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When researching personal loans, you may see the terms APR (Annual Percentage Rate) and interest rate used interchangeably. However, they are not the same thing. The interest rate refers to the cost of borrowing money, expressed as a percentage of the principal amount, but it doesn’t include any other fees or charges.

APR, on the other hand, includes not only the interest rate but also other fees and charges you may incur when borrowing money. This makes the APR a more important number to look at that interest rate.

Read on for a closer look at APR vs interest rate, what it means when these two numbers are different, and what it means when they are the same.

What Is Interest?

Interest is the cost you pay for the privilege of taking out a loan — the money you’ll owe along with the principal, or the amount of money you’re borrowing.

Interest is expressed in a rate: a percentage that indicates what proportion of the principal you’ll pay on top of the principal itself. Interest may be simple — charged only against the principal balance — or compound — charged against both the principal balance and accrued interest itself. Typically, personal loan rates are an expression of simple interest.


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

Loan APR vs Interest Rate

So what’s the difference between an APR vs. an interest rate?

APR stands for Annual Percentage Rate and specifically designates how much you’ll spend, as a proportion of the principal, over the course of one year. Furthermore, the APR includes any additional charges on top of interest, such as origination or processing fees, which a straight interest rate does not.

In other words, APR is a specific type of interest rate expression — one that’s more inclusive of additional costs.

Why Is My Personal Loan APR Different Than the Interest Rate?

If your personal loan’s APR differs from its interest rate, that indicates that there are additional fees, such as origination fees, included in the total amount you’re being charged. If there were no fees, the APR and interest rate would be identical.

How Important Is APR vs Interest Rate?

A loan’s APR is generally more important than its interest rate because APR reflects the true cost of the loan — it accounts for interest as well as any fees tacked on by the lender. Looking at APR also allows you to compare two loan offers apples to apples. One loan may have a lower interest rate than another loan but if the lender tacks on high fees, then it may not actually be the better deal.

APR vs Interest Rate on Revolving Credit Accounts

Personal loans aren’t the only financial product that involve APR and interest rate. Revolving credit accounts — including credit cards — also have interest rates expressed as APR. However, with credit cards, these two rates are one and the same: APR is just the interest rate, and the terms can be used interchangeably.

Credit card issuers may charge other fees, e.g., cash advance fees, late fees, or balance transfer fees as applicable to individual usage. But it’s impossible to predict the type or amount of fees that might be charged to any one card holder.

Although these two expressions are the same, it’s important to understand that the interest rate on credit cards and other revolving credit accounts is usually compound interest, which is precisely why it can be so easy to spiral into credit card debt. When interest is charged on the interest you’ve already accrued, the total goes up quickly.

A single credit card account can have multiple APRs, depending on how the credit is used.

•   Purchase APR: the standard APR for general purchases.

•   Cash advance APR: the rate charged for cash advances made to the card holder.

•   Balance transfer APR: may begin as a low or zero promotional rate, but increase after the introductory period ends.

•   Penalty APR: may be charged if a payment is late by a predetermined number of days.

💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

What Is a Good Interest Rate for a Personal Loan?

The interest rate on your personal loan — or any financial product — will vary based on a wide variety of factors, including your personal financial history (such as your credit score and income) as well as which lender you choose, how big the loan is, and whether or not it’s secured with collateral.

The average personal loan rate is currently about 12% APR. However, the rate you receive could be higher or lower, depending on your financial situation and the lender you choose.

Getting a Good APR on a Personal Loan

To get the best rate on your personal loan, there are some financial factors you can influence over time. Here are some action items to consider.

Improving Your Credit

It’s been said before, but it’s true: the higher your credit score, generally the better your chances are of achieving favorable loan terms and lower interest rates — not to mention qualifying for the loan at all. While there are loans out there for borrowers with bad credit and fair credit, improving your credit profile can make borrowing money more affordable.

Paying Down Your Debts

One way you may be able to improve your credit is to pay down your debts. And along with the opportunity to bolster your credit, paying down debt can also improve your chances of being approved for a loan because your debt-to-income ratio is one factor lenders look at when qualifying you for a loan. What’s more, paying down debt can make keeping up with your monthly loan payments a lot easier, since you’ll have more leeway in your budget.

