. It protects both the lender and the borrower by laying out, in clear terms, exactly what is being agreed to. If either party fails to uphold the agreement, action can be taken — such as the lender seizing any assets offered as collateral or sending the account to collections — both of which, obviously, would be bad for the borrower.

But the document works both ways. Lenders, too, are subject to lender liability and can be taken to court if they fail to uphold their end of the loan agreement. Although these cases are far less common than borrower default, the loan agreement is a document that can be used for the borrower’s protection as well.

How to Write a Personal Loan Agreement in 5 Steps

Here are the usual steps to writing a personal loan agreement.

1. Decide Whether to DIY It or Hire a Lawyer

Loan paperwork is often created by the lending institution. For private loans, depending on the specifics of your loan and situation, you could write up a simple agreement by hand or draft it on your computer and then print it out for signing, if you are working toward a private loan. Or you might download a template from a reputable site, which can be a popular option. These are often free or are sometimes available for a small fee.

However, if the loan is complicated or you don’t want to handle the agreement yourself, you could look into hiring a lawyer to draw up the paperwork. Either way, a personal loan agreement will be a legally binding arrangement. Hiring a lawyer will likely be a costlier proposition.

2. Gather the Necessary Personal Details

You will need the legal names and addresses of both parties. This ensures the lender can’t ask you for anything beyond the borrowed principal (plus interest, which will also be listed).

3. Agree to and Spell Out the Loan Terms

The loan agreement should list the payments that will be expected each month and the expected date of the conclusion of the loan term.

The interest rate for the personal loan should also be on the personal loan agreement, likely expressed as an APR, which shows what percentage of the loan principal you’ll end up paying back in the course of one year including interest and any additional fees that may be packaged into the loan.

The interest rate will vary based on your credit score and other financial factors. If you have decent credit, you’ll likely be able to qualify for a personal loan. But generally speaking, the higher your score, the lower your rate.

Recommended: Personal Loan Calculator

4. List Payment and Legal Details

A personal loan agreement should also include the following, as noted above:

•   The loan agreement may list which types of payment are acceptable, such as check, bank transfer, or credit card.

•   The personal loan contract should also list specific repayment conditions, including when payment is due and whether or not additional principal can be applied without penalty.

•   A complete personal loan agreement should include details on how any disputes will be handled between the parties involved.

•   Some personal loan documents may include the option to change your loan’s term (the period over which the loan is repaid).

•   Personal loan contracts in the United States should stipulate which state’s laws will be used to govern and interpret the agreement if the borrower lives in a different state than the lender is headquartered.

•   Severability is a clause that states that even if one part of a contract is found to be unenforceable or otherwise rendered null and void, the remainder of the agreement will still hold.

•   Penalties associated with the personal loan, such as any late fees that may be assessed, at what point the loan will go into arrears or default, or other scenarios, should be listed in the contract as well.

5. Sign the Document

Finally, the contract for loaning money must be signed by the borrower and the lender in order to be made legally binding.

Recommended: Comparing Personal Loans vs Business Loans

Other Personal Loan Documents

Along with the signed personal loan agreement, other typical personal loan requirements include the following:

Proof of Identity

Your driver’s license or some equivalent form of photo ID will likely be necessary in order to verify your identity.

Income Verification

Lenders will consider your income when qualifying you for a loan — after all, they have good reason to be interested in whether or not you’ll be able to repay the debt. Along with asking you to list your annual income, verifying documents such as tax returns may also be required.

Proof of Address

In order to prove your residence, and therefore eligibility for any type of personal loan, you may need to provide utility statements, bank statements, or other official documents.

The Takeaway

If you’re considering a personal loan, reading the loan agreement in depth is a good way to understand for sure what you’re agreeing to. That loan agreement will contain many details about funds borrowed and how they will be repaid, and it serves to protect both the lender and the borrower.

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.

FAQ

Does a personal loan agreement need to be notarized?

No, a personal loan agreement does not need to be notarized to be legally binding — it simply needs to be signed by each party to the agreement.

What is a private personal loan agreement?

A private personal loan agreement is the binding legal contract between a borrower and a private lender for a personal loan.

Why do you need a loan agreement?

The personal loan agreement serves to outline the specific terms of the loan and protect both parties in case either fails to uphold the agreement.

Can a personal loan agreement be legally enforced?

Yes, a written and signed agreement for a loan can be legally enforced. It’s a binding contract.

What happens if a borrower defaults on a personal loan agreement?

If a borrower defaults on a personal loan, they will face negative impacts to their credit score, potential legal action from the lender, and they might find that their account is turned over to collections. They might also be charged late fees and a higher interest rate on the remaining balance due.

Photo credit: iStock/Chaay_Tee

SoFi Loan Products
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.

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