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PT school costs in the U.S. can range between $9,000 and $35,000 per year, depending on whether you live in the same state as the program you attend.

And when it comes to how to pay for PT school, there are several funding options for prospective students — from grants and scholarships to federal financial aid, work study programs, private student loans, and more.

Keep reading to find out how much PT school costs and how to pay for physical therapy school.

Cost of Physical Therapy School

The cost of physical therapy school can vary vastly depending on the program you attend and your location.

With that said, the average tuition and fees for PT programs in the U.S are $9,832 for in-state residents and $35,258 for out-of-state students for the academic year 2023-2024.

7 Ways to Pay for Physical Therapy School

Now that you have an idea of how much PT school might cost, your next priority is likely figuring out how to pay for PT school once you’ve been accepted.

Below are seven different options you can look into to help cover the costs of attending PT school.

1. Grants

Physical therapists are in high demand, and there’s been a corresponding increase in the number of grants available to students who are pursuing a career in PT.

Grant funding that helps students with PT school costs is sponsored by a variety of sources, from the federal government to public and private colleges and universities, professional organizations, and corporations.

It’s wise to kick off your search for grant funding with federally-backed programs that target PT majors. If you’re enrolled in a PT program from an accredited college or university, you may be eligible for the following federal grants.

Recommended: Grants for College

The Federal Pell Grant

The Federal Pell Grant is available to undergraduate students with demonstrated financial need. The amount of awarded funding maxes out at $7,395 for the 2023-24 school year. The amount awarded can change yearly and is based on the student’s level of financial need, attendance status (full time or part time), and the cost of the program itself.

The Federal Supplemental Educational Opportunity Grant

The Federal Supplemental Educational Opportunity Grant (FSEOG) is available to eligible undergraduate students who have already qualified for a Pell Grant, still demonstrate financial need, and are enrolled in a participating college or university.

To apply for an FSEOG, you can work with your college’s financial aid office and learn if you’re eligible to receive anywhere from $100 – $4,000.

U.S. Department of Health and Human Services Aid

The U.S Department of Health and Human Services offers a variety of financial aid opportunities that are designed to assist students entering into the healthcare profession. One example is the HRSA Scholarship for Disadvantaged Students, which is a campus-based grant program that provides financial assistance to students from disadvantaged backgrounds. Eligible recipients must be pursuing a degree in an approved healthcare field (PT being one of them) and the college or university the student is attending determines the eligibility and award amount.

Colleges and Universities

There are several campus-based grants and payment programs available to PT students to help cover PT school costs. Once you’ve whittled down a list of preferred PT programs, you can search for these grants and scholarships on the schools’ websites or speak to someone in their financial aid departments to get started.

Private Organizations

Private and professional organizations can be solid sources for grants, scholarships, and fellowships that help aspiring physical therapists with how to pay for PT school.

In many cases, the funding is extended on a regional basis, so searching for state or local organizations is a great way to seek financial aid that’s relevant to PT in your particular area.

The American Physical Therapy Association (APTA) sponsors several grants and scholarships for PT students, including the Outstanding PT Student and PTA Student Awards or Orthopedic Section Outstanding PT/PTA Student Award, among others.

An example includes the Foundation for Physical Therapy (FTP), which administers research grants for graduate level PT students in a variety of rehabilitation techniques, including pediatric and geriatric physical therapy. In addition, the FTP offers $5,000 in award funds from their Florence P. Kendall Doctoral Scholarship for high performing PTs and PT assistants pursuing doctoral studies at an accredited college or university.

2. Scholarships

When considering how to pay for physical therapy school with a scholarship, consider searching scholarship databases for “physical therapy” scholarships. Websites such as CollegeScholarships, Scholarships 360 or Scholarships.com all offer comprehensive lists of scholarships available specifically to students studying physical therapy.

In addition to course of study, factor in other talents or qualities that may help you qualify for a scholarship, such as where you grew up, your ethnicity, or gender.

Review the scholarships available at your specific school, as well.

