SoFi

The allure of a quick loan can be hard to resist when there is a pressing need for immediate cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who might charge high interest rates and offer loan terms that are difficult to meet.

This is called predatory lending, and it works in the best interest of the lender, not the borrower.

When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.

Guide to Predatory Loans and Avoiding Them

Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less-than reputable, those two things become even more important.

One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AAnnualCreditReport.com. Personally identifiable information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.

Making sure other items on your credit report are accurate is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.

When you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

What Is Predatory Lending?

Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and for other unfair and discriminatory reasons.

Lenders who offer financial products that are typically considered predatory loans do not have the best interest of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics.

Predatory lending may often mean a short-term, high-interest loan that a borrower might have difficulty repaying, potentially leading to a cycle of debt.

Recommended: What to Know Before You Borrow Money Online

Predatory Lending Tactics and Practices

Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.

Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.

To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.

•   An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS)®. Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠ .

•   Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.

•   High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.

•   Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.

Recommended: What Is Considered a Bad Credit Score?

Common Types of Predatory Loans

Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.

Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.

Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — on average, 400% APR, but can be much higher.

Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.

Subprime mortgages are another predatory lending example.

This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.

What Are Good Lending Practices?

A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.

•   Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.

•   Answering your questions. When you have questions about a lender’s loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.

•   Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans.

•   Realistic offers. A lender that has your best interest in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

What Can Be Done if You Are a Victim of a Predatory Loan?

One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.

All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.

Personal Loans as an Alternative to Predatory Loans

When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.

If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.

A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can have a positive affect on your credit profile — and not doing so can have a negative affect.

Recommended: Typical Personal Loan Requirements Needed for Approval

Are Smaller, Short-Term Loans the Same as Predatory Loans?

There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.

Some lenders do have minimum amounts they will lend, sometimes $3,000 or $5,000. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.

What is the Smartest Way to Get a $5,000 Loan?

A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.

A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.

Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.

Comparing lenders, however, is the smartest thing you can do when you’re looking for a loan.

The Takeaway

There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan in a short amount of time.

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 predatory lending a crime?

Many states have enacted anti-predatory lending laws. Some states have completely outlawed payday lending, while others have placed caps on the amount lenders can charge. However, many violations go unpunished because consumers aren’t aware of their rights.

What are the most common predatory loans?

The most common types of predatory loans include payday loans, car title loans, and subprime mortgages.

What APR is considered predatory?

Predatory loans generally have interest rates in the triple digits. Loans with annual percentage rates (APRs) no higher than 36% are considered affordable loans.

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.

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.

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

SOPL0124015

If you’re repaying a variety of different debts to different lenders, keeping track of them and making payments on time each month can be time consuming. It isn’t just tough to keep track of these various debts, it’s also difficult to know which debts to prioritize in order to fast track your debt repayment. After all, each of your cards or loans likely have different interest rates, minimum payments, payment due dates, and loan terms.

Consolidating — or combining — your debts into a new, single loan may give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation involves taking out one loan or line of credit (ideally with a lower interest rate) and using it to pay off other debts — whether that’s car loans, credit card debt, or another type of debt. After consolidating those existing loans into one loan, you have just one monthly payment and one interest rate.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and what type of debt you wish to consolidate. Here are some common approaches.

Balance Transfer

If you are able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card may be one option to consider and can be a smart financial strategy to consolidate debt if you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates are typically for a limited time, so if you pay the transferred balance in full before it ends, you’ll reap the benefit of paying less — or possibly zero — interest.

However, there are some caveats to keep in mind. Credit card issuers generally charge a balance transfer fee, sometimes 3% to 5% of the amount transferred. If you use the credit card for new purchases, the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it will be subject to the new, regular rate.

Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you might consider a home equity loan for consolidating debt. Home equity is the home’s value minus the amount remaining on your mortgage. If your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV is similar to equity, but on the other side of the scale: Instead of how much you own, it’s how much you owe. The percentage is calculated by dividing the home’s appraised value by the remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no more than 80%. In the above example, the LTV would be 42%.

If you qualify for a home equity loan, you’ll typically be able to tap into 75% to 80% of your equity.

After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay your other debts.