Be Careful When Applying for Credit

Applying for too much credit at once can be a red flag for lenders and ding your credit score, so if you’re getting ready to apply for a personal loan, auto loan, or mortgage, try to limit how many times you’re having your credit score pulled. Typically, prequalifying for a loan involves a soft credit pull, which won’t impact your credit.

While credit scoring models do allow for rate shopping, it’s still a good idea to compare multiple lenders over a limited amount of time — a 14-day period is recommended — to find the lender that works best for your financial needs. If done in a short window of time, multiple hard credit pulls for the same type of loan will count as just one.

Recommended: Soft vs Hard Credit Inquiry

The Takeaway

Personal loans and other financial lending products come at a cost: interest. That’s the amount you’ll pay on top of repaying the principal balance itself. Interest is expressed in a percentage rate, most commonly APR, which includes both the interest and any other fees that can increase the cost of the 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. Checking your rate takes just a minute.

FAQ

Why is my personal loan APR different than the interest rate?

If the annual percentage rate (APR) on your personal loan is different from the interest rate, it means the lender is charging additional fees, such as origination fees or others.

How important is APR vs interest rate?

The annual percentage rate (APR) is generally the more important figure to look at, since it includes additional costs incurred in getting the loan, such as fees. The APR will give you a more holistic picture of the price of the loan product.

What is a good APR and interest rate for a personal loan?

Personal loan interest rates vary widely but currently average around 12% APR. Depending on your personal financial history, the type and amount of the loan you’re borrowing, and your lender, the rate you receive could be higher or lower.

Photo credit: iStock/Charday Penn

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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When someone applies for a personal loan, there are a lot of moving parts and key players involved. While each lending institution will have their own unique process in place, loan applicants can expect to come across a loan officer, loan processor, or an underwriter.

There’s a decent amount of overlap in these roles, so to get some more clarity on who does what, let’s take a look at a loan officer vs. loan processor vs. underwriter.

What Is a Personal Loan Officer?

A loan officer evaluates loan applications and determines whether or not to recommend them for approval. A personal loan officer is a specific type of loan officer that focuses on personal loans. Personal loan officers are generally employed by credit unions, banks, and financial institutions.

Generally, a personal loan officer takes on the following job responsibilities:

•   Contact potential borrowers to see if they need a loan.

•   Work with loan applicants to gather information required for the application.

•   Walk applicants through the different loan types available to them and their unique terms.

•   Collect, verify, and review an applicant’s financial information (e.g., credit score, income, and other factors).

•   Review any loan agreements to confirm they are in compliance with all state and federal regulations.

•   Approve loan applications or pass them onto management for a final decision.

A major part of a personal loan officer’s responsibilities happen during the underwriting process. This process is used to determine if an applicant qualifies for the loan they are applying for. Once a loan officer collects and verifies all of the necessary personal and financial information about an applicant and any corresponding documents, the loan officer will assess the applicant’s need for a loan and their ability to repay it on time.

A loan applicant working with a loan officer can turn to them about any questions they have about what a personal loan is or about the application process. A personal loan is a type of consumer loan and consumer loan officers may use a fully automated underwriting process using software or they may complete it themselves (which is more often the case with smaller banks and credit unions).


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

What Is a Personal Loan Processor?

A personal loan processor, also known as a loan interviewer or loan clerk, is responsible for interviewing applicants and other necessary parties to obtain and verify the financial and personal information required to finish the personal loan application. Once the applicant is approved for the loan, the personal loan officer will prepare any documents required for the appraisal and the closing of the personal loan.

Recommended: Where to Get a Personal Loan?

What Does a Personal Loan Processor Do?

The personal loan processor serves as a liaison between the financial institution issuing the loan and the applicant to make sure that qualified applicants can secure a loan in a timely manner. The loan processor will also help applicants decide which loan product is the best fit for their financial needs and goals. For example, if an applicant is experiencing financial hardship, the loan processor can help them set up debt payment plans.

Review Your Application

A loan processor receives, collects, distributes, and evaluates applicant information required to complete the loan application. They can approve or deny an applicant.

