SoFi

Most consumers are aware of major types of loans, like mortgages, auto loans, and student loans. But there’s another type of loan that’s becoming increasingly popular as consumers seek out attractive rates and terms: personal loans. Though this kind of loan may enjoy less brand recognition, personal loan rates have become more competitive, and more popular as a result.

Average personal loan balances are expected to rise to nearly $8,000 by the end of this year, even as delinquency rates remain low.

Rising balances mean more money is available to customers who qualify for a personal loan and could use a cash infusion—or want to take advantage of competitive personal loan rates by using them to pay off existing loans at a lower interest rate. But what does it mean for the economy?

Take a superficial glance at household debt in the U.S., and you’ll notice that our current debt has exceeded 2008 levels. A closer look, however, makes it clear that the borrower profile in 2017 is much healthier than it was a decade ago. There is less housing debt now, and more loans are going to borrowers with good credit.

At the same time, bankruptcy has reached record lows, according to a Federal Reserve Bank of New York report released in May 2017.

And those personal loans? In order to figure out if they’re right for you, you need a comprehensive understanding of personal loan rates, including how they’re calculated, and whether they’re compatible with your financial timeline. Here’s some more info on personal loan rates.

How Personal Loan Rates Are Determined

Lenders use several factors to determine the interest rate on a personal loan, including details about your financial background and about the loan itself. What kind of financial questions can you expect?

Well, when lenders talk about a borrower’s creditworthiness, they’re usually referring to elements of your financial background such as your credit history, your income and employment, how much debt you already have, and whether you have a cosigner.

The loan terms can also affect the rate; for example, the size of the loan or how long you want to take the loan out for often affects personal loan rates. (Loan term is something borrowers should be thinking about as well. A longer loan term might sound appealing because it makes each monthly payment lower, but it’s important to understand that a longer-term loan may cost you significantly more over time due to interest charges.)

While borrower qualifications and loan type are the main factors lenders use to determine personal loan rates, borrowers also need to consider another essential question: Which lender is the best fit when they all offer different personal loan rates?

Average Personal Loan Interest Rates

The average interest rate for two-year personal loans from commercial banks was 10%, as of May 2017. Though there are several factors that determine personal loan rates (see more on this above), one of the big ones is credit history. A lower credit score generally means you can expect a higher interest rate on your personal loan.

If the interest rate is higher, the terms of your loan are likely to be less favorable, because taking out a personal loan with a higher rate means you’ll ultimately have more money to pay back than someone who takes out the same loan with a lower rate.

Borrowers with poor credit may face a loan rate as high as 36% APR, which in many cases is the highest rate that can legally be applied to personal loans.

How to Calculate Personal Loan Rates

There are many personal loan calculators available online, but you need some basic information about the kind of loan you’re looking for before you can use any of them. Loan calculators typically ask for your desired loan amount and loan term, and they may ask you to put in other details, such as your ideal interest rate and loan start date, your location, or your estimated credit rating.

Once you put in the requested information, the calculator can tell you your estimated monthly payment and possibly the total payment due, the payoff date, and the personal loan rate you’d be likely to get.

To find out how a SoFi personal loan can save you money by helping you pay off high-interest debt, the SoFi personal loan calculator can help. No matter which loan calculator you use, keep in mind that these are rough estimates and may not match the actual rates you receive when a lender has conducted a more complete loan review.

How Personal Loan Rates Compare to Home Equity Rates

A home equity line of credit, or HELOC, requires homeowners to put up their homes as collateral so they can access a revolving line of credit. It has traditionally been an adjustable-rate loan, meaning the interest rate changes and can rise during the repayment period.

The loan can be used for expenses such as large purchases or home renovations. HELOC borrowers can borrow up to their approved credit limit (which usually amounts to most of their home’s equity, depending on their qualifications) and pay interest on the amount they withdraw.

For personal loans, typically borrowers don’t need to put up a home or other collateral to get the money, and they can choose a fixed or variable rate. A HELOC loan is a secured loan, which means it requires collateral, whereas a personal loan is typically an unsecured loan, which takes collateral completely out of the equation.