A home equity loan is essentially a second mortgage, a secured loan using your home as collateral. Since there is a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into or you prefer not to put your home up as collateral, a personal loan may be another option to consider.

There are many types of personal loans, but they are typically unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but it’s fairly easy to find a lender that offers fixed-rate personal loans.

Generally, personal loans offer lower interest rates than credit cards. So consolidating credit card debt with a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there is a payment end date, unlike the revolving nature of credit cards.

There are many online personal loan lenders and the application process tends to be fairly simple. You may be able to use a loan comparison site to see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard credit inquiry into your credit report, which may temporarily lower your credit score. The lower credit score may drop off your credit report in a few months.

If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay off your other debts. You’ll then be responsible for paying the monthly personal loan payment.

A drawback to using a personal loan for debt consolidation is that some lenders may charge origination fees, which can add to the total balance you’ll have to repay. Other fees may also be charged, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees or penalties before signing the loan agreement.


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

Is Debt Consolidation Right For You?

Your financial situation is unique to you, but there are several things you’ll want to keep in mind when trying to decide if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea If …

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. Using a home equity loan or a personal loan for debt consolidation will be useful for this reason because they are forms of installment debt.

•   You can qualify for a zero interest or low-interest rate balance transfer credit card. This may allow you to consolidate multiple debts on one new credit card and save interest by paying off the balance before the promotional rate ends.

Debt Consolidation Might Not Be For You If …

•   You think you’ll be tempted to continue using the credit cards you paid off in the debt consolidation process. This can leave you further in debt.

•   You’ll incur fees (e.g., balance transfer fee or origination fee). If the fees are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period of time and incurring more interest over the life of the loan.

Recommended: Getting Out of Debt with No Money Saved

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam people who may already be overwhelmed and are vulnerable.

Disreputable debt settlement companies may charge fees before ever settling your debt and often make bogus claims, such as guaranteeing that they will be able to make your debt go away or that there is a government program to bail out those in credit card debt.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences to your credit along the way. What’s more, a debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

Recommended: Debt Settlement vs Credit Counseling: What’s the Difference?

Debt Relief: Is it a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get some assistance that will help you get out of debt for good and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, like credit cards, into a new loan. Ideally, this new loan has a lower interest rate or more favorable terms to help streamline the repayment process.

SoFi personal loans offer competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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.

SOPL0324008

A personal loan is a flexible lending product that can be used for anything from covering the cost of a home repair to consolidating high-interest debt. While there’s no universally required credit score for a personal loan, you generally need a score of at least 610 to qualify, and an even higher score to get a lender’s best rates.

That said, some lenders offer personal loans for no credit, and even for bad credit. To make up for the increased risk, however, they will typically charge high interest rates.

Read on for a closer look at the minimum credit score for a personal loan, how your credit score can impact loan amounts and interest rates, plus other factors lenders look at when considering an applicant for a personal loan.

What Personal Loans Are and How They Work

A personal loan enables you to borrow a specific amount of money to use in virtually any way you like — unlike a mortgage or auto loan which is earmarked for one specific purpose. Personal loans are offered by banks, credit unions, and online lenders and are generally unsecured (meaning you don’t have to pledge an asset to secure the loan).

Common uses of personal loans include home renovations, vacations, weddings, car/home repairs, medical expenses, moving expenses, major purchases, and credit card consolidation.

Once you get approved for a personal loan, you receive the funds in one lump sum up front then repay the money (plus interest) in monthly installments over a set period of time, called the loan term.


💡 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 You Need to Qualify for Personal Loans

These are a few factors lenders take into consideration when deciding whether or not to offer you a personal loan, as well as how much to offer and at what rate. Here’s a look at what you may need to qualify.

Credit Score

A credit score is a three-digit number (typically between 300 and 850) designed to predict how likely you are to pay a loan back on time based on information from your credit reports. There is no universally set minimum credit score for personal loans but many lenders require applicants to have a minimum score of around 620. To get approved for a lender’s lowest rates, however, you may need a credit score closer to 690.

That doesn’t mean borrowers with lower scores or thin credit are out of luck. Some lenders offer personal loans to applicants without any credit history at all. There are also personal loans on the market designed for applicants with poor or bad credit. Keep in mind, though, that these loans often come with high rates and less-than-favorable terms.

Debt-to-Income Ratio

Lenders will also look closely at an applicant’s debt-to-income (DTI) ratio, which measures the percentage of a person’s monthly income that goes to debt payments. You generally want your DTI to be as low as possible because that indicates that your income is well above what you need to cover your monthly expenses.

If you’re applying for a personal loan, lenders typically want to see a DTI of 35% to 40% or less. A lender might allow a higher DTI, however, if you have a strong credit score or other compensating factors, like enough money in your savings account to cover several months of living expenses.

Income

To make sure that borrowers have the cash flow to repay a new loan, lenders typically have minimum income requirements for personal loans. Income thresholds vary widely by lender — some require applicants to earn at least $45,000 per year, while others have a minimum annual income requirement of just $20,000. Lenders don’t always disclose their income requirements, so you may not be able to discover these minimums before you apply for a personal loan.

Lenders see your income by looking at your monthly bank statements, last two years of tax returns, and pay stubs. Some lenders also require a signed letter from an employer. If you are self-employed, you can provide tax returns or bank statements to show proof of income.


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

Personal Loan Options by Credit Score

When it comes to having the right credit score for a personal loan, there is no one set score that disqualifies someone from getting their hands on one. That said, having a FICO® Score in the good range (670-739) or higher gives applicants the widest range of lending opportunities and the most favorable interest rates. Take a closer look at how different FICO credit score ranges can affect lending opportunities.

Exceptional

An exceptional credit score qualifies applicants for the widest variety of personal loan options, the most favorable interest rates, and larger loan amounts.

Very Good

Having a very good credit score qualifies applicants for most if not all of the same rates and lending opportunities as exceptional applicants.

Good

Having a good credit score puts a borrower near or slightly above the average of U.S. consumers, and most lenders consider this a good score to have. Applicants shouldn’t struggle to find a personal loan, but they may not be approved for the lowest interest rates.

Fair

Because a fair credit score is below the average score of U.S. consumers, many lenders will approve loans with this score, but rates and terms might not be as desirable as they are for higher scores.

Poor

A poor or “bad” credit score is well below the average score of U.S. consumers and demonstrates to lenders that the applicant may be a lending risk, which greatly limits the applicant’s borrowing options. If they do qualify for a personal loan they likely can expect to be approved at high interest rates.

Alternatives to Personal Loans

If your credit score makes it difficult to qualify for a personal loan, you may want to explore alternative lending options. Here are some to consider.

•   Credit card cash advance: Consumers with credit cards may be able to request a cash advance from their credit card, which can make it easy to get access to cash quickly. These cash advances typically come with higher interest rates than a regular credit card purchase.

•   Peer-to-peer loans: There are some web-based lending sites that offer some flexibility in qualification requirements. Since these sites are not lenders, and more like matchmakers, they may help you find an investor who is willing to look at other factors besides your credit score.

•   Cross-collateral loans: If you already have a loan secured by collateral with a lender (such as auto loan or mortgage), you may be able to qualify for another loan with the same lender using that same collateral. However, not all lenders allow cross-collateral loans. And there are risks involved for borrowers. To have a lien released from the asset used as collateral, you typically need to pay both loans in full.

Personal Loan Rates From SoFi

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 different credit score required for loans of different sizes?

Generally, the higher your credit score, the larger the loan you can qualify for. Maximum amounts for personal loans range from $500 to $100,000. If you have strong credit, you may qualify for a larger loan than you need. Be sure to consider how much you can afford to repay each month before deciding what size loan to take out.

Can you get a personal loan without having a credit score at all?

There are some personal loans on the market with no credit check. Since the lender can’t rely on your credit history, they will typically focus on other indicators of your ability to pay back the loan, such as your income, employment history, rental history, and any previous history with the lender.

When applying for a personal loan with no credit check, you’ll want to carefully weigh the benefits against the costs. Lenders will often charge higher interest rates and impose more fees to lessen their risk.

Can getting a personal loan affect a credit score?

Getting a personal loan can affect credit scores both positively and negatively. Applying for a personal loan typically results in a hard credit inquiry, which may cause a small, temporary drop in your credit score. On the flip side, taking out a personal loan can have a positive impact on your credit by increasing your credit mix. Making on-time payments can also improve your credit profile. (Late payments, however, can have a negative impact on your credit.)