Recommended: Find Financial Aid Options for All 50 States

3. Federal Student Loans

To help physical therapy students offset their PT school costs, federal student loans are another prime way to secure financial aid.

Federal financial aid for physical therapy students can come in the form of various federal student loans. They cover the cost of attendance, living expenses, fees, and more to help you pay for your physical therapy education.

On top of that, federal student loans offer specific perks and protections such as:

•   Deferment

•   Forbearance

•   Student Loan Forgiveness options

•   A six-month grace period for new grads

Most federal student loans (aside from PLUS loans), don’t require a credit check, so borrowers won’t need to add a cosigner to the loan. Undergraduate students may also qualify for Direct Subsidized Loans, which are awarded based on financial need. Students are not responsible for paying the interest that accrues on subsidized loans while they are actively enrolled or during qualifying periods of deferment, such as the grace period.

4. Private Student Loans

Private student loans can be obtained from private lenders like banks, credit unions, or other financial institutions and can help bridge the gap when federal student loans aren’t enough to pay for physical therapy school. That said, it may be tricky for physical therapy students to qualify for private student loans without a cosigner, especially if they have a lower credit score or no credit at all.

In some cases, aspiring PT students may need to ask someone to cosign for a private student loan to help them obtain a lower interest rate and more favorable loan terms.

While private student loan borrowers aren’t afforded the same perks and protections as they are with federal student loans, there are still benefits to using private student loans to pay for PT school.

Here’s a guide to private student loans that can help you learn more about the available options.

5. Part-Time Work

Whether it’s a side hustle or a sanctioned work-study program, there are other ways to pay for PT school that don’t involve a loan, grant or scholarship.

On Campus

An on-campus work-study program is typically offered by the college or university where a student is attending PT school.

In the case of the Federal Work-Study Program , students are eligible for part-time employment while enrolled in PT school if their college is a participating member of the program and the student meets the program’s eligibility requirements. Checking with the school’s financial aid office is the best way to determine whether or not they offer a Federal Work-Study Program.

Off Campus

The Federal Work-Study Program also offers off-campus employment for a private nonprofit organization or a public agency, typically for work that’s performed in the public interest.

That said, finding your own job on or off campus (that’s not tied to federal aid) is also a possibility. Whether it’s a part-time job at a local cafe, waiting tables at a restaurant, or becoming a nanny for a nearby family — there are other options for figuring out how to pay for physical therapy school.

6. FAFSA

If you’re thinking about using federal student aid to pay for PT school, the first step is filling out the Free Application for Federal Student Aid (FAFSA®).

The FAFSA is a free form that’s completed by current and prospective PT students to determine their eligibility for federal financial aid, including loans, scholarships, and the programs mentioned above.

Take a look at this FAFSA guide for more information about what the FAFSA is, which types of financial aid you may be eligible for, the criteria that can be expected in order to receive funds, and important dates to know.

7. PSLF

Public Student Loan Forgiveness (PSLF) is a federally-backed program that forgives the remaining balance on a borrower’s Direct Loans after:

• They’ve made 120 qualifying monthly payments
• Under a qualifying repayment plan
• While working full-time for a qualifying employer

The requirements for receiving PSLF are strict, so if you are pursuing this option be sure to read all the program instructions and paperwork closely.

When deciding how to pay for PT school, this is one reason many prospective students turn first to federal financial aid.

It’s Student Loan Forgiveness programs like these that are among the many perks and protections of federal student loans that can’t be accessed through private student loans.

How Much Can Physical Therapists Make?

While PT school costs can seem a bit steep, the compensation for recent PT grads can potentially justify the price tag for today’s typical physical therapy program.

In 2023, physical therapists made a median salary of $99,710, with the top 10% bringing in more than $130,000 and the lowest 10% earning $72,260.

The Takeaway

When it comes to how to pay for physical therapy school, there are several ways aspiring students can receive financial aid — including grants, scholarships, work study programs, federal student loans through FAFSA and private student loans.