Verify Your Information

Personal loan officers are tasked with interviewing applicants and other necessary parties in order to verify any financial and personal information that must be evaluated during the application process.

Request Documents

As a part of the verification process, they will also request and collect any necessary documents from the applicant. They are also responsible for preparing any documents required for the appraisal and closing process.

Third Party Reports

In addition to collecting documentation from the applicant, the personal loan processor will work with third parties to obtain any necessary documents and reports, such as the applicant’s credit report.

Is a Personal Loan Processor the Same as an Underwriter?

While there is some overlap between what a personal loan processor and an underwriter do, these are two different roles. A loan underwriter focuses on evaluating how creditworthy an applicant is by collecting and evaluating an applicant’s financial information. Typically, they then use loan underwriting software to make an approval or denial recommendation.

A loan processor also reviews how eligible an applicant is for a loan by collecting and verifying important information and documents, but they don’t use underwriting software to make a decision. The loan processor has the ability to approve or deny an applicant.

Is a Loan Officer or Loan Processor Responsible for Your Personal Loan Approval?

When it comes to loan processor vs. loan officer, both loan officers and loan processors have the ability to reject or deny a loan application or, at the very least, make a recommendation for whether or not an applicant should receive a loan.


💡 Quick Tip: With lower fixed interest rates on loans of $5K to $100K, a SoFi personal loan for credit card debt can substantially decrease your monthly bills.

When Does a Personal Loan Processor or Officer Get Involved?

When someone applies for a personal loan, they’ll connect with a personal loan processor or officer when they submit their initial application. Either one can start the process of collecting personal and financial information and supporting documentation from the applicant.

What Happens During Personal Loan Processing?

During the personal loan processing stage, the applicant will work with the personal loan processor to provide them with any personal information, financial information, or documentation that the personal loan processor needs to finish their application.

Recommended: How Much of a Personal Loan Can I Get?

Getting Approved for a Personal Loan

Getting approved for a personal loan requires going through the underwriting process which assesses how qualified a loan applicant is. Some firms use underwriting software to make a decision whereas others make the decision without the aid of software.

The Takeaway

When comparing a loan officer vs. loan processor, it’s clear that both loan processors and loan officers play an important role in the personal loan application process. Their roles often overlap and where they work determines the exact role they take on.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Is a personal loan processor the same as an underwriter?

No, a personal loan processor is not the same as an underwriter, although they share similar responsibilities. A loan underwriter determines whether or not an applicant is creditworthy. A loan processor collects and verifies any personal and financial information required to complete loan applications.

What does a personal loan processor do?

A personal loan processor works with personal loan applicants to gather the information and documents needed to complete their applications. A personal loan processor also prepares appraisal and closing documents.

When does a personal loan processor or officer get involved?

A personal loan processor or officer gets involved once a consumer starts the application process. They can help guide the applicant through that process.

Photo credit: iStock/Delmaine Donson

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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If your credit is not quite up to a lender’s preferred level to get favorable interest rates and terms on your own, you may be considering a joint personal loan. Using a co-borrower may be one option to help you qualify for a personal loan.

A co-borrower is an additional borrower on a loan who is obligated to repay the loan alongside the primary borrower and shares the responsibility of paying it back. And a co-borrower — if they have great credit and income, among other factors — may have the added benefit of helping to make the original borrower seem less of a risk to a lender.

Here are key things to know about using a co-borrower on a personal loan.

What Are Joint Personal Loans?

Joint personal loans are loans that take into account multiple borrowers’ creditworthiness in the approval process. There are typically two borrowers on this type of loan — a primary and a secondary borrower — to establish joint personal loan eligibility.

Being a co-borrower on a loan comes with different rights and responsibilities than being a cosigner on a loan.

•   Co-borrowers, along with the primary borrower, have equal ownership of loan funds or what is purchased with the loan funds and are equally responsible for repayment of the loan over the life of the loan.

•   Cosigners have no ownership of the loan funds or what they’re used to purchase, and they are responsible for repayment only if the primary borrower fails to make payments.

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

How To Use Joint Personal Loans

If you don’t feel confident about qualifying for a loan, or have concerns about a potentially higher interest rate due to your overall creditworthiness or other reasons, finding a reliable co-borrower might help improve your chances of approval, along with the interest rate and terms you’re offered.