If you’re unable to pay back a secured loan, the bank can seize your collateral, which in the case of a HELOC loan is your house. Therefore, a personal loan can be safer because you don’t have to put valuable collateral on the line.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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You may be wondering whether it makes sense to prepay student loans. The answer, not surprisingly, is that it depends. It depends upon your current financial situation, as well as your projected one. In general, there are three main issues you may want to consider:

•   Your cash reserves
•   The cost of your debt
•   The expected return on any investments

Your cash reserves are simple to understand and can be broadly summarized by your answers to the following questions:

•   Do you have enough cash saved up for unexpected bills? A commonplace goal is to hold six to 12 months in cash or very liquid, safe securities for an “emergency fund.”
•   If you lost your job, would you have enough cash reserves to find another one that you wanted?

If the answers are “no,” then building up sufficient savings before considering early student loan repayment is probably a smart idea. For the sake of this post, though, let’s assume you are okay with your cash reserves. The rest of this post can help you analyze those two key bullet points, as well as help you determine benefits of paying student loans early—and the life stages at which it might make good sense to do so.

Calculating the Cost of Your Debt

To determine the true cost of your debt, you’ll need to know what the real rate of interest is on your loans. With a credit card, it’s your annual percentage rate (APR). With student loans, the net cost of the loan is the rate you pay, adjusted for any tax benefit .

You may be eligible to deduct up to $2,500 in interest expense on your qualifying federal student loan. However, you only get this full deduction if you are making under $80,000/year ($165,000 for married filing jointly).

Calculating the Expected Return on Investments

Next, you need to determine what your expected return on investment could be for any cash that you’ve freed up and made available for investment purposes. It’s probably wise to consider the risk involved in each investment.

You can find basic information about common types of investments, such as stocks, bonds, mutual funds and alternative investments in our blog post titled, “How Investments Make Money.” This post also shares information about typical levels of risk for various investment vehicles to help you decide your personal investment risk tolerance (or whether to invest at all).

Consider Your Loan and Investment Options

Armed with all this information, you can now more easily assess your options. If it’s important to you to begin investing for retirement, then it may make sense to keep investing and paying down your loans simultaneously, as opposed to dedicating all your resources to debt pay off.

Here are a few more things to consider: First, paying down any loans will generally help improve your FICO® score. That could be important to you if you are considering a large purchase in the future, like buying a home, which takes your credit score into account. Second, when measuring investments against debt, keep in mind whether you can afford to be wrong. What if that great stock tip tanks? Are you in any financial danger having not paid off your loans and put money toward riskier stocks instead?

If you’ve decided it’s time to invest more strategically, then check out an investment account with SoFi Invest®, where you get the combined benefits of automated-investing algorithms and advice from experienced human professionals. And, if student loan prepayment intrigues you, read on, keeping in mind that advice given in this post is shared on the assumption that you have sufficient emergency savings and isn’t intended to be financial or investment advice.

Potential Benefits of Paying Student Loans Early

Paying your student loans off early can make excellent sense because you’ll pay less interest during the life of the loan—sometimes significantly less. Money you would have paid in interest can be spent elsewhere, perhaps contributing to the down payment of your dream home or invested towards your retirement, as just two examples. Just make sure you let your lender know where to apply those prepayments and that you aren’t advancing your due date!

Here’s another possible benefit: If you’re buying a house or making another purchase of significance, lenders typically want to see that your total monthly payments will fit under a certain percentage of gross monthly income, often 43%. This is typically called your debt-to-income ratio. By paying off student loans early, you can reduce your debt-to-income ratio because the size of your debt might decrease once your student loans are out of the picture.

And, let’s face it—paying off debt provides a sense of relief, perhaps even of accomplishment. So, another potential benefit of paying your student loans early is peace of mind, which is priceless.
When It Might Make Sense to Prepay Student Loans

There are some stages in life that make it easier to prepay student loans than others. Times when it often makes sense to pay early include when you don’t have many other debts of significance, when you get a nice bonus at work, or when you get a raise. In fact, any time you discover extra wiggle room in your cash flow or have an unexpected windfall, consider whether it makes sense to pay more on your student loan balance.

Warning: Loan Prepayment Penalties

While student loans do not come with prepayment penalties, other loans sometimes do. If you’re paying off a personal loan early, for example, you may be hit with prepayment penalties. So be sure to check the loan notes you signed to see whether this type of penalty is included in the terms and conditions of your loans.

If there is a prepayment penalty included in one or more of them, this generally means the lender requires you to pay a certain amount of interest before you can pay off your loan. If you pay it off before you’ve fulfilled the minimum interest requirements, you can be charged a penalty.

Different lenders calculate prepayment penalties differently so, if this situation applies to you, find out how yours would be calculated. Some, for example, may charge you a year’s worth of interest as a penalty, while another may use a percentage of remaining principal to calculate the fees. Still others have a flat fee you pay, no matter how early the prepayment or how much you owe.

Check to see if your loan allows a partial payoff without penalty. In that case, you may be able to pay your loan down faster without having a penalty attached. Also, check to see if conditions of your prepayment penalty lessen over the years. Remember, it never hurts to talk to your lender to see if there are ways to sidestep or at least reduce the penalty.

Plus, here’s a piece of information to protect you in the future: Because of the Truth in Lending Act (TILA), personal loan lenders must provide you with a document that lists any fees they will or can charge, including prepayment penalties. Armed with that knowledge, you can shop around for lenders that don’t charge them—such as SoFi.

Refinancing Student Loans with SoFi

SoFi is the leading student loan refinancing provider, with $18 billion in refinanced student loans from more than 250,000 members. Refinancing your student loans can allow you to shorten your term length, lower the interest rate on your loans, or lower your monthly payment by extending your loan term.

If you have unsubsidized federal loans, interest will begin to accrue during your six-month grace period. However, for those who qualify, you can refinance with SoFi during this period, and we will honor the first six months of any existing student loan grace period.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC .
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During this time, many Americans are taking time to reflect on the things they’re grateful for. But for some people, the season of giving thanks actually represents something that they aren’t all that thankful for—student debt. November and December mark the end of many student loan grace periods, which means this is the time of year when recent grads have to start paying back student loans.

If you fall into this category, here’s something you can be thankful for: a smart student loan repayment strategy.

Because make no mistake—paying back student loans does require a strategy, particularly for the average graduate, law or medical school grad shouldering six figures of student loan debt .

You might think it’s as simple as choosing a student loan repayment plan and writing that first check. But variables like your monthly payment amount, the interest rates on your loans, and how long you take to pay everything off can all have a big impact on your bottom line. A smart strategy optimizes these factors for your specific situation, so that you don’t spend a penny more than you have to when paying back student loans.

You can’t do anything about your grace period ending, but you can take steps to help put your repayment strategy on the right track. Here are a few tips on how you might do just that:

Know What you Owe

Chances are you haven’t looked at your loans since you signed on the dotted line, so the first thing you’ll want to do is survey the damage. You can find your federal loans on the National Student Loan Data System (NSLDS). For private loans, try gathering up your statements or checking in with your school’s financial aid administrator. If you’re really at a loss, you can pull your credit report and all of your loans should be listed there.

Once you’ve tracked everything down, make a list of your loans and their important details: the type (e.g., subsidized, unsubsidized, Grad PLUS, private), the amount and the interest rate on each one. This information will be key to determining your strategy.

Read the Fine Print

Now it’s time to familiarize yourself with the features of each loan type. A general rule of thumb is that federal loans tend to offer more hardship-based benefits than private loans—things like forbearance, potential student loan forgiveness, and income-based repayment plans. It’s important to understand whether any of these benefits apply to you before determining your repayment strategy—you’ll learn why in a moment.

Private loans don’t typically offer these same types of programs, but some of them do provide forbearance and other valuable benefits—you’ll simply have to call your lender to find out.

Do the Math

Remember when we said that various factors (such as interest rate, monthly payment amount and loan term) make a difference in your loan’s bottom line? This is the part where you discover just how much. Federal loans offer different student loan repayment options, potentially allowing some flexibility around monthly payment amount and length of repayment term (e.g., 10 years vs. 20 years).

While it may be tempting to just choose the option with the lowest monthly payments, the long-term repercussions can potentially be costly. (Meaning, lower payments typically mean longer terms, which can increase the total amount you pay overall.) You can use tools like our student loan payoff calculator to discover how long it can take to pay off your loans using different interest rates and monthly payment combinations.

Consider your Options

You may also be wondering whether to consolidate or refinance student loans. Broadly, consolidating means combining two or more loans into one loan, while refinancing student loans entails applying for a new loan at a (hopefully) lower interest rate and a new term, then using that new loan to pay off your old loans.

If you consolidate student loans through the Direct Loan Consolidation program, only federal loans are
eligible, and a primary benefit is that you can reduce the number of different loans you have to pay each month and you may get a lower monthly payment.

Direct Loan Consolidation typically won’t save you money, since the resulting interest rate is a weighted average of the original loans’ rates, rounded up to the nearest one-eighth of one percent.

So you can lower monthly payments by extending the payment term at this new fixed interest rate, but be aware that this usually means you’ll spend more on total interest over time.

You may also be able to consolidate student loans through the refinance process, and some lenders will refinance both private and federal student loans. More importantly, refinancing may potentially save you money.

In order to qualify for a lower rate, you typically need a solid income and positive history of dealing with debt. Before refinancing federal loans, you’ll probably want to determine whether any of the federal benefits mentioned above apply to you—they won’t transfer to a private lender through the refinance process. But if saving money is your top priority, refinancing may be a great option for you.

Clearly, there’s no “one-size-fits-all” approach to determining a student loan repayment strategy. But if you take the time to understand all of your repayment options, you can create a strategy that works best for your situation and potentially saves you money over the long term. And that allows you to focus on being thankful for your education rather than resenting your debt.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Starting your own business is one of the most challenging—and rewarding—leaps you can take with your career. Turning your idea into a successful, thriving firm takes ingenuity, determination, and grit. It also takes a decent chunk of capital. You have to spend money to make money, right?

According to the U.S. Small Business Association, 57% of start-up businesses rely on personal savings to get their firms going. But if you’re just starting out or are planning an expansion to take your business to the next level, you might need more than you feel comfortable taking out of your savings.

Luckily, there are other sources of financing available that can help offset your costs. In fact, a recent National Small Business Association report found that available financing for small firms is on the rise, with 73% of businesses being able to access the financing they need.

Whether you need to get your business off the ground, expand your reach, or have cash on hand, it can take some creativity to find the right financing to help you thrive. Here are the basics of debt financing to help you find the right solution for your business.

What is Debt Financing?

Debt financing is the technical term for borrowing money from a lender to help run your business (as opposed to raising equity to cover your costs). Examples of debt financing include small business loans and lines of credit. Small businesses use debt financing to cover a range of expenses including start-up costs, operations, equipment, and repairs.

How Does Debt Financing Work?

Essentially, debt financing means borrowing money from a lender that you agree to pay back, typically with interest. If you’ve ever taken out a loan, you’ve financed a debt. The terms of the financing are agreed upon in advance, and you are mostly free to use the money however you wish.

Getting debt financing with favorable terms can be dependent on your credit score and financial profile. However, it is a relatively quick way to secure funds.

What’s the Difference Between Debt Financing and Equity Financing?

Equity financing refers to selling shares of a business in exchange for capital. Basically, this means finding investors who, in exchange for a portion of the business, help fund it. Equity financing can include everything from raising funds from friends and family to securing multiple rounds of financing from angel investors and venture capital firms.

A benefit of equity financing is that it’s money that is given rather than lent, meaning that you won’t have to pay interest. Another benefit is the investors themselves: Having good relationships with them can lead to important connections, mentorship, and resources to help your business grow.

Of course, a potential downside to equity financing is losing some control over the business and its operations (for example, many investors may want a seat on your board in exchange for funding . It can also take a long time—and a lot of effort—to attract and secure investors.

What’s the Difference Between Short and Long-Term Debt Financing?

Debt financing can be divided up into categories of short-term and long-term. Short-term debt financing refers to loans that are repaid over a period of a year or less. This includes everything from using a credit card, to opening a line of credit that you repay as you use it. Short-term financing can be useful for everyday expenses, small emergency repairs, and to cover cash flow.

Businesses use long-term debt financing to cover larger purchases such as expensive equipment, renovations, or real estate purchases. This can include mortgages or business loans which have multiple-year repayment plans. Often lenders require these types of loans to be secured by the assets that they are helping you purchase. For instance, a property mortgage would be secured by the property itself.

What Debt Financing Options are Available?

If you’re looking for an immediate solution, short-term debt financing may be a good place to start. For covering smaller day-to-day expenses that you plan to pay back quickly, a credit card might be the easiest and most familiar option.

Opening a line of credit can also be a handy way to manage cash flow or finance an expansion over a period of time. A line of credit works a bit like a credit card, but with more flexibility.

Lines of credit tend to be larger than credit card limits, and they usually have more competitive interest rates. Just like a credit card, you can borrow what you need as you need it, and then make monthly repayments.

About SoFi

SoFi is a new kind of finance company that offers personal loans, student loan refinancing, mortgage refinancing, and more. Learn more today to see how SoFi can help you reach your financial goals.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Paying off student loans fast is all about momentum and resourcefulness. Staying up-to-date on your payments—or ideally getting ahead of them a bit—can give you the motivation you need to tackle and clear your student loan debt as quickly as possible.
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When it comes to student loan repayment, there are two great ways to build momentum: prepaying (or paying more than the monthly minimum) and reducing interest rates (through student loan refinancing).

Here are five tips to help you build momentum, so you can pay back student loans faster and make your debt a distant memory.

#1 Learning the Benefits of Prepaying

When considering how to pay off loans fast, you may want to think about saving money on student loan interest by prepaying. That means to make payments in addition to your regular monthly payment.

Generally, there is no penalty for making extra student loan payments (check with your lender or loan servicer to verify this), and it can help you spend less on interest over the life of the loan.

If you haven’t started paying off your loans yet, you can use our student loan calculator to estimate your monthly payments. Then, you can determine how much you want to pay on top of that each month, to help pay off your student loans faster.

As a bonus, it’s amazing how motivating it can be to see your outstanding balance shrink more quickly than you planned by making more than your minimum payment each month.

An important note: Some lenders may apply the additional money to next month’s payment instead of deducting it from your student loan balance if you don’t specify where you want to apply your prepayments. If your goal is to save money on interest and be done with your loans sooner, ask your loan servicer if they can apply any extra payments to your loan’s principal instead.

#2 Taking Control of Your Spending

Prepaying sounds great, but where are you going to come up with that extra cash? You can start by taking stock of where your money currently goes.

Many of us have “leaks” in our spending that we barely notice—whether we’re springing for frequent takeout dinners or have auto-payments on magazine subscriptions that we keep meaning to cancel.

Try recording your daily spending in the notes app on your smartphone or using an app like Toshl , which can help give you better insights into where your money is going. Sites like Mint offer tools that can help you create a livable budget with room for the occasional splurge.

#3 Using Unexpected Windfalls to Grow your Proverbial Garden

Instead of treating a windfall like “fun money,” use it to get ahead on your debt. Whether you come into money through inheritance, you get a pay out from a stock you’d forgotten you owned, or your boss hands out a surprise bonus, try to put a portion of your surprise cash straight toward your debt.

And don’t just think small—see if you can apply at least 50% of any financial gifts, dividends, bonuses, and raises toward paying down your loans.

#4 Creating Another Income Stream

If your main job isn’t extremely demanding, you might consider adding a side hustle to help pad your debt payments. Sites such as Upwork can connect you with freelance work. If you don’t have the time or inclination to take on another job, you can consider becoming an Airbnb host .

According to recent analysis from SmartAsset , the average host can expect to cover 81% of their rent by listing one room in a two-bedroom apartment on Airbnb.

They also found that, in many cities, it may be possible to pay the entire rent on a two-bedroom apartment with around 20 days of bookings per month. That translates to sizable savings you can put toward your student loans.

#5 Lowering your Interest Rate

If you are a working graduate paying down high-interest student loans, student loan refinancing could be a powerful way to make a dent, if you qualify. For example, securing a lower interest rate can make a big difference in what you have to pay over time.

Bear in mind that if you have federal student loans such as Direct Loans and Graduate PLUS loans, refinancing them with a private lender like SoFi means you will lose certain benefits that come with them, such as access to the Public Service Loan Forgiveness program and income-based repayment plans.

However, some graduates may find they don’t need these benefits and that the cost-saving benefits—and faster payoffs—that can come with refinancing provide more value.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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