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.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What is the average student debt for a physical therapist after graduating?

Physical therapists graduate with an average total student debt amount of just over $142,000, with roughly 80% of that being specifically from physical therapy school.

How much can PTs expect to make after graduating?

An entry-level physical therapist salary can range from $58,000 to $94,000 or higher per year and the median salary among all physical therapists was $99,710 in 2023.

Will the military pay for physical therapy school?

Each branch of the U.S. Armed Forces has different programs and requirements for receiving financial assistance for physical therapy school. Visiting their individual websites is the best way to determine eligibility.

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Photo credit: iStock/marinesea

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.

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

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 .

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.

SOISL-Q324-047

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It may come as a surprise, but sometimes your credit score drops after you pay off a loan or credit card debt. This happens because paying off debt can impact several factors that make up your credit score. For example, it might change your credit mix, shorten your credit history, or impact your credit utilization ratio.

If you’re wondering why your credit score dropped 40 points after paying off debt, here are some potential reasons to consider. 

Why Would My Credit Score Drop 40 Points After Paying Off Debt?

Paying off your debt is a big win and usually boosts your credit score. But sometimes, you might see a dip. To understand why, it’s important to know how your score is calculated.

Information from the three major credit bureaus — Equifax, TransUnion, and Experian — comes together to create your credit score. The bureaus gather details about your loans, credit cards, and other debts. Your credit score is calculated using a formula that measures how reliable you are at making payments. Lenders use this score to decide if they should give you credit.

Recommended: How Long Does It Take to Build Credit?

Credit Score Factors

Although there are many ways to calculate your creditworthiness, here are some common factors that may affect your credit score after you pay off your debt. 

Payment History

Payment history makes up 35% of your FICO credit score and is the most important factor. So while late or missing credit card payments might not seem significant at the time, they could bring down your overall score. 

If you need help keeping track of bills, consider a tool like a money tracker app. It allows you to spot upcoming bills, create budgets, and monitor your credit score.

Credit Utilization

Your credit card utilization ratio — or the amount of available credit you’re using — makes up 30% of your credit score, so it’s worth monitoring. 

Here’s how it works: If you have $10,000 in available credit and a $5,000 credit card balance, your credit utilization ratio is 50%. Usually, credit bureaus and lenders want to see a utilization ratio under 30%.

When you pay off your debt and close the account, your total available credit decreases and your credit utilization ratio increases. This, in turn, can cause your credit score to dip. 

Length of Your Credit History

Your credit reports show how long your credit accounts have been open. Having a longer credit history can improve your credit score, albeit not to the extent other factors can. (It makes up 15% of your credit score.) On the flip side, if you close an old account, you shorten your credit history — which can potentially lower your score.

Credit Mix

The variety of your credit accounts — like personal loans, credit cards, and mortgages — is 10% of your credit score. And managing different kinds of credit can help improve it. Paying off a specific type of credit, such as a car loan or mortgage, can have the opposite effect, as it reduces the diversity of your credit mix. 

New Credit Applications

When you apply for a new line of credit, lenders check your credit report to determine the risk of lending you money. This check, known as a hard inquiry or “hard pull,” can drop your credit score by a few points for a short time, though it stays on your report for two years. 

But keep in mind, when calculating your score, FICO, the scoring model most lenders use, only looks at credit pulls from the past 12 months. And new credit only makes up 10% of your credit score.

Recommended: What Is a FICO Score?

How to Pay Off Debt and Help Your Credit Score

Paying off debt may lead to a temporary dip in your credit score, but its benefits far outweigh any drawbacks. In fact, there are steps you can take build your credit as you whittle down your debt load:

•   Make on-time payments: Always make payments on time, whether it’s your credit card balance or mortgage. Punctual payments positively impact your score the most.

•   Prioritize high-interest debt: Pay off credit cards with the highest interest rates first to reduce debt risk.

•   Pay off cards with a low credit limit: This can help keep your debt-to-credit ratio in check.

•   Keep credit utilization low: Aim to use less than 10% — and no more than 30% — of your available credit.

•   Clear small balances on multiple cards: Having zero balances on more cards is better for your score.

•   Pay off past-due bills: Prioritize the most recent ones. This shows new lenders that you’ve settled your debts.

How Long Does It Take for Your Credit Score to Improve After Paying Off Debt?

Luckily, a drop in your credit score is generally brief. After you pay off your debt, your score should bounce back within a month or two because credit bureaus typically update your credit information every 30 to 45 days.

You can check your credit score without paying. If it doesn’t improve right away, don’t worry. The paid-off debt will stay on your credit report for up to 10 years. If you made payments on time, this positive history can help boost your credit score in the long run. 

Ways to Increase Your Credit Score After Paying Off a Loan

Once your debt is settled, you may want to turn your focus to boosting your credit score. Some steps you may have taken as you paid down the debt will serve you well at this point, such as making on-time payments and keeping credit utilization low. But there are other strategies that can help:

•   Build a long credit history: Keep older accounts open so you can build a long history of responsible credit use. The longer your history of on-time payments, the better your score may be. 

•   Apply for credit sparingly: Only apply for new lines of credit when needed. Too many applications in a short period can negatively impact your score.

•   Review your credit reports: Regularly review your credit reports for any errors or inaccuracies. If you spot anything out of the normal, make sure to dispute any mistakes. This way, you can ensure your score reflects accurate information.

How to Get Credit Score Monitoring

Using a credit monitoring service can help you keep tabs on your credit score. These services notify you when there are changes to your credit reports, which can help you catch any suspicious activity. While comprehensive monitoring services are available, there are ways to monitor it yourself:

•   Ask for a free copy of your credit report: You’re entitled to a free credit report every year from each of the three credit bureaus. Visit AnnualCreditReport.com to get started. 

•   Check for complimentary credit monitoring: Some accounts offer free credit score monitoring. Call your bank or credit card company to see if you qualify.

•   Freeze your credit reports: If you suspect a data breach or theft of your Social Security number, consider freezing your credit report. This restricts access to your credit information, stopping thieves from opening new accounts in your name. Note that freezing or unfreezing your credit is free and doesn’t affect your credit score.

•   Set up fraud alerts: You can place a fraud alert on your credit report if you think you’re a fraud or identity theft victim. Creditors will verify your identity by calling you when a credit application is made. It’s free to request and lasts for one year without affecting your credit score.

The Takeaway

There are many reasons why your credit score dropped 40 points after paying off debt. You may see a temporary dip in your credit score due to changes in your credit mix, history length, and utilization ratio. 

To help boost your score, make on-time payments, use less credit, maintain old accounts, apply for new credit sparingly, and regularly check for errors in your credit reports. These habits can help you maintain a strong credit score. And if you need help managing your finances as you pay off debt, consider enlisting the help of a spending app.

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 long does it take for a credit score to update after paying off debt?

You can expect your credit score to update within a month or two as long as you continue practicing good credit habits like making on-time payments. Credit bureaus usually refresh your information every 30 to 45 days.

Why is my credit score going down even though I pay on time?

Paying on time is just one part of your credit score. Other factors, like how much credit you’re using or the length of your credit history, can also cause your score to drop, even if you don’t miss any payments.

How to increase credit score after paying off debt?

To keep your credit score strong after paying off debt, follow a few key tips. For example, always make your payments on time, avoid using too much of your available credit, and apply for new credit only when you really need it. Also, review your credit score regularly so you can spot discrepancies.

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Photo credit: iStock/Erdark

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.

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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A minor drop in your credit score — like the less-than-five-point drop you’ll temporarily encounter after a hard inquiry when applying for credit — is nothing to sweat in the long term. But a 40-point drop is more worrisome.

Are you asking yourself, “Why did my credit score drop 40 points after paying off debt,” following a credit dispute or for no reason at all? We’ll break down what might be happening to your score below.

Why Did Your Credit Score Drop 40 Points?

Your credit score is a number based on several factors that appear on your credit reports from various credit bureaus. And in fact, you have more than one credit score, though the most common one people refer to is your FICO Score. Because it’s complex — and there’s more than one — there are many reasons your credit score may have dropped 40 points.

Reasons Your Credit Score Went Down

There are several reasons your credit score could have gone down. Here are the main culprits:

•   You made a late payment (or several late payments), which were reported to the credit bureaus. A spending app can help you track upcoming bills so you don’t miss a due date.

•   You paid off a loan or credit card, which decreased your average age of credit and your credit mix and also affected your credit utilization.

•   You applied for a new loan, which resulted in a hard inquiry.

•   You’ve increased your credit utilization, perhaps by maxing out your credit cards.

Often, a sudden 40-point decrease in your credit score is the result of two or more of these actions happening all at once or close together. A hard inquiry, for instance, results in only a five-point decrease in your credit score. But if that hard inquiry was for a credit card that you immediately maxed out and then missed a payment on, you’re much more likely to see a larger decrease in your credit score.

There’s one other important reason your credit score may have dropped 40 points: You could be the victim of identity theft, meaning someone is using your personal information to open new lines of credit in your name and then maxing them out to purchase things for them.

Recommended: How Do I Check My Credit Score Without Paying?

Should You Be Worried About Your Credit Score Dropping?

A minimal drop in your credit score is no cause for concern, but a larger drop, such as 40 points, should be alarming.

If your credit score dropped because of your own actions — overspending on credit cards, missing payments, etc. — do your best to get your financial habits back on track. Tools like a money tracker can help you monitor your spending and credit score. 

However, if your credit score dropped by 40 points for no reason, you could be the victim of identity theft. Check your credit reports for signs of suspicious activity. If you notice any, you need to freeze your credit reports and begin the remediation process. Here’s how to report identity theft.

What Can You Do If Your Credit Score Dropped by 40 Points?

If your credit score has dropped by 40 points, here are some things you can do:

•   Make on-time payments. Ensure all your bills are paid on time and in full, every month.

•   Reduce your credit utilization. Stop swiping your credit card unless you can immediately pay it off. Pay off as much of your card as you can, but resist the temptation to spend more with it. Lowering your credit utilization is crucial to repairing your credit score.

•   Keep old accounts open. Average age of credit is one of the major factors that affect your credit score. Keeping an old account open, even if you don’t use it, will help keep your score from falling further.

•   Review your credit report for errors. Simple reporting errors could be hurting your score. It’s a good idea to familiarize yourself with common credit report errors and how to dispute them.

•   Report identity theft. If someone has opened a credit card in your name, follow the proper steps to report the identity theft to the lender, the credit bureaus, and the authorities.

Recommended: Why Did My Credit Score Drop After a Dispute?

How to Build Credit

While establishing and improving credit takes time, there are several steps you can take now to help repair your score after a 40-point drop. Here are some basic actions you can take:

•   Make on-time payments. Turn on autopay for all your bills, and make sure there’s always enough money in your checking account to cover the costs.

•   Stop spending on credit. Having a credit card with a high credit limit makes it easy to spend more than you should. But you should only use a credit card if you have the money to pay it off immediately (or for emergencies).

•   Keep old cards open. Don’t forget — old cards that you don’t use help keep your credit utilization down and help keep your average age of credit higher.

•   Monitor your credit. Regularly monitor your credit report and dispute any errors.

•   Don’t apply for credit often. Apply for credit only if you absolutely need it, like to buy a car or a house.

What Factors Impact Credit Scores?

Several factors impact your two main credit scores (FICO Score and VantageScore). The two scoring companies use different algorithms to calculate your score; we’ll focus on FICO because it’s more common.

Here are the five major factors that affect your credit score — and how much weight each one has on your score:

•   Payment history: This accounts for 35% of your score. Lenders want to see that you make on-time payments for all your debts. Mortgage and rent payments, utility bills, and other loan repayments (such as credit cards or personal loans) will show up on your credit report.

•   Amounts owed: This is your credit utilization, and it accounts for 30% of your score. Creditors love to see that you have a high credit limit available to you, but that you use very little of it. This shows you’re a responsible borrower.

•   Length of credit history: This accounts for 15% and is why keeping old cards and accounts open is important. It demonstrates to lenders that you’ve been borrowing responsibly for a long time.

•   Credit mix: This makes up 10% of your FICO Score. Lenders like seeing that you can manage a healthy mix of credit accounts (credit cards, installment loans, home loans, etc.).

•   New credit: If you open too much new credit all at once, that sends a sign to creditors that you may be a high risk. This makes up 10% of your score.

Allow Some Time Before Checking Your Score

After a major drop, it’s tempting to want to monitor your credit score every day for signs of an upswing. But be patient — it can take time before you see an improvement. 

While credit score updates happen fairly often, they don’t happen on a set date. That’s because a lender or creditor can send information to the main credit bureaus at different times, which will impact when a score changes. That said, you can plan on an update occurring at least every 45 days.

Closing a Credit Card Account Can Hurt Your Score

Considering closing a credit card account? You may want to think twice, as doing so could negatively impact your credit score. 

When you close a credit card, the amount of your available credit decreases. This, in turn, may lead to a higher credit utilization, which as we mentioned above counts for 30% of your score. Closing a card also decreases the length of your credit history, which makes up 15% of your score.

However, there might be times when closing a credit card makes the most sense for you, such as a separation or divorce or a card with a high annual fee. The good news is, there are ways to cancel a credit card without affecting your credit score. 

How to Monitor Your Credit Score

You can monitor your credit score in a number of ways. Your bank or credit card issuer may offer credit score insights in your mobile banking app, and you can check your FICO Score for free with Experian. Several money management apps offer free credit score monitoring, including access to your FICO Score or VantageScore.

Pros and Cons of Credit Monitoring

Credit monitoring services offer several advantages, but there may be drawbacks to consider.

The Takeaway

A sudden, unexpected drop in your credit score can be scary. This is especially true if you’re trying to build credit and have been responsibly paying your bills on time and keeping your credit utilization in check. It’s wise to use credit monitoring services so you’re always updated when something changes on your credit report, as it can help you spot errors or even stop identity theft before it gets out of hand.

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

Why is my credit score going down if I pay everything on time?

Even if you make on-time payments, your credit score can drop if you open too many new accounts at once or use up all your available credit every month. A major drop in your credit score could also indicate errors on your credit report or, even worse, identity theft.

Why has my credit score gone down when nothing has changed?

If nothing has truly changed in your finances, your credit score would likely only drop because of an error on your credit report or identity theft. It’s always important to monitor your credit to stay aware of these things. If it’s not a case of error or identity theft, consider your recent credit actions: Did you max out a card or close an old account? These can lead to drops in your credit score.

Why did my credit score drop 40 points when nothing changed?

If your credit score dropped 40 points and nothing changed on your end, check your credit reports with all three major credit bureaus immediately. It’s possible there is an error or that you are the victim of identity theft, meaning someone is using your name to open new credit accounts.

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Photo credit: iStock/Miljan Živković

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.

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

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If you just closed on a home and have yet to see paperwork from your lender about your first mortgage payment, you might be wondering when is the first payment on a mortgage due?

Most mortgage payments are set up from the beginning to be due on the first of the month. For new mortgages, you make the first month’s payment at closing, and you won’t make your first “real” mortgage payment until the end of the next month.

So that you’re prepared, let’s walk through when your first mortgage payment is due, how to make it, and what happens if you miss a mortgage payment. By the end, you’ll know how to make your first mortgage payment and have a solid plan for keeping your mortgage in good standing.

Determining Your First Mortgage Payment Due Date

After you close on your loan, the next part of the mortgage process is receiving a “welcome package” from your new mortgage servicer. It will include instructions from your servicer on paying your first mortgage payment. