Financial Topics Archives

Jan

2025

What Is the Average Credit Score for a 19-Year-Old?

By Jacqueline DeMarco | Credit, Financial Independence, relay | Comments Off

Building a strong credit score takes time, and there is no time like the present to start working on improving your credit score. Even teenagers can help themselves get a leg up in the financial world by playing the credit game responsibly. What is the average credit score for a 19-year-old? According to FICO, the average Gen Zer (ages 18 to 27) has an average credit score of 680.

Keep reading for more insight into the average credit score of a 19-year-old, what factors affect credit scores, and how to build an impressive score.

Key Points

• The average credit score for a 19-year-old is 680, considered good.

• Payment history and amounts owed are the most influential factors on credit scores.

• Timely payments are essential; missing payments can harm your credit score.

• Keep credit utilization low, ideally below 30%, to maintain a healthy score.

• Regularly check and dispute any inaccuracies in your credit report to ensure accuracy.

Average Credit Score for a 19-Year-Old

All young adults can benefit from taking an interest in their credit score. And no matter your age, it helps to understand what credit score range you should be working toward. What’s the average credit score for a 19-year-old? As we mentioned, the average credit score for Gen Zers is 680.

A 680 credit score is considered good, but ideally teenagers and older consumers want to work toward a “very good” or “excellent” score. A very good credit score falls in the 740 to 779 range, and excellent is a score of 780 or higher.

What Is a Credit Score?

A credit score is a three-digit numerical representation of an individual’s creditworthiness that credit scoring models calculate based on the consumer’s credit history. This calculation takes into account factors like payment history, debt levels, and the length of their credit activity.

Lenders use credit scores to assess the risk of lending money or extending credit. In general, the higher a credit score is, the less risk the borrower poses to the lender, as a high score indicates you are a responsible borrower.

Credit scores and credit reports are not the same thing. A credit report is a detailed record of an individual’s credit history, including information on loans, credit cards, payment history, and any bankruptcies or defaults. A credit score, on the other hand, is a numerical value derived from the information in the credit report.

So when it comes to credit, your goal is to keep your credit report healthy so your credit score reflects that good behavior. You can check your credit score from time to time to ensure you’re making progress.

Track your credit score with SoFi

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What Is the Average Credit Score?

There is no one standard credit score a 19-year-old should expect to maintain, but understanding what the average credit score is can help teens know what benchmark to work toward. As of October 2024, the average credit score for U.S. consumers was 717, according to FICO. This is categorized as a good credit score.

Average Credit Score by Age

It takes time to build a strong credit score, so young adults shouldn’t be too worried if their starting credit score is on the lower side. You can see from this table how the average credit score improves over time.

Age	Average FICO® Score
Generation Z (Ages 18-26)	680
Millennials (Ages 27-42)	690
Generation X (Ages 43-58)	709
Baby Boomers (Ages 59-77)	745

Source: FICO

What’s a Good Credit Score for Your Age?

Younger borrowers often face a disadvantage in building a high credit score since factors like having a long credit history, diverse credit mix, and consistent payment history require time to develop. However, borrowers typically aim for at least a “good” score and, ideally, over time can make their way into the “very good” or “exceptional” tiers.

How Are Credit Scores Used?

Because the primary use of credit scores is during the credit application process, it’s easy to overlook the fact that credit scores can impact different areas of your life. Yes, primarily lenders use credit scores to help determine if they want to lend money to a borrower and at what terms. But potential employers and landlords can also use credit scores to get an idea of how responsibly you handle money.

Factors Influencing the Average Credit Score

Building and maintaining a good credit score is an ongoing task. Consumers who want to keep their credit score nice and high for many years to come can benefit from learning what factors influence their credit score.

One of the best ways to keep your credit score in good standing is to understand how your credit behavior impacts your score. What affects your credit score? Your FICO Score, the most widely used credit scoring model, is influenced by five key factors. These factors include: payment history, amounts owed, length of credit history, types of credit used, and recent credit inquiries.

The impact of each factor on your overall score varies, with payment history and amounts owed typically playing the largest roles. Other models like VantageScore work in a similar way but may weigh these factors differently.

Credit Score Factor
Payment history	35%
Amounts owed	30%
Length of credit history	15%
New credit	10%
Credit mix	10%

How to Strengthen Your Credit Score

You don’t have to have perfect credit habits to improve your credit score, but trying to master as many of these factors as you can will help boost your FICO Score over time.

• Payment history: Missing a payment can negatively affect your score, so always make payments on time. This is the most important factor to stay on top of. If you struggle to stick to a budget, use a spending app to monitor your spending so you can afford to pay off your balances in full at the end of the month.

• Amounts owed: Keep credit utilization low to show lenders you can manage debt.

• Length of credit history: A longer history reflects reliability.

• New credit: Avoid making frequent credit applications in a short amount of time, as doing so can temporarily lower your credit score.

• Credit mix: Having a diverse mix of credit types suggests strong financial management.

Use a free credit score monitoring tool to track your improvement efforts.

How Does My Age Affect My Credit Score?

How long does it take to build credit? Being older may work in your favor when it comes to credit scores, but unfortunately you can’t speed up the clock.

As you age, you can expect some areas of your credit report to improve. For example, a 40-year-old has had much more time than a college student to build a long credit history, responsibly manage a mix of credit types, and make consistent, on-time payments.