Couples can use a joint personal loan for a wide variety of purposes, including consolidating high-interest debts, paying for a large expense or event (like a wedding), or funding a remodeling project.

Why Do People Use Joint Personal Loans?

One common reason why someone might consider a joint personal loan is that they cannot qualify for a loan on their own, or they would like to qualify for a lower interest rate or more favorable loan terms than they could on their own.

Some reasons people may seek a co-borrower are:

•   They don’t have a long credit history.

•   They’ve just entered the workforce.

•   They’re in the process of rebuilding their credit.

•   They would like to qualify for a larger loan than they could on their own.

How Much Can You Save With Joint Personal Loans?

Having two borrowers on one personal loan may help you to qualify for a more favorable interest rate than if just one person’s income and credit are considered. Different lenders will have different qualification requirements, though, so it’s a good idea to compare lenders.

Using a joint personal loan for debt consolidation can be one way to lower the amount of interest paid on outstanding debt. Again, how much savings is accomplished depends on multiple factors, such as the borrower’s creditworthiness, how long it takes to pay down the debt, and others.

What Credit Score Is Required for a Joint Personal Loan?

There is no definite answer to this question, but, in general, applicants with higher credit scores qualify for loans with lower average personal loan interest rates. And, vice versa, applicants with lower credit scores generally qualify for loans with higher interest rates.

Lenders tend to be risk averse and prefer to lend money to people who they believe will repay it in full and on time. An applicant’s credit report — a summary of how responsible they are with credit that has been extended to them in the past — and credit score are tools lenders use to assess risk.

Before applying for a joint personal loan, it’s a good idea to review your credit report. If there are errors or discrepancies, you can file a dispute with the credit reporting agency. If you have poor credit or a limited credit history, you might consider taking some time to improve your credit profile before applying for a loan. Lenders will look at both applicants’ credit reports during the joint personal loan approval process, so it’s worth it for your credit to be in good shape.

Recommended: What Credit Score Do You Need for a Personal Loan?

Individual vs Joint Loan Applications

The basic process of applying for a loan is the same no matter the number of applicants. Lenders will typically request the same information on either an individual or a joint loan application: proof of identity and address and verification of employment and income, in addition to any lender-specific information. For an individual loan application, there is just one person’s information to verify. Joint loan applications require information for each applicant.

Cosigned Loan vs Joint Personal Loan: The Differences

Both cosigned and joint loans include an additional borrower. However, a co-borrower taking out a joint loan has different rights and responsibilities than a cosigner.

The Disadvantages of Choosing a Cosigned Loan

The disadvantages of a cosigned loan lie mostly with the cosigner, not the primary borrower. The cosigner does not have any ownership rights to the loan funds or anything purchased with the loan funds. They are, however, responsible for repayment of the loan if the primary borrower fails to make payments.

The cosigner’s credit can be negatively affected if the primary borrower defaults on the loan, and their future borrowing power could be affected if a lender decides extending more credit would be too risky.

The Disadvantages of Choosing a Joint Personal Loan

Since joint personal loans take into account both applicants’ credit, and ownership and repayment responsibility is equal for both borrowers, the disadvantages of this type of arrangement are less lopsided than for a cosigned loan. People who already share financial responsibilities — married couples or parents and children, for example — may consider joint personal loans, so there is typically some familiarity present.

Even so, it’s important to have confidence in a co-borrower’s ability to repay the loan because each borrower is equally responsible for repayment over the entire life of the loan. Co-borrowers also have equal ownership rights to the loan funds or what the loan funds purchased, so trust is a big factor in choosing a co-borrower.

Recommended: How Much of a Personal Loan Can I Get?

Cosigned Loan vs Joint Personal Loan: The Advantages

Arguably, the primary borrower on either a cosigned loan or a joint personal loan has a bigger advantage than the cosigner or co-borrower. Depending on one’s perspective, however, all parties involved can reap benefits from these partnerships.

The Advantages of Choosing a Cosigned Loan

The advantage lies almost exclusively with the primary borrower on a cosigned loan. If they default, the cosigner is responsible for repaying the loan, although the primary borrower’s credit will likely be negatively affected. Ownership of the loan funds or what they purchased is solely the primary borrower’s.