Photo credit: iStock/Moyo Studio

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.

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

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 .

SOPL0324006

We aren’t born with a credit history and, ironically, one of the only ways to build a credit history is to take out credit — which can be hard to do if you don’t have any credit history. Does that mean if you have little to no credit history, you can’t get a personal loan?

Not necessarily. But you may have a harder time qualifying for a loan with favorable interest rates. Read on to learn why a credit score is such an important factor in the loan application process, how to qualify for a personal loan without a substantial credit history, and how no-credit-check personal loans work.

What a Personal Loan Is and How It Works

Personal loans are a type of lending product that allows consumers to borrow money to use for a wide variety of purposes. There are typically few limitations on what you can use a personal loan for, unlike a mortgage or student loan that dictates what the borrower can spend the borrowed funds on.

Personal loans are available through banks, credit unions, and other lending institutions. With this type of loan, you receive the proceeds (or principal) in one lump sum then repay it, plus interest, in fixed monthly installments over the term of the loan.


💡 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.

What Is a Credit Score?

A credit score is a three-digit number used to predict how likely you are to pay your bills on time. Your credit scores (yes, you have more than one) are calculated using information from your credit reports. Different companies use different credit scoring models, but most take the following factors about a person’s financial history into account:

•   Bill-paying history

•   Current unpaid debt

•   Number and type of loan accounts you currently have

•   How long current loan accounts have been open

•   How much available credit is currently being used

•   New applications for credit

•   Financial events like debt in collections, bankruptcies, or foreclosures

When you apply for a loan, the lender will typically take your credit score into account to determine if they should lend you money, how much money they should lend you, and at what interest rate. The higher someone’s credit score is, generally the easier it is to qualify for lending products with low interest rates.

There are many different types of credit scores and scoring models. Your credit score depends on the credit scoring model used by the lender you’re applying with. Each lender also has its own personal loan credit score requirements.

How Do You Find Your Credit Score?

While you may not be able to track down every potential credit score you have, there are some easy ways to learn your FICO® credit score, which is one of the most widely used credit scoring models. This can give you an idea of what your scores likely look like across the board.

•   Credit card or other loan statements: You can often find your credit score by looking at your monthly credit card or loan statements or by logging into your account online.

•   Nonprofit counselors: If you’re working with a nonprofit credit counselor or HUD-approved housing counselor, those professionals can often provide you with a free copy of your credit report and credit score.

•   Credit score services: You may be able to get your credit score for free from a credit score service as part of a free trial. But be careful about getting locked into a service that charges a monthly fee.

•   Credit reporting agencies: You can buy your score directly from the credit reporting companies.

Recommended: How To Read A Credit Report

What You Can Do if You Don’t Have a Credit Score

If you’re trying to get a personal loan with little to no established credit, you may run into some challenges. Here are some steps that can help.

Establishing Credit

First-time personal loans for no-credit-history borrowers can be hard to get. To get around this hurdle, you’ll want to start establishing credit. One way to do this is to become an authorized user on a trusted friend’s or family member’s existing credit account. Another way is to apply for a secured credit card backed by collateral. With each option, as you make on-time payments, you’ll begin to establish a credit history.

Finding a Cosigner

Another option that can make it easier to qualify for credit products without a strong credit history is to add a cosigner (or co-applicant) to a loan or credit card. When lenders see that someone else (someone with good credit) is willing to make payments on the original borrower’s behalf (if they fail to do so), they have a lot more confidence in lending them money.

Using Collateral

Adding collateral to a personal loan means that the lender has something they can seize and use to recoup their losses if the borrower defaults on their payments. For example, auto loans are secured by the car the loan is financing. Before using collateral, a borrower needs to make sure they can make their loan payments on time each month or they risk the lender taking possession of their collateral.

Personal Loan Options With No Credit History

If a borrower is really struggling to find a personal loan because they don’t have a credit history, they can pursue a loan that doesn’t require a credit check. This type of lending product does exist but often comes with high interest rates and fees to make up for the risk the lender feels they are taking on.

In some cases, loans that don’t require credit checks, like payday loans, can be predatory, so consumers should make sure they know what they’re getting into when taking out this type of personal loan.

Applying for a Personal Loan With No Credit

Some lenders offer personal loans with no credit check. Since they can’t rely on your credit history, they will typically focus on other indicators of your ability to pay back the loan, such as your income, employment history, rental history, and any previous history with the lender. When applying for a personal loan with no credit check, it’s important to read the fine print and carefully weigh the benefits against the costs. Lenders will often charge higher interest rates and impose more fees to lessen their risk.


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

Checking Your Personal Loan Rate

If you’re in the market for a personal loan, it’s a good idea to research different lenders to find one that’s best for your needs. As you compare lenders, take note of their minimum credit requirements, loan amounts, repayment terms, funding time, and whether or not they offer joint, cosigned, or secured loans (which may help you get a lower rate).

Once you’ve identified a few lenders you prefer, it’s time to prequalify – this only involves a soft credit check and gives you a preview of the loan offers you may receive, including your estimated annual percentage rate (APR).

SoFi offers personal loans with competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Can someone with no credit score get a personal loan?

Some lenders offer personal loans with no credit check. These lenders will look at other indicators of your ability to pay back the loan, such as your income, employment history, rental history, and any previous history with the lender. No credit check loans may come with higher rates and fees, though, so you’ll want to read the fine print.

How hard is it to get a personal loan with no credit score?

It isn’t necessarily hard to get a personal loan without a credit score, as personal loans for no-credit-history borrowers do exist. The bigger challenge is to get approved for a personal loan with a low interest rate and that doesn’t require collateral or a cosigner.

Do no-credit-score, no-cosigner loans exist?

Yes, loans that don’t require a credit check or a cosigner do exist. However, these loans may come with sky high interest rates and less-than-ideal terms.

Photo credit: iStock/Yaroslav Olieinikov

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.

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

SOPL0324005

An acceptance letter is a college’s formal invitation for you to enroll in their programs as a student. Depending on the type of admission you applied for, letters will be delivered from December through April. Once received, you have the option to accept or decline the offer.

Financial aid offer letters may look similar to an acceptance letter, but differ in key points. Financial aid offer letters, also known as award letters, will outline financial aid (if any) and a summary of the cost of attendance. Generally, an acceptance letter and an offer letter are sent together. In some cases, though, offer letters may be sent after acceptances.

Read on to learn more about what an acceptance letter is, what an offer letter is, when to expect an acceptance letter, and how to respond to an acceptance letter.

Basic Definition of an Acceptance Letter

Acceptance letters will generally contain the three following components:

1.    A university’s offer to enroll and reasons the applicant stood out.

2.    Details about on-campus events for prospective students.

3.    Important deadlines and information on ancillary documents, such as a financial offer letter.

Students who apply for regular decisions generally receive their decision letters in March and April, but early decision and early action decision letters may be sent as soon as December.

Offer Letter vs Acceptance Letter for College

As mentioned, an acceptance letter details whether or not a student has been admitted into a specific college. Financial aid offer letters, also known as financial aid award letters, break down the tuition cost, scholarships and grants awarded, work-study programs offered, and federal student loan options available.

In order to apply for federal financial aid, students are required to fill out the Free Application for Federal Student Aid, or FAFSA®, annually. The information provided on the FAFSA helps determine the types of aid, and aid amounts, that students qualify for.

Scholarships and grants are funds awarded to students that do not need to be repaid. Loans are either provided by the government or a private entity and are repaid by the borrower, though only federal student loans would be included as a part of a student’s federal aid package. Work-study is a federal program that offers employment to students who qualify and have filed a FAFSA.

Furthermore, colleges use the information provided on the FAFSA to determine awards based on needs and merit.

In cases when federal aid isn’t enough to pay for college, students may consider private student loans to help fill in funding gaps. Keep in mind, though, that private student loans aren’t necessarily afforded the same borrower protections as federal loans — things like income-driven repayment plans or deferment options. That is why private student loans are generally only considered after all other options have been depleted.

College Acceptance Letter Dates

College application deadlines vary by college and so will college acceptance letter dates. Furthermore, acceptance letters are sent out on dates depending on the type of application you submitted: regular, early action, restrictive early action, or early decision.

Applying for college early is one way prospective students can complete the application and acceptance process on an early timeline. It can be a path for those who have researched colleges thoroughly and want to get into a specific college.

Early action gives you a chance to apply to several colleges at once. Restrictive early action typically allows you to apply early to a single college, with the exception of public universities. Applicants who choose these routes are not obligated to accept their offer if admitted.

Early decision applicants apply to one school early decision and, if accepted, are required to commit. If an early decision applicant is accepted, they must withdraw their application from all other schools.

Additionally, some schools offer a more flexible rolling admission process. Instead of waiting to evaluate applications after specific deadlines, schools review applications as they are submitted (on a rolling basis). Generally, they’ll continue accepting applications until all of the open slots in their program are filled.

This table provides an overview of the types of applications, their general deadlines, and information on when students may accept a decision. Keep in mind that these dates are broad guidelines, and students should confirm all deadlines with the schools of interest.

When Do College Acceptance Letters Arrive?

Depending on the type of application, your college acceptance letter will arrive between December and April. Financial aid offer letters will be sent with or may follow acceptance letters.

What Does a College Acceptance Letter Say?

A college letter of acceptance will share the admission decision and may offer a list of upcoming events, such as when orientation will take place. It will also contain a deadline for you to submit a final decision.

The Decision

The first paragraph gets straight to the point: you’re in! It may also detail why you stood out from other applicants.

Prospective Student Events

Your letter may contain information on upcoming event dates and inform you on incoming ancillary documents, such as your financial offer letter.

Acceptance Deadline

The last portion of your letter will have important deadlines, including the date to accept the college’s offer. May 1st has become widely known as the deadline for students to make decisions about the college they’ll enroll in. Keep in mind that while this is a popular date for decision deadlines, colleges may have their own deadlines and applicants who applied early may have an earlier deadline.

Recommended: 7 Tips to Prepare for College Decision Day

How to Respond to College Acceptance Letter

Colleges inform students electronically, both online and by mail, or by mail only.

Some colleges will send forms to formally decline or accept their offer. Others may have you submit your decision via an online portal.

Be sure to educate yourself and stay connected to your top choice colleges’ admissions offices on how to respond to their college acceptance letter and to prevent missing important communications.

1. Weigh Your Options

College tuition is rapidly increasing — and can play a major role in your decision.

Compare financial offer letters to determine the best deal. If a college offers more aid, but has a substantial cost, then another college with less aid and a smaller price tag might impact your decision.

There are no standard offer letter forms, so cross-checking their website with your offer letter and getting advice can be helpful. You can also follow up with college admissions offices with your questions.

2. Choose Which College You Want to Attend

Of course, other factors will weigh into your decision-making. According to publisher Princeton Review , students are split nearly down the middle on how they choose colleges: 40% say they choose a college based on “best for their career interests,” and 40% say they choose a college that is the “best overall fit.”

You can break down your decision even further with the following questions:

•   How strong is the academic rigor of the program I’m pursuing? Is the program a fit for me?

•   How important is the location to me?

•   What stands out to me about the campus culture?

•   Is this institution the right fit for my financial situation?

•   Does it have strong career preparation programs and resource offices?

Choosing a college will take time. But with research and guidance, you can have more confidence in making your final decision.

3. Find Funding for the School You Choose

Financial aid from schools, private entities, and the government may help put an expensive college within reach. If your top choice is not fully covered by out-of-pocket finances and other sources of financial aid, applying for a private student loan is an option.

Also, getting a job during the summer or working while in school can help with tuition and daily needs.

Recommended: How to Pay for College

4. Decline Other College Acceptance Letters

Once you’ve accepted a school offer, be sure to notify other colleges that accepted you right away. This enables them to offer your spot to waitlisted prospective students.

The Takeaway

Your college admission acceptance letter and financial aid offer letter are key to deciding your next steps. From as early as December until April, you may receive college decision letters. Unless you applied early decision, waiting to receive all college acceptance letters can help you evaluate your options.

Funding your education will be one of the most important decisions you make. Compare your financial aid offer letters to determine which school offers the best value. Most colleges will give you until May 1 to accept or decline their offer and financial aid package (if any).

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

Photo credit: iStock/Adene Sanchez

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.

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

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

SOIS0124001