What Factors Affect My Credit Score?

As we discussed, there are a number of factors that go into your credit score. Your payment history, credit utilization ratio, length of credit history, credit mix, and recently opened credit accounts all impact how high or low your credit score is.

At What Age Does Credit Score Improve the Most?

Because so many credit scoring factors rely on the benefit of time to improve naturally, it’s not surprising that we see that older consumers make a lot of credit score progress. Baby Boomers, in particular, may see a dramatic increase in their score compared to younger generations. As of 2023, consumers aged 59-77 have an average FICO Score of 745. Meanwhile, Generation X consumers (ages 43-58) have an average score of 709.

How to Build Credit

It can be challenging to obtain credit unless you already proved you can responsibly handle a loan or credit card. You can use a credit card to start your credit journey. While borrowers with high credit scores qualify for better cards with more favorable rates, you can find credit cards to qualify for with any credit score (even if you need to use a secured credit card to build credit).

Making timely payments is key here — a money tracker app can help you manage bill paying. Also, pay off your balance in full each month to keep your credit score happy and to avoid pesky interest charges.

Credit Score Tips

To maintain a healthy credit score, practice good habits like paying bills on time, keeping account balances under 30% of your credit limit, and avoiding frequent credit applications.

It’s also important to keep older accounts open to build credit history, maintain a diverse mix of credit types, and regularly check your credit report for errors. If you spot discrepancies, be sure to dispute them. These actions can help strengthen your creditworthiness and protect your score over time.

The Takeaway

Taking good care of your credit score makes it easier to obtain favorable borrowing rates and terms. Consistency is key here. If you can master good credit habits at age 19, it gets easier and easier to keep your credit score nice and healthy.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How to raise your credit score 200 points in 30 days?

Raising your credit score by 200 points in 30 days is challenging but may be possible in some situations. To start, pay off any outstanding balances, particularly high-interest ones, and reduce credit card utilization below 30%. Lowering this ratio is one of the fastest ways to see credit score movement. You can also consider disputing any inaccuracies in your credit report for a quick fix (if an error occurred that is harming your credit score).

Is a 650 credit score good at 18?

Having a credit score of 650 at the age of 18 is very impressive. While this is only a “fair” credit score by FICO standards, it’s a strong step in the right direction, and most teenagers don’t have an immediate need for a super high credit score.

How to get 800 credit score in 45 days?

Achieving an 800 score in 45 days is difficult unless you already have a very high credit score. To make swift progress, focus on paying off existing debt, reducing credit utilization, and ensuring all payments are made on time.

How to get a 600 credit score at 18?

The only way to have a credit score of 600 at 18 is to hit the ground running. Your parents can help you build your credit score before turning 18 by making you an authorized user on their credit card, or you can open a secured credit card when you turn 18. And be sure to make consistent, on-time payments to the card.

Can you get a 700 credit score in 6 months?

Achieving a 700 credit score in six months is possible, but how realistic this goal is depends on your current credit score and how committed you are to improving it. Focus on paying down high-interest debt, keeping credit utilization low, making all payments on time, and ensuring your credit report is accurate.

What is the starting credit score for an 18-year-old?

The starting credit score for an 18-year-old is 300 (unless their parents helped them build a credit history before they turned 18). To make it easier to build their credit score at a young age, 18-year-olds can open a credit account, such as a secured credit card. That way, they can start building their score by making responsible payments.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

Photo credit: iStock/Prostock-Studio

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

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.

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Jan

2025

Guide to 457 Retirement Plans

By Rebecca Lake | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

A 457 plan — technically a 457(b) plan — is similar to a 401(k) retirement account. It’s an employer-provided retirement savings plan that you fund with pre-tax contributions, and the money you save grows tax-deferred until it’s withdrawn in retirement.

But a 457 plan differs from a 401(k) in some significant ways. While any employer may offer a 401(k), 457 plans are designed specifically for state and local government employees, as well as employees of certain tax-exempt organizations. That said, a 457 has fewer limitations on withdrawals.

This guide will help you decide whether a 457 plan is right for you.

What Is a 457 Retirement Plan?

A 457 plan is a type of deferred compensation plan that’s used by certain employees when saving for retirement. The key thing to remember is that a 457 plan isn’t considered a “qualified retirement plan” based on the federal law known as ERISA (from the Employee Retirement Income Security Act of 1974).

These plans can be established by state and local governments or by certain tax-exempt organizations. The types of employees that can participate in 457 savings plans include:

• Firefighters

• Police officers

• Public safety officers

• City administration employees

• Public works employees

Note that a 457 plan is not used by federal employees; instead, the federal government offers a Thrift Savings Plan (TSP) to those workers. Nor is it exactly the same thing as a 401(k) plan or a 403(b), though there are some similarities between these types of plans.

How a 457 Plan Works

A 457 plan works by allowing employees to defer part of their compensation into the plan through elective salary deferrals. These deferrals are made on a pre-tax basis, though some plans can also allow employees to choose a Roth option (similar to a Roth 401(k)).

The money that’s deferred is invested and grows tax-deferred until the employee is ready to withdraw it. The types of investments offered inside a 457 plan can vary by the plan but typically include a mix of mutual funds. Some 457 retirement accounts may also offer annuities as an investment option.