A personal loan cosigner’s main advantage may be in the form of a benevolent feeling. This is not to discount a cosigner’s contribution, since compassion is important to humanity.

The Advantages of Choosing a Joint Personal Loan

The main advantage of a joint loan is that there is equal ownership of the loan funds or the property purchased with those funds. Choosing a joint loan means you are able to present a higher total income than you could alone, signaling to lenders that it’s more likely someone will be able to make the monthly loan payments.

Because joint loans give both co-borrowers equal rights, they are well-suited for people who already have joint finances or own assets together.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

What’s the Better Loan Option?

If you’re seeking a loan with a spouse or relative, and one of you has the strong credit history needed to get a low interest rate and terms you’d prefer, then a joint loan as co-borrowers may be right for you.

However, if you’d rather have a loan in your name with a little added security, then having a cosigner may make more sense.

No matter which situation you find yourself in, it’s important to weigh all of the options and do the necessary research that will allow you to arrive at the best joint personal loan option for you. After all, taking out a loan and repaying it responsibly has the power to put someone on a path to a more secure financial future, but it can also come with risks if each party hasn’t thoroughly vetted the other.

Recommended: Exploring the Pros & Cons of Personal Loans

Where Do You Find a Joint Personal Loan?

It’s not uncommon for lenders to offer joint personal loans, but some research is necessary to find a lender who will work with your unique financial situation.

Looking at lenders of joint personal loans online is a good first step. Prequalifying to check joint personal loan eligibility is a fairly quick and easy process.

If you’re already an established customer at a local bank or credit union, you may also want to look at loan options there.

The Takeaway

Though co-borrowers may bring with them peace of mind, they also require a great deal of forethought — especially regarding who to ask. And regardless of whether or not someone opts for a co-borrower, it’s still important for the primary borrower to get their own credit in the best shape possible.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Can you apply for joint personal loans?

As long as the lender allows co-borrowers, you can apply for a joint personal loan.

What is the maximum amount of people for a joint personal loan?

Typically, a joint personal loan has two co-borrowers, but the maximum number of co-borrowers is up to the individual lender.

Do joint personal loans get approved faster?

It’s likely to take more time for a joint personal loan to be approved than an individual loan because the lender will check the credit of each applicant.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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Buying a home can be exciting, exhausting and, no matter how smoothly the process may go, one of the most stressful things you can do in life. Not having enough money to adequately finance a purchase makes it all the more daunting. Fortunately, there are first-time homebuyer programs available in every state, making it easier for many people to access the resources they need to buy their new home, and to feel more secure through the whole process.

Keep in mind that first-time homebuyers don’t actually have to be buying their first home. A first-time homebuyer is defined as anyone who hasn’t had an ownership interest in a primary home in the past three years.

The U.S. Department of Housing and Urban Development (HUD) also includes in its list of qualified homebuyers:

•   A single parent who has only owned a home with a partner while married

•   A displaced homemaker who has only owned a home with a spouse

•   Someone who has owned a principal residence not permanently affixed to a permanent foundation

•   Someone who has only owned a property that wasn’t in compliance with state, local, or model building codes

Here are the homebuyer programs that qualified first-time buyers have available to them in the Northeast:

Maine

Thinking of buying a home in the land of lobster and lighthouses? You’ll want to learn about the market and assess your financial situation before you start searching for a home mortgage loan. (A guide to the different types of mortgage loans can help.)

The scoop on the Main market: Prices in the Pine Tree State were up 5.7% in February 2024 when compared to the prior year, with homes selling for a median of $360,200, according to Redfin. The three most competitive cities for homebuyers were Standish, South Berwich, and Gray.

💡 Learn about Maine first-time homebuyer programs

New Hampshire

The housing market in the Granite State is hot. From February 2023 to February 2024, home prices rose 12.5% to an average sale price of $447,400, according to Redfin. And 41.8% of the homes sold above their list price. Still, there are good opportunities for the first-time buyer in the state, and there are first-time homebuyer assistance programs to help you reach your homeowning goal.

💡 Learn about New Hampshire first-time homebuyer programs

Vermont

The Green Mountain State is paradise for outdoorsy types with forests, lakes, and mountains. No wonder then that the housing market has heated up: The number of homes sold increased 14.2% between February 2023 and 2024. Prices were up 6.5% as well, according to Redfin.

Homebuyers may need help to afford a home with the median price here hitting $361,300. Fortunately, the state has several programs to offer.

💡 Learn about Vermont first-time homebuyer programs

Massachusetts

Glorious New England scenery, a rich history, and diverse cultural and educational opportunities are just some of the things Massachusetts has to offer residents. It’s no wonder that home prices here outpace the national average, or that they are rising. Prices in Massachusetts were up 9.9% in the year ending February 2024, Redfin reports. The median sale price in the state is now $576,900.

At the same time, the median number of days a home stays on the market has dropped by 5 year-over-year, an indicator that the market is warming. Still, there are plenty of opportunities for the first-time homebuyer in Massachusetts.

💡 Learn about Massachusetts first-time homebuyer programs

Rhode Island

This small state is big on charm: Rhode Island’s miles of coastline offer beautiful beaches and picturesque inlets, and you’ll also find dynamic cities and rural small towns here. There’s a lot for the first-time homebuyer in Rhode Island to get excited about. But prices here are well above the national average of $342,941. The average property value is $438,711, up 8.3% year over year, according to Zillow. Wondering what a down payment would look like on a given property price? Use a mortgage down payment calculator to do the math.

💡 Learn about Rhode Island first-time homebuyer programs

Connecticut

You’re looking at a competitive market in the Constitution State: In February 2024, home prices in Connecticut were up 13.2% year-over-year. The median price of a Nutmeg State home is $375,300, according to Redfin, and the number of days a property stays on the market is declining. Fortunately you can still find affordable homes in Torrington and New Britain, among other affordable places in Connecticut.

💡 Learn about Connecticut first-time homebuyer programs

New York

The housing market in New York state can be challenging, especially for first-time buyers. Home prices in the Empire State in January 2024 were up 6.3% over the prior year, with a median sale price of $518,800. The number of days on the market dropped as well. A stunning 37% of homes sold above their listing price.

💡 Learn about New York first-time homebuyer programs

New Jersey

The Garden State saw record real estate sales in some areas in recent years as city dwellers fled to the suburbs. In the year ending February 2024, home prices in New Jersey were up 14.5% over the prior year, and the median sales price was $479,100. The median days on the market dropped 15 year-over-year to 46. Buyers in New Jersey need to prepare themselves to compete in this market.

💡 Learn about New Jersey first-time homebuyer programs

Pennsylvania

Thinking of buying a home in Pennsylvania? Prices rose 6.6% from January 2023 to January 2024, to a median of $264,700, Redfin reported. It’s a seller’s market here, so you may have to compete to get the home you want, especially in cities like New Castle (home prices were up more than 31% in a year) and Mechanicsburg (up 55.5%). Harrisburg and Lancaster ranked as some of the best affordable places to live in Pennsylvania.

💡 Learn about Pennsylvania first-time homebuyer programs

The Takeaway

Qualifying first-time homebuyers have many options available to them in the Northeast, including down payment assistance. If you’re looking to buy your first home and aren’t sure how to get started, researching homebuyer programs is a great place to start. Once you know what kind of assistance you may qualify for, it’s a good idea to estimate just how much house you can really afford using a home affordability calculator.

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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

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Borrowing money from family members — or lending it to them — can be a risky business. And although all debt is risky, family loans carry different kinds of dangers.

Although family lenders don’t have to worry about pulling (or affecting) anyone’s credit score, private loans may put a strain on otherwise strong relationships. Depending on the size of the loan, there may also be tax implications to consider.

That said, there are ways to thoughtfully issue and receive family loans. Here are our best tips for stacking the odds in your favor.

What Are Family Loans?

Family loans are those that are given and received within a family group, instead of a typical lending situation like a bank or credit union, or even a payday lender.

Someone who may not be able to qualify for a traditional loan might be inclined to ask a family member for a loan.
Sometimes a family loan might work in the interest of both parties. For instance, the borrower might receive a more favorable interest rate than they might have from a bank, and the lender might receive a higher interest rate than they would find in a savings account.

Reasons someone might ask a family member for a loan are similar to reasons they might consider a personal loan: They might need cash for emergency medical expenses, unexpected home repairs, or expenses for adoption or fertility treatments.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

How Do Family Loans Work?

At their most basic, family loans work similarly to traditional loans: One person asks for a loan, and another person approves the request. While that is an oversimplification, the concept is the same. There is generally less paperwork involved in a family loan, with no application or credit check necessary, although a formal contract detailing each party’s rights and responsibilities is recommended.

Terms for the Lender to Include in a Family Loan

•   Amount loaned

•   Interest rate, if interest is charged

•   Payment amount (often, monthly)

•   Penalties for non-payment

Terms for the Borrower to Include in a Family Loan

•   Amortization schedule, with principal and interest amounts clearly stated

•   Ability to pay the loan off early without penalty

•   Periods of payment suspension in cases of hardship

Risks and Benefits of Family Loans

No matter which end of the dynamic you might find yourself on, there are both risks and benefits to family loans. But while both the borrower and lender risk putting a strain on the family relationship involved, the lender is likely to carry the greater financial risk — after all, it can be pretty hard to recoup your losses when you have no official financial authority.

Risks of Family Loans

One of the biggest risks of loans between family members is the potential for conflict within the relationship. People tend to have strong emotions tied to money. Some risks lie with the borrower or lender alone, though.

Risks for the Borrower:

•   There is risk to the relationship if the loan repayment plan falls through.

•   Although avoiding a credit check — and possible negative credit consequences — is a plus, family loans also fail to help borrowers build their credit history since they’re not reported to credit bureaus.

Risks for the Lender:

•   There is risk to the relationship if the loan repayment plan falls through — which puts the lender into a particularly tricky situation if they really need the cash back for their own financial situation.

•   It’s easy for family lenders to lose their money outright if the borrower constantly defers to an IOU.

•   Since family lenders don’t have any financial authority or backing, it can be difficult to recoup losses or enforce any substantial consequences for borrowers who go into default.

•   If the loan is interest-free and for an amount in excess of the IRS gift tax exclusion , it may trigger the need to file a gift tax return (and potentially pay taxes on the gift).

Benefits of Family Loans

Despite their risks, family loans do have some attractive qualities.

Benefits for the Borrower:

•   Family loans present a potentially low-cost alternative to traditional credit options. Family lenders usually don’t assess fees and may not charge interest.

•   Family loans can carry much easier approval standards than their official counterparts. At a financial institution, borrowers are subject to a credit check, employment history, income verification, and more. A family member is not likely to run those checks.

•   Family loans often carry more flexible repayment standards than traditional loans do, and family lenders may be more lenient if the borrower faces extenuating circumstances that make it difficult to make payments.

•   Failure to pay private family loans in a timely manner — or at all — won’t impact the borrower’s credit score the way such behavior would with a traditional loan.

Benefits for the Lender:

•   It can feel rewarding to help out a family member in need, particularly if they’re putting the money toward a major life goal like homeownership.

•   If the lender chooses to charge interest on the loan, they can earn interest as the loan is repaid.

Tax Implications of Family Loans

It can be surprising to learn that loaning money to a family member could be a big enough deal to land on the IRS’s radar.

Fortunately, most family loans fall outside of the purview of the IRS. It’s only when they’re above IRS-defined amounts and interest-free that lenders have to report them on their tax return.

If a family lender offers an interest-free loan to a family borrower, the IRS still sees the transaction as a loan — and assumes that the interest that should have been charged counts as a gift to the recipient. (The government publishes minimum interest rates on a monthly basis.)

That’s no big deal if the loan is for, say, $300. But if the unpaid interest — or unpaid loan balance — tops the annual gift-giving exclusion, which is $17,000 ($34,000 for married couples) for 2023 and $18,000 ($36,000 for married couples) for 2024, the lender might be responsible for filing a gift tax return and potentially paying taxes on the gift.

The IRS might also count the should-be interest toward the lender’s gross income, even if no interest is charged or received. Again, this isn’t a big deal on loans of just a few hundred dollars, but with a large enough loan, it could impact the lender’s finances.

Making a Family Loan Legitimate for Tax Purposes

The main thing that makes a family loan legitimate to the IRS is a family loan agreement that specifies repayment terms. If an agreement is not in place, the agency may consider it a gift instead of a loan.

The federal government sets minimum interest rates (as noted above) that lenders can charge on a private loan, which a family loan is. If less than the minimum interest rate is charged, the IRS may assess taxes on any unpaid interest that is deemed payable.

Keeping records of payments made will also show the IRS that the lender was keeping track of the debt and that there is an expectation of repayment.

Recommended: How to Gift a Stock

Tips to Successfully Borrow From or Lend Money to Family

If you’re considering lending money to, or borrowing money from, a family member, adding some structure to your loan can help minimize the risks while still allowing everyone involved to reap the benefits.

Planning Your Family Loan Out

All too often, a family loan takes place in a single, impromptu transaction: The borrower asks for some money, and the lender gives it.

A better bet is to make a concrete plan together that specifies all the loan’s terms, such as repayment installments and timing. Lenders might want to consider charging interest, especially on large loans, due to the tax implications outlined above. Even a low family loan interest rate can motivate a borrower to get serious about repayment.

Recommended: What Happens If You Default on a Personal Loan?

Making a Family Loan Official

Clear communication and boundary-setting skills make pulling off a family loan a positive experience for all involved — and oftentimes, the best way to achieve those goals is to write things down.

Plus, drafting a formal money-lending contract makes your loan official in the eyes of the IRS, which can help keep loans from being classified as gifts for tax purposes.

Terms to include in your family loan agreement include:

•   The amount loaned.

•   The loan’s repayment terms, such as frequency and amount, as well as a due date for when the loan must be repaid in full.

•   The loan’s interest rate and fees, if any (for instance, the lender may decide to charge late fees if the loan repayment terms are not honored).

•   Clauses concerning what happens if the loan is repaid early (is there a prepayment penalty?) and what happens if the borrower goes into default for any reason.

Family Loans vs Gifts

If a family lender has the financial ability and willingness to make a monetary gift instead of a loan, they can do so without tax implications for amounts up to $17,000 for 2023 and $18,000 for 2024.

There are various reasons why someone might choose to give a gift instead of making a loan, or vice versa.

Alternatives to Family Loans

If all of these caveats and warnings are making family loans sound like a less-than prudent idea, there are alternatives to consider before asking family members for a loan. (And yes, if a family member asks you to borrow money, you’re allowed to say no and steer them in a different direction.)

Obviously, the most ideal financial strategy for making a big purchase is to save your money so you don’t have to go into debt at all. Although this isn’t always possible or realistic, it might be worth taking a second look at your budget, working on a promotion, or starting up a side hustle to generate cash.

Unsecured personal loans are available from certain banks and financial institutions and make it possible to fund a wide variety of expenses upfront. Of course, these may come with higher interest rates and more stringent qualification requirements than family loans do.

You might also consider asking a family member to cosign on a loan with you instead of loaning you the money. They would be responsible for making the loan payments if you, the primary borrower, don’t, but they wouldn’t be immediately taking money out of their own bank account to help you.

If you need to borrow money for business purposes, a small business loan may be an option to think about. The Small Business Administration is an excellent resource for business loans. The agency works with lenders to help small business owners find funding for a wide range of amounts and terms, with competitive interest rates.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

The Takeaway

While borrowing money from, or lending money to, a family member can be tempting, it can have long-lasting impacts on interpersonal relationships as well as the lender’s finances. Drafting a structured family loan agreement can help, but you may also want to explore a traditional personal loan from a bank, credit union, or online 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. Checking your rate takes just a minute.

FAQ

What is a loan from a family member called?

A loan from a family member is often referred to as a family loan, an intra-family loan, or a friends and family loan.

Can family loans help your credit?

Since a family member is not likely to formally check your credit report or provide payment information to the credit bureaus, a family loan probably won’t help (or hurt) your credit.

Are family loans considered debt?

Yes, a loan from a family member is considered debt, but will likely not be reflected on your credit report. For tax purposes, a family loan is considered debt if it meets certain guidelines.

Photo credit: iStock/Ridofranz

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

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External Websites: 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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