What Is a High Interest Rate on a Personal Loan?

A personal loan with a higher interest rate is one that charges close to the maximum APR limit set by your state. This type of loan can be expensive but can help applicants with lower credit scores qualify for financing.

Find out how high-interest rate personal loans work and how to avoid potential red flags from lenders.

Understanding Personal Loan Interest Rates

When you apply for a personal loan, you’ll see an interest rate quote as part of your offer. You’ll also see the annual percentage rate (APR) vs. interest rate; the APR is usually a little higher because it considers the cost of lender fees as part of the percentage. The higher your rate, the more interest you’re charged over the life of the loan.

The interest rate is applied to your loan balance throughout the entire repayment term. Every time you make a scheduled payment, the payment is split up between principal and interest. You can use a personal loan calculator to figure out how much different interest rates will cost over time.

Most personal loans come with a fixed rate, meaning it doesn’t change over time. If you choose a type of financing with a variable rate instead of fixed, that means the interest rate can change, potentially causing your payment to increase.

What Is Considered a High Interest Rate?

Wondering what’s considered a high interest rate on a loan? The maximum limit for high-interest loans is regulated by individual states. There may be different rate caps based on the size of the loan and the length of the loan term.

Here’s an overview of the median state APR limit by loan size and term:

As you start exploring personal loans, be careful of interest rates at these levels or higher. It’s also important to watch for the states that don’t have rate caps.

Recommended: APY vs Interest Rate

Factors Influencing Personal Loan Interest Rates

When applying for a personal loan, there are five factors that impact your eligibility as well as your interest rate. Understanding each category gives you a better sense of whether you’ll need a high-interest rate loan in order to qualify.

•   Credit score: Having a lower credit score usually means you’ll pay a higher interest rate on any type of financing, including personal loans. Credit scores range from 300 to 850, and anything above 670 is considered good. If your score is lower than that, you may have trouble qualifying for a good interest rate.

•   Income: Your lender may require a minimum income in order to qualify. On top of that, earning more can help you get a better interest rate because you may be more likely to make your monthly payments on time.

•   Debt-to-income ratio (DTI): Your DTI compares how much debt you pay each month and how much income you bring in before taxes. With a high percentage of your monthly income going toward existing debt, you may not be able to borrow as much. Similarly, you may also have to pay a higher interest rate.

•   Loan term: Longer loan terms usually come with higher rates because there’s more of a chance that your financial situation will change. Getting a personal loan with a shorter term could help lower your interest.

•   Loan amount: A higher loan usually causes rates to rise, since the lender takes on more risk with a larger loan amount.

Identifying High-Interest Personal Loans

High-interest personal loans can be expensive and even predatory. Do your due diligence by comparing at least a few different loan offers to make sure your terms are normal for your credit profile.

Also look for red flags that could indicate predatory lending practices, like lenders that advertise no credit check or employ high-pressure sales tactics. Carefully review contract terms and look for any conflicting information or expensive fees. You can also check your state attorney general’s website to make sure a lender is licensed to do business where you live.

While there are reputable high-interest personal loans out there, make sure you’re finding the right ones with the best financing terms available.

Recommended: What Is a Personal Loan?

Consequences of High-Interest Personal Loans

Taking out a high-interest personal loan can affect both your short-term and long-term financial health. Pay attention to these three areas when considering whether or not this type of loan is right for you.

Monthly Budget

Make sure the principal and interest payments for your personal loan work with your budget. Over-stretching yourself can hinder your other financial goals. And if you don’t have much of an emergency fund, any change in your circumstances could make it difficult to stay on top of your loan payments.

Total Cost of Borrowing

Calculate how much a high-interest personal loan will cost you from start to finish. Include interest as well as lender fees.

Potential Debt Cycle

Some lenders may offer to refinance your loan if you have trouble making payments. But what they’re really doing is extending the repayment term to keep you paying interest for longer.

Alternatives to High-Interest Personal Loans

Before you take out a high-interest personal loan, consider some other options first.

•   Credit unions: These community-based financial institutions may have more flexible lending criteria, especially if you’re a member.

•   Peer-to-peer lending: P2P lenders used to connect individual investors with borrowers, but now most of them work with institutional investors like banks. Still, you may find different financing terms with this type of loan.

•   Secured loans: A secured loan uses some type of collateral that the lender can take if you default on your payments.

•   Balance transfer credit cards: If you plan to use a personal loan to consolidate debt, you may find a balance transfer card with an introductory interest rate. You can transfer existing balances to one card and try to aggressively pay off your balance with the introductory APR.

Factors That Can Lower Interest Rates

Taking some time to search for lower interest rates can help you save money on a high-interest personal loan. If you don’t need the money right away, check your credit report and work on the issues that are hurting your score.

Also shop around for multiple loan offers. Request quotes that only do a soft inquiry on your credit score so you don’t cause any damage. Finally, consider asking a trusted friend or family member to be a cosigner on the loan.

The Takeaway

Do personal loans have high interest rates? Some can, especially if you have a lower credit score and large existing debt balances. That said, a higher credit score and less debt could help you qualify for a better rate and terms. SoFi, for instance, offers personal loans with competitive interest rates for individuals with strong credit profiles.

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’s the difference between APR and interest rate?

A loan’s annual percentage rate (APR) includes additional costs like origination fees as part of the interest rate calculation, whereas the interest rate itself only applies to the percentage charged based on your principal balance.

Can I refinance a high-interest personal loan?

Yes, you can refinance a high-interest personal loan by taking out another loan and paying off your balance. Then you would start making new payments with the updated loan terms.

Are online lenders more likely to offer high-interest loans?

It depends. Online lenders tend to have fewer operating expenses since they don’t have brick-and-mortar branches like traditional banks. But they also may have more flexible lending requirements, which could mean higher rates for borrowers with bad credit.

How do personal loan interest rates compare to credit card rates?

A personal loan interest rate is usually fixed, while credit card rates are variable. Loans may come with lower rates as well, but it’s not guaranteed, especially if you have a lower credit score.

photo credit: iStock/staticnak1983

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A nurse residency program can offer nurses additional training and specialized skill enhancement that can benefit their career.

If you’re a recent nursing program graduate and you’d like to go into a specific nursing specialty, you may want to consider joining a nursing residency program. These programs allow nurses to transition more easily into the job, provide professional development, and help prepare them for the demands of nursing.

Here’s a deeper look at how nurse residency programs work, the pros and cons of these programs, and what to look for in a residency program if you decide it’s the right move for you.

What Is a Nurse Residency Program?

A nurse residency program helps nursing graduates transition into the workforce. It typically lasts up to a year and provides nurses with classes and instruction as well as specialized clinical experience. Nurses in nursing residency programs typically get paid, which is important for recent graduates living with student loan debt.

These programs aim to:

•   Improve clinical judgment and patient outcomes

•   Teach specialized skills

•   Reduce errors

•   Improve nurses’ job satisfaction and communication

•   Reduce stress and job turnover

A nurse residency has two phases: the transition phase and integration phase.

Transition Phase

In the transition phase, which usually lasts one to three months, nurses do online learning. They listen to lectures and read case studies about their nursing specialty. They are also introduced to hospital policies, and learn nursing ethics. During this time, they can attend discussion groups with other nurses and go to instructor-led training sessions.

Integration Phase

After the transition phase is complete, nurses begin the integration phase, where they work regular shifts ranging from eight to 12 hours during the day, night, or a mix of days and nights. This phase can last for several weeks or months, depending on the program. Nurses care for patients, communicate with families, and work with the larger health care team. During the transition phase, nurses work under the supervision of an instructor and program director who provide feedback about their performance.

How Do Nurse Residency Programs Work?

Nursing residency programs are available in 47 states (Hawaii, Wyoming, and Utah do not have these programs), and hundreds of hospitals and health care systems participate.

The programs tend to vary in length, though most programs last six months to one year. They provide specialized training at hospitals or other medical settings. Nurses work in clinical settings with a mentor and other residents, and they also take nursing classes focused on leadership and professional development.

As mentioned, nurses are typically paid while participating in a residency program, which can help them repay their nursing student loans. Nurses are also often contractually required to work at the facility for a specific amount of time after completing residency training.

Pros and Cons of Nurse Residency Programs

Nurse residency programs give recent graduates some distinct advantages, but there are drawbacks as well. Here’s what to know about these programs.

Pros

Nursing residency programs offer several benefits:

•   Better patient outcomes: Nurses gain deeper knowledge, confidence, and critical competencies through these programs, which can help them treat patients.

•   Job satisfaction: Nurses who participate in these programs report less stress than other nurses, and they are more likely to stay in the nursing field.

•   Support system: Specialized training from a team of experienced nurses and instructors can strengthen a nurse’s skillset, especially those going into nursing specialties.

•   Financial benefits: Nurses who participate in nurse residency programs are paid. That can be very helpful when you’re budgeting as a new nurse. However, nurse residents typically earn less than nurses who go directly into a nursing job after graduation.

Cons

Nurse residency programs require a significant time commitment. In addition, there are the following downsides to consider:

•   Competitive with limited availability: Many programs admit only a small number of nurses, and it can be difficult to secure a spot.

•   Constant supervision: Nurses are always under supervision during a nursing residency — more so than if they go straight into a job after graduation.

•   Less control: In a nurse residency program, the hospital or program director picks a nurse’s unit, the types of shifts worked, and the length of the shifts. Nurses must attend mandatory training sessions.

•   Required service: After completion of the program, nurses must commit to a year or more of service at the health care facility. If they break the contract, they may need to pay back the hospital for the training and education they received.

Recommended: Student Loan Refinancing Guide

What to Expect in a Nurse Residency Program

During the first two weeks of a nurse residency program, nurses undergo orientation and learn about the health care facility’s mission, values, and rules.

They also learn about the equipment they’ll be using and the practices of the hospital or unit they are working in.

By the end of the first month of a nurse residency program, nurses typically begin working shifts of 8 to 12 hours. During this time, under the supervision of instructors, they start taking on patients. Over the next six months, they continue working with patients, develop their patient care strategy, and attend classes to develop their professional skills.

During the final six months of the program, nurses typically receive more autonomy in patient care, finish up their formal coursework, and take a final evaluation and competency test.

What to Look for in a Nurse Residency Program

If you’re interested in a nurse residency program, you’ll want to find one that’s the best fit for you. First, look for an accredited program, which means an accrediting body has deemed that the program meets industry and educational standards. For example, the Commission on Collegiate Nursing Education (CCNE) and American Association of Critical-Care Nurses (AACN) require accredited programs to last at least six months to a year.

In nurse residency programs, the hospital or health care system you work for will control the department you’re in, the work you do, and your specific duties. So be sure to find out about the program’s curriculum; how long it lasts; what areas you might be able to specialize in; information on the instructors, program director and other leadership; and what the culture of the program is like.

Also, consider how a residency program might affect your lifestyle. As a new nurse, you are likely dealing with a number of financial obligations, including student loans you took out to help afford the cost of nursing school. Find out about the pay and benefits of the nurse residency program to make sure you can pay your debts.

Nurses looking to lower their federal monthly student loan payments may want to explore income-driven repayment (IDR) plans. These plans base your payments on your discretionary income and family size.

Under an IDR plan, you may also be able to work toward federal student loan forgiveness, such as the Public Service Forgiveness (PSLF) program for those working in public service jobs for a qualified employer like a government organization or nonprofit.

You might also want to consider the option of student loan refinancing to help manage your student loans. With refinancing, you replace your current loan with a new loan from a private lender. Ideally, the new loan has a lower interest rate and more favorable terms, which you could make your payments easier to meet.

Our student loan refinancing calculator can help you determine if refinancing makes sense for you.

Just be aware that refinancing federal student loans into private loans makes them ineligible for federal benefits like IDR plans and federal forgiveness programs.

Recommended: Refinancing Student Loans to Save Money

Is a Nurse Residency Program Right for Me?

If you are hoping to go into a specific nursing specialty after graduation from nursing school, you may want to apply for a nurse residency program. These programs offer a number of perks, including additional training and learning opportunities, mentorship, and deeper knowledge and hands-on experience. A nurse residency program can also help give you the clinical training you’ll need for your specialty.

However, nurse residency programs can be competitive and difficult to get into. Weigh the pros and cons carefully to make an informed decision.

The Takeaway

For many nursing graduates, a nurse residency program can be beneficial, offering a chance to learn, get on-the-job training, and work with experienced instructors — while getting paid. Nurses who participate in the programs tend to report less stress, and there is less job turnover. Patient outcomes also tend to be improved, and nurses can learn specialized training which can help them go into a specialty field.

But these programs typically accept only a small number of nurses each year, and they generally require at least a year of service afterward. Plus, nurses in these programs tend to earn less than nurses who go directly into a job, which can be an issue for those worried about repaying their nursing school student loans.

Remember, though, that you have options to potentially lower your payments — including income-driven repayment plans and student loan refinancing — which could help make it possible to participate in a residency program that will teach you special skills and help you achieve your career goals.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQs

Do nurse residency programs lead to a full-time job?

Nurse residency programs do usually lead to a full-time job. Nurses are typically contractually required to work for at least a year at the hospital or health care system after completing their residency.

Are nurse residency programs hard to get into?

Nursing residency programs are competitive, and it can be very challenging to get into them. Many programs accept only a small number of nurse residents per year. Having some clinical experience, such as doing clinical rotations in the specialty you’re interested in while you’re still in nursing school, may help you stand out from the crowd.

Photo credit: iStock/FatCamera

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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.