Unlike 401(k) plans, which require employees to wait until age 59 ½ before making qualified withdrawals, 457 plans allow withdrawals at whatever age the employee retires. The IRS doesn’t impose a 10% early withdrawal penalty on withdrawals made before age 59 ½ if you retire (or take a hardship distribution). Regular income tax still applies to the money you withdraw, except in the case of Roth 457 plans, which allow for tax-free qualified distributions.

So, for example, say you’re a municipal government employee. You’re offered a 457 plan as part of your employee benefits package. You opt to defer 15% of your compensation into the plan each year, starting at age 25. Once you turn 50, you make your regular contributions along with catch-up contributions. You decide to retire at age 55, at which point you’ll be able to withdraw your savings or roll it over to an IRA.

Who Is Eligible for a 457 Retirement Plan?

In order to take advantage of 457 plan benefits you need to work for an eligible employer. Again, this includes state and local governments as well as certain tax-exempt organizations.

There are no age or income restrictions on when you can contribute to a 457 plan, unless you’re still working at age 73. A 457 retirement account follows required minimum distribution rules, meaning you’re required to begin taking money out of the plan once you turn 73. At this point, you can no longer make new contributions.

A big plus with 457 plans: Your employer could offer a 401(k) plan and a 457 plan as retirement savings options. You don’t have to choose one over the other either. If you’re able to make contributions to both plans simultaneously, you could do so up to the maximum annual contribution limits.

Pros & Cons of 457 Plans

A 457 plan can be a valuable resource when planning for retirement expenses. Contributions grow tax-deferred and as mentioned, you could use both a 457 plan and a 401(k) to save for retirement. If you’re unsure whether a 457 savings plan is right for you, weighing the pros and cons can help you to decide.

Pros of 457 Plans

Here are some of the main advantages of using a 457 plan to save for retirement.

No Penalty for Early Withdrawals

Taking money from a 401(k) or Individual Retirement Account before age 59 ½ can result in a 10% early withdrawal tax penalty. That’s on top of income tax you might owe on the distribution. With a 457 retirement plan, this rule doesn’t apply so if you decide to retire early, you can tap into your savings penalty-free.

Special Catch-up Limit

A 457 plan has annual contribution limits and catch-up contribution limits but they also include a special provision for employees who are close to retirement age. This provision allows them to potentially double the amount of money they put into their plan in the final three years leading up to retirement.

Loans May Be Allowed

If you need money and you don’t qualify for a hardship distribution from a 457 plan you may still be able to take out a loan from your retirement account (although there are downsides to this option). The maximum loan amount is 50% of your vested balance or $50,000, whichever is less. Loans must be repaid within five years.

Cons of 457 Plans

Now that you’ve considered the positives, here are some of the drawbacks to consider with a 457 savings plan.

Not Everyone Is Eligible

If you don’t work for an eligible employer then you won’t have access to a 457 plan. You may, however, have other savings options such as a 401k or 403(b) plan instead which would allow you to set aside money for retirement on a tax-advantaged basis. And of course, you can always open an IRA.

Investment Options May Be Limited

The range of investment options offered in 457 plans aren’t necessarily the same across the board. Depending on which plan you’re enrolled in, you may find that your investment selections are limited or that the fees you’ll pay for those investments are on the higher side.

Matching Is Optional

While an employer may choose to offer a matching contribution to a 457 retirement account, that doesn’t mean they will. Matching contributions are valuable because they’re essentially free money. If you’re not getting a match, then it could take you longer to reach your retirement savings goals.

457 Plan Contribution Limits

The IRS establishes annual contribution limits for 457 plans. There are three contribution amounts:

• Basic annual contribution

• Catch-up contribution

• Special catch-up contribution

Annual contribution limits and catch-up contributions follow the same guidelines established for 401(k) plans.

The special catch-up contribution is an additional amount that’s designated for employees who are within three years of retirement. Not all 457 retirement plans allow for special catch-up contributions.

Here are the 457 savings plan maximum contribution limits for 2024 and 2025.

	2024	2025
Annual Contribution	Up to 100% of an employees’ includable compensation or $23,000, whichever is less	Up to 100% of an employees’ includable compensation or $23,500, whichever is less
Catch-up Contribution	Employees 50 and over can contribute an additional $7,500	Employees 50 and over can contribute an additional $7,500
Special Catch-up Contribution	$23,000 or the basic annual limit plus the amount of the basic limit not used in prior years, whichever is less^*	$23,500 or the basic annual limit plus the amount of the basic limit not used in prior years, whichever is less^*

^*This option is not available if the employee is already making age-50-or-over catch-up contributions.

457 vs 403(b) Plans

The biggest difference between a 457 plan and a 403(b) plan is who they’re designed for. A 403(b) plan is a type of retirement plan that’s offered to public school employees, including those who work at state colleges and universities, and employees of certain tax-exempt organizations. Certain ministers may establish a 403(b) plan as well. This type of plan can also be referred to as a tax-sheltered annuity or TSA plan.

Like 457 plans, 403(b) plans are funded with pre-tax dollars and contributions grow tax-deferred over time. These contributions can be made through elective salary deferrals or nonelective employer contributions. Employees can opt to make after-tax contributions or designated Roth contributions to their plan. Employers are not required to make contributions.

The annual contribution limits to 403(b) plans, including catch-up contributions, are the same as those for 457 plans. A 403(b) plan can also offer special catch-up contributions, but they work a little differently and only apply to employees who have at least 15 years of service.

Employees can withdraw money once they reach age 59 ½ and they’ll pay tax on those distributions. A 403(b) plan may allow for loans and hardship distributions or early withdrawals because the employee becomes disabled or leaves their job.

Investing for Retirement With SoFi

When weighing retirement plan options, a 457 retirement account may be one possibility. That’s not the only way to save and invest, however. If you don’t have a retirement plan at work or you’re self-employed, you can still open a traditional or Roth IRA to grow wealth.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help grow your nest egg with a SoFi IRA.

FAQ

How does a 457 plan pay out?

If you have a 457 savings plan, you can take money out of your account before age 59 ½ without triggering an early withdrawal tax penalty in certain situations. Those distributions are taxable at your ordinary income tax rate, however. Like other tax-advantaged plans, 457 plans have required minimum distributions (RMDs), but they begin at age 73.

What are the rules for a 457 plan?

The IRS has specific rules for which types of employers can establish 457 plans; these include state and local governments and certain tax-exempt organizations. There are also rules on annual contributions, catch-up contributions and special catch-up contributions. In terms of taxation, 457 plans follow the same guidelines as 401(k) or 403(b) plans: Contributions are made pre-tax; the employee pays taxes on withdrawals.

When can you take money out of a 457 plan?

You can take money out of a 457 plan once you reach age 59 ½. Withdrawals are also allowed prior to age 59 ½ without a tax penalty if you’re experiencing a financial hardship or you leave your employer. Early withdrawals are still subject to ordinary income tax.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Photo credit: iStock/Nomad

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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Jan

2025

Options for a $50,000 Personal Loan

By Caroline Banton | Budgeting & Goals, personal_loan | Comments Off

Most people could use a cash injection at some point in their lives. Perhaps they need to cover major home repairs, a big-ticket purchase, or emergency expenses. Whatever the reason, a personal loan may be a good idea, especially for borrowers with a strong credit history.

Read on to learn how to get a $50,000 personal loan. Find out why it might be right for you (and when it may be wrong), how the terms are decided, and possible alternatives to a personal loan for $50K.

Key Points

• Personal loans provide quick access to funds, often available within days after approval.

• Credit score plays a crucial role in determining interest rates and loan terms.

• Monthly payments must align with the borrower’s budget to prevent financial difficulties.

• Alternatives such as a HELOC or credit cards should be considered for potential benefits.

• Taking a personal loan can positively or negatively affect credit, based on repayment consistency.

Factors to Consider When Applying for a $50,000 Personal Loan

Personal loans are a convenient way to fund a short-term cash flow problem or consolidate credit card debt. In many cases, once the loan is approved, the funds are deposited to your account within a day or two.

Banks, credit unions, and online lenders can all provide personal loans for $50K. Applying for personal loans online can offer convenience and speed, often allowing borrowers to complete the entire process from application to funding without needing to visit a physical branch. can offer convenience and speed, often allowing borrowers to complete the entire process from application to funding without needing to visit a physical branch. Payback terms are flexible, running from 12 months to several years, and loan payments are due monthly. Personal loan rates vary depending on the credit score of the borrower: A higher credit score will be rewarded with better terms and a lower interest rate.

As you consider whether to apply for a $50K personal loan, it’s a good idea to first assess your financial health and your credit score. (Your bank or credit card issuer may allow you to check your score for free.)

You’ll also want to determine whether you’d be able to pay back the loan. Making a budget can help. Simply subtract your recurring expenses from your income, and see if the amount left over is enough to cover the monthly loan payment.

Next, find out the average personal loan interest rate, then shop around with different lenders. Be sure to look out for origination fees and prepayment penalties hidden in the small print.

How to Qualify for a $50,000 Personal Loan

Criteria varies by lender, but in general, to qualify for a $50K personal loan, you’ll need to satisfy a few requirements:

• Maintain a good credit score. For such a significant loan amount, a traditional bank or credit union may require a credit score of 670 or more, which is considered a good credit score. However, other lenders may work with borrowers who have a credit score of 580 and up.

• Provide proof of employment and income. Examples include paycheck stubs, tax returns, Social Security payments, alimony payments, or disability benefits statements.

• Have a debt-to-income (DTI) ratio of 36% or lower. That said, lenders may allow a higher DTI ratio for borrowers who are using the loan funds to consolidate credit card debt.

What Can You Do With a $50,000 Personal Loan?

One of the upsides of a $50,000 personal loan is that you can use the funds for just about any purpose. But considering the size of the loan, you may choose to put the money toward a larger financial goal. Common examples of this include consolidating high-interest debts, paying for home improvement projects, and funding a major purchase, like a bucket-list vacation.

💡 Quick Tip: If you’re considering using a loan to cover a $50,000 wedding, a wedding loan can provide the flexibility and quick access to funds you need for your big day.

Understanding the Costs of a $50,000 Personal Loan

Borrowers should pay special attention to these factors when comparing the cost of a loan.

Interest Rates

The biggest consideration for a $50,000 personal loan is the interest rate, because the rate and the length of the loan will determine the total cost of the loan. The shorter the loan, the less interest you will pay, and the lower the total cost.

In most cases personal loans have a fixed interest rate, but some do have variable rates. Variable rate loans often start out with a relatively low interest rate, but the rate can rise significantly later, increasing the monthly payments.

Fees

Origination fees can be hidden in the fine print, so make sure you understand how they impact the annual percentage rate (APR) that you are charged. Also check if there’s a prepayment penalty for paying off your loan early.

Total Repayment Cost

The total repayment cost of a $50,000 loan will depend on the interest rate and the length of the loan. You will make more payments over a longer term, racking up more interest and increasing the total cost of the loan. A shorter term will lower the total repayment cost. To minimize total repayment costs, select a loan with the biggest monthly payment you can comfortably afford and the shortest repayment term.

Monthly Payment Amount

The monthly payment is critical. If a monthly payment offered by a lender seems like a stretch, try to negotiate a longer repayment period. For instance, if a five-year loan is extended to a seven-year loan, you’ll make 84 smaller payments compared to 60 larger payments. Just remember, you’ll pay more interest over the life of the loan.

Is a $50,000 Personal Loan the Right Choice for You?

A $50,000 personal loan is a huge financial commitment. Ask yourself the following questions before signing on the dotted line.

How Much Do You Really Need?

Minimizing your debt load means you pay less to lenders in fees and interest. Consider whether you can borrow money from another source at a lower cost and reduce the amount that you need from a personal loan.

Can You Afford the Monthly Payment?

If the monthly payment is going to take a big bite out of your paycheck each month, you may find yourself unable to meet the payments. Make sure your cash flow is sufficient to meet your monthly payments.

Is a Personal Loan Your Best Financing Option?

Look at other options before you settle on a $50,000 personal loan. If you have equity in your home, refinancing your mortgage or obtaining a HELOC might be a better choice. Credit cards and borrowing from family or friends are also good alternatives.

How Will the Loan Affect Your Credit?

When you are shopping for a loan, whether it be for $5,000, $10,000, or $100,000, a lender may pull a soft credit check to prequalify you. This will not affect your credit score. When you formally apply for your loan, the lender will do a hard credit check. This may reduce your credit score by around five points for one year.

Aside from credit checks, personal loans can help build your credit history or seriously hurt it, depending on how you manage your payments. If you make a payment that’s over 30 days late and it gets reported to the credit bureaus, it could lower your credit rating from excellent to fair. But if you use your loan to consolidate existing debt, your score might actually rise because your credit utilization ratio has improved.

What Are the Pros and Cons of Borrowing?

Despite their flexibility and convenience, there are pros and cons to personal loans that a borrower should be aware of before they opt for this financing option. One of the biggest advantages of an unsecured personal loan is that no collateral is required, which means you don’t risk losing your home or car. On the other hand, interest rates can be high if your credit score is low, and fees and penalties often apply.

Benefits of Choosing SoFi for a $50,000 Personal Loan

Traditional banks, credit unions, and online lenders like SoFi all provide flexible personal loans. SoFi personal loans offer competitive interest rates and no origination fees or prepayment penalties. The application process is quick and easy, and funds could be available as quickly as the same day your loan is approved. The terms of a SoFi personal loan will depend on your credit score — the higher your score the lower your interest rate.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What credit score do I need to get a $50,000 personal loan?

Most lenders will require a credit score of 670 or more, which is considered a good credit score. Other lenders may require a credit score of at least 580, but they’ll likely charge higher fees and a higher interest rate.

How can you qualify for a $50,000 personal loan?

In general, to qualify for a $50,000 personal loan you will need to show you have sufficient income to make the monthly payments and have a credit score of 580 or higher. You also must be 18 years old and a U.S. citizen, legal resident, or visa holder.

Is it hard to get a 50k personal loan?

It’s not difficult to get a personal loan for $50K if you have good credit. If you have poor credit, the number of lenders available to you will be limited, and you will likely face higher interest rates and high fees, making the loan quite costly.

Photo credit: iStock/undefined undefined

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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Jan

2025

Trading Futures vs. Options: Key Differences to Know

Futures vs Options: What Is the Difference?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Futures and options are both derivative contracts that enable an investor to buy or sell an investment for a certain price by a certain date. Although they share similarities, they work quite differently and pose different risks for investors.

With an options contract, the holder has the option (but not the obligation) to buy an underlying asset, such as stock in a business, for a specified price by a specific date. A futures contract requires the holder to buy the asset on the agreed-upon date (unless the position is closed out before then).

The underlying asset for a futures contract is often a physical asset, such as commodities like grain or copper, but you can also trade futures on stocks or an equity index, such as the S&P 500. The underlying asset for an options contract can be a financial asset like a stock or bond, or it could be a futures contract.

Key Points

• Futures contracts make obligations about trading an underlying asset at a set price and date.

• Options give the buyer the right, not the obligation, to trade the underlying asset.

• Futures are riskier due to high leverage and daily mark-to-market adjustments.

• Options buyers risk only the premium paid, while futures leverage amplifies gains and losses.

• Both futures and options are used by hedgers and speculators for different purposes.

Main Differences Between Futures and Options

Although futures and options are similar, as they are both derivative contracts tied to an underlying asset, they differ significantly in terms of risk, obligations, and the ways in which they are executed.

How Futures Work

Futures contracts are a type of derivative in which buyers and sellers are obligated to trade a specific asset on a certain future date, unless the asset holder closes their position prior to the contract’s expiration.

A futures contract consists of a long side and a short side, where the short side is obligated to make delivery of the underlying asset, and the long side is obligated to take it (unless the contract is terminated before the delivery date).

Both options and futures typically employ some form of financial leverage or margin, amplifying gains and losses, increasing potential risk of loss.

How Options Work

Options trading consists of buying and selling derivatives contracts that give the holder the right, but not the obligation, to buy or sell an asset at a specified price (the strike price) by the contract’s expiration date.

• The options buyer (or holder) may buy or sell a certain asset, like shares of stock, at a certain price by the expiration of the contract. Buyers pay a premium for each option contract; this represents the cost of acquiring the option.

• The options seller (or writer), who is on the opposite side of the trade, has the obligation to buy or sell the underlying asset at the strike price, if the options holder exercises their contract.

There are only two types of options: puts and calls. Standard equity options contracts are for 100 shares of the underlying security.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

The Role of Risk

Trading options come with certain risks. The buyer of an option could lose the premium they paid to enter the contract. The seller of an option is at risk of being required to purchase or sell an asset if the buyer on the other side of their contract exercises the option.

Futures can be riskier than options due to the high degree of leverage they offer. A trader might be able to buy or sell a futures contract putting up only 10% of the actual value, known as margin. This leverage magnifies price changes, meaning even small movements can result in substantial profit or loss.

With futures, the value of the contract is marked-to-market daily, meaning each trading day money may be transferred between the buyer and seller’s accounts depending on how the market moved. An option buyer is not required to post margin since they paid the premium upfront.

The Role of Value

Futures pricing is relatively straightforward. The price of a futures contract should approximately track with the current market price of the underlying asset, plus any associated costs (like storage or financing) until maturity.

Option pricings, on the other hand, is generally based on the Black-Scholes model. This is a complicated formula that requires a number of inputs. Changes in several factors other than the price of the underlying asset, including the level of volatility, time to expiration, and the prevailing market interest rate can impact the value of the option.

Holding constant the price of the underlying asset, futures maintain their value over time, whereas options lose value over time, also known as time decay. The closer the expiration date gets, the lower the value of the option gets. Some traders use this as an options trading strategy. They sell options contracts, anticipating that time decay will eat away at their value over time, expire worthless, and allow them to keep the premium collected upfront.

Options come with limited downside, since the maximum loss is the premium. Futures, however, can fall below zero: the contract’s value is tied to the underlying asset’s price, meaning traders may have to pay more than the contract’s original value.

Here are some of the key differences between futures and options:

Futures	Options
Buyer is obliged to take possession of the underlying asset, or make a trade to close out the contract. Seller is obligated to deliver the asset or take action to close the position.	Buyer has the right, but not the obligation, to buy or sell a certain asset at a specific price, while the seller has the obligation to fulfill the option contract if exercised.
Futures typically involve taking much larger positions, which can involve more risk.	Options may be less risky for buyers because they are not obliged to acquire the asset.
No up-front cost to the buyer, other than commissions.	Buyers pay a premium for the options contract.
Price can fall below $0.	Price can never fall below $0.

Understanding Futures

Futures contracts are similar to options in that they set a specific price and date for the trade of an underlying asset. Unlike options, that give the holder the right to buy or sell, futures investors are obligated to buy at a certain date and price.

Among the most common types of futures are those for commodities, with which speculators can attempt to benefit from changes in the market without actually buying or selling the physical commodities themselves. Commodity futures may include agricultural products (wheat, soybeans), energy (oil), and metals (gold, silver).

There are also futures on major stock market indices, such as the S&P 500, government bonds, and currencies.

Rather than paying a premium to enter a futures contract, the buyer pays a percentage of the market value, called an initial margin.

Recommended: Margin Account: What It Is and How It Works

Example of a Futures Contract

Let’s say a buyer and seller enter a contract that sets a price per bushel of wheat. During the life of the contract, the market price may move above that price — putting the contract in favor of the buyer — or below the contracted price, putting it in favor of the seller.

If the price of wheat goes higher at expiration, the buyer would make a profit off the difference in price, multiplied by the number of bushels in the contract. The seller would incur a loss equal to the price difference. If the price goes down, however, the seller would profit from the price difference.

Who Trades Futures?

Traders of futures are generally divided into two camps: hedgers and speculators. Hedgers typically have a position in the underlying commodity and use a futures contract to mitigate the risk of future price movements impacting their investment.

An example of this is a farmer, who might sell a futures contract against a crop they produce, to hedge against a fall in prices and lock in the price at which they can sell their crop.

Speculators, on the other hand, accept risk in order to potentially profit from favorable price movements in the underlying asset. These may include institutional investors, such as banks and hedge funds, as well individual investors.

Futures enable speculators to take a position on the price movement of an asset without trading the actual physical product. In fact, much of trading volume in many futures contracts comes from speculators rather than hedgers, and so they provide the bulk of market liquidity.

Understanding Options

Options buyers and sellers may use options if they think an asset’s price will go up (or down), to offset risk elsewhere in their portfolio, or to potentially enhance returns on existing positions. There are many different options-trading strategies.

Example of a Call Option

An investor buys a call option for a stock that expires in six months, paying a premium. The stock is currently trading at just below the option’s strike price.

If the stock price goes up above the strike price within the next six months, the buyer can exercise their call option and purchase the stock at the strike price. If they sell the stock, their profit would be the difference in the price per share, minus the cost of the premium.

The buyer could also choose to sell the option instead of exercising it, which can also result in a profit, minus the cost of the premium.

If the price of the stock is below the strike price at the time of expiration, the contract would expire worthless, and the buyer’s loss would be limited to the premium they paid upfront.

Example of a Put Option

Meanwhile, if an investor buys a put option to sell a stock at a set price, and that price falls before the option expires, the investor could earn a profit based on the price difference per share, minus the cost of the premium.
If the price of the stock is above the strike price at expiration, the option is worthless, and the investor loses the premium paid upfront.

Who Trades Options?

Options traders often fall into two categories: buyers and sellers. Buyers purchase options contracts — be they calls or puts — with the hope of making a profit from favorable price movements from the underlying asset. They also want to limit potential loss to the premium they paid for the option. Sellers can potentially profit from the premium they’ve collected when writing the options contract, but they face the risk of having to fulfill the contract if the market moves unfavorably.

The Takeaway

Futures and options are two types of investments for those interested in hedging and speculation. These two types of derivatives contracts operate quite differently, and present different opportunities and risks for investors.

Futures contracts specify an obligation — for the long side to buy, and for the short side to sell — the underlying asset at a specific price on a certain date in the future. Meanwhile, option contracts give the contract holder (or buyer) the right to buy or sell the underlying asset at a specific price, but not the obligation to do so.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

🛈 SoFi does not offer future derivatives at this time.

FAQ

Are futures more risky than options?

Both options and futures are considered high-risk investments. Futures are considered more risky than options, however, because it’s possible to lose more than your total investment amount.

Which uses more leverage: futures or options?

Typically, futures trading uses more leverage, and that’s part of what makes futures higher risk, and potentially appealing to speculators.

Which is easier to trade: futures or options?

Options strategies can be more complicated, and in some ways futures contracts are more straightforward, but futures trading can be highly speculative and volatile.

Photo credit: iStock/DonnaDiavolo

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Jan

2025

What Is a Short-Term Loan? The Ultimate Guide

By Ashley Kilroy | Debt Payoff, Financial Independence, personal_loan | Comments Off

Once you begin looking for financing options, you may find your search leads you to multiple forms, including personal loans. One choice available to prospective borrowers is a short-term loan.

A short-term loan is a personal loan that can help with personal financial needs. But this type of loan may not fit every situation, since it typically only provides limited funds. Read on to find out whether a short-term loan may help you meet your financial goals.

Key Points

• Short-term loans offer smaller borrowing amounts, often without collateral.

• Interest rates and fees for short-term loans are higher than long-term options.

• Approval for short-term loans is faster, with less stringent credit checks.

• Repayment periods are shorter, sometimes requiring weekly payments.

• Short-term loans can lead to a cycle of debt due to strict repayment terms and high costs.

What Is a Short-Term Loan?

When you take out a short-term loan, you borrow funds to address immediate financial needs for a limited period. These loans serve a variety of functions, depending on your situation. For example, individuals may take out a short-term loan to keep them afloat until their next paycheck.

Or, someone running their own business who needs to cover small expenses may take out a short-term business loan.

Recommended: Personal Loan Guide for Beginners

How Do Short-Term Loans Work?

Essentially, short-term loans operate on a short time scale. The approval process and repayment schedule occur quickly, usually within a year.

Average personal loan interest rates range from 5.99% to 36% APR, depending on the applicant’s creditworthiness. Short-term loans tend to be near the higher end of this scale, in addition to fees and penalties that may be charged by a lender.

However, lenders such as banks or credit unions offer varying personal loan terms and rates. So, it’s important to research and shop around before you apply for one.

What Can You Use a Short-Term Loan For?

Short-term loans can be used for many purposes when you need quick access to money and your cash flow is low. You can use the funds from a short-term loan to cover unexpected costs such as medical bills or for everyday expenses until you reach your next paycheck.

Businesses might use short-term loans in the form of merchant cash advances so they can replenish inventory or purchase new equipment even when short on cash. In this scenario, the business receives a lump sum of cash from a lender and repays it with a percentage of credit or debit card sales until the advance is paid in full.

Example of a Short-Term Loan

A bank overdraft can be considered a short-term loan the bank provides when your account balance isn’t sufficient to pay for a purchase you’ve made. In this scenario, your account lacks funds to make a payment, but the bank lends you that money. In return, you pay a fee.

How Long Is a Short-Term Loan?

Every loan varies based on the lender and applicant. Often, short-term loans mature within a year or less. However, it is possible to find a short loan term that extends up to two years. Any loan term longer than that qualifies as either a medium-term or long-term personal loan.

Characteristics of Short-Term Loans

Short-term loans have unique features, such as:

• Smaller borrowing amounts compared to other loans.

• Typically offered as unsecured loans.

• High annual percentage rates (APRs).

• Short repayment periods.

• Sometimes weekly payments are required.

Benefits of a Short-Term Loan

Short-term loans come with certain disadvantages, mostly due to their high interest rates. But they can be helpful if you find yourself in a tight spot. Some benefits include:

High Approval Rates

Since short-term loans only provide limited funds, the lending requirements may be easier to meet. Because of that, more applicants have a chance of approval. Even though you may not need a stellar credit score, you could still have some trouble if you have a low credit score. Your lender may ask for proof of a steady income, among other criteria.

Online Application

Short-term loans are also easy to access. Lenders often offer online applications, so there’s no need to visit a brick-and-mortar office. Applications are typically easy to fill out, taking only minutes to complete.

Quick Access to Funds

The short-term loan processing time is usually fast. As a result, you will probably receive approval and loan proceeds faster than you would for a long-term loan. They might be a good option if you have an unexpected expense you need to pay as soon as possible.

Lower Accrued Interest

While short-term loans can come with high interest, they generally have a short time frame. Because of that, there are fewer total interest payments. As long as you pay on time, you could save money on built-up interest with a short-term loan.

Lower Credit Score Requirements

As mentioned above, you don’t typically have to have an excellent credit score to get approved for a short-term loan. Applicants with average credit scores may also be able to usually qualify for a short-term personal loan.

No Collateral

When it comes to the difference between a secured vs. unsecured loan, a secured loan means more risk on the borrower’s part. That’s because a secured loan requires collateral, such as your car or your home. But most lenders don’t require collateral for a short-term personal loan because it doesn’t carry enough risk.

Disadvantages of a Short-Term Personal Loan

While short-term loans are easier to qualify for, they may not be the right choice for everyone. Here are some drawbacks to be aware of:

Lower Limit

For borrowers who need a significant amount of money, a short-term personal loan may not be the right choice. The borrowing limits for these types of loans tend to be small, sometimes just a few hundred dollars, to make it easier to pay off in a short amount of time.

May Lead to a Cycle of Debt

Because of the high-interest rate and steep fees attached to short-term loans, they really aren’t long-term solutions. They might be an option in an emergency but can lead to a cycle of debt if relied on too often.

Types of Short-Term Loans

There are a few variations on the short-term loan available to you. The type of personal loan you apply for will generally depend on the amount of cash you want and how quickly you need it. Here are some worth considering:

Payday Loans

A payday loan is a short-term loan that some people use to tide themselves over financially until their next paycheck. The funds are meant to be repaid at the time of the borrower’s next payday — thus, the name. However, payday loan issues arise if the borrower can’t repay the loan in the short time frame required.

Installment Loans

Installment loans give borrowers a way to access a lump sum of money that’s repaid in monthly installments over a set time frame. A fixed-rate loan with steady monthly payments makes budgeting during the repayment period more convenient.

Lines of Credit

A line of credit is similar to a credit card. You receive a credit limit and can tap into the line of credit as needed. Funds can be taken out in installments of the amount needed at the time they’re needed. But you can’t surpass your limit, which the lender bases on your creditworthiness.

Merchant Cash Advance

Merchant cash advances are used by businesses that make mainly debit or credit card sales. As a means to secure cash, the business will borrow a lump sum, which is advanced against the business’s daily sales. The lender is then repaid through a certain percentage of the business’s daily sales.

Invoice Financing

Similar to merchant cash advances, invoice financing is a type of short-term loan that can help business owners meet financial needs. The business submits unpaid invoices, i.e., accounts receivable, to a lender as collateral. The lender charges a fee for the financing and can collect on the invoices if the borrower defaults.

Short-Term Loan vs Long-Term Loan

It’s always important to explore your options. Short-term loans probably aren’t the right option if you need a large amount of funds in a lump sum or will need to periodically draw small amounts from a set amount of credit. In these situations, a long-term loan might be a better solution.

Long-term personal loans can sometimes have high-interest rates depending on the applicant’s credit score and other factors used by the lender. They may not require collateral, which makes them seem risky to lenders.

Here’s a breakdown of how these two loans stack up against each other:

	Short-Term Loans	Long-Term Loans
Loan Amount	Typically, a few hundred to a few thousand dollars, but can be up to $100,000	Depending on the lender, amounts can be a few thousand dollars to $100,000 or more
Loan Term	A couple of weeks to 18 months	Up to 25 years
Interest	High interest rates	Competitive interest rates
Eligibility	May qualify with bad credit	Stringent qualifications such as good credit

Typical Requirements to Get a Short-Term Loan

Requirements to be approved for a short-term loan vary by lender, but all lenders will evaluate your creditworthiness in some way. Generally, a higher credit score will likely secure you better terms and interest rates. You also need to be able to show your lender a range of personal and financial information such as proof of identity, verification of employer and income, and proof of current address.

Can I Get a Short-Term Loan With Bad Credit?

While short-term loans don’t typically require excellent credit, the higher an applicant’s credit score, the better their chances of approval. A lender may also offer more favorable interest rates and terms to a borrower with a higher score. Since short-term loans are often for relatively small amounts of money, requirements tend to be more relaxed.

Personal Loan Options From SoFi

SoFi offers personal loan options to fit a variety of financial situations and needs. With competitive interest rates and a range of terms, there may be a SoFi personal loan that works for you. SoFi does not charge fees on personal loans, so you only repay the loan principal and interest. A personal loan calculator can help you compare loan options and figure out monthly payments.

The Takeaway

What is a short-term loan? It’s a small loan that’s designed to be repaid quickly, usually within 12 to 18 months. Short-term personal loans vary based on your financial situation and the lender you use. Some lending institutions use high-interest rates and hidden fees that can add to the overall cost of a short-term personal loan. That doesn’t make a personal loan bad, but it’s important to be aware of what you’re agreeing to when you borrow money.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

Photo credit: iStock/kitzcorner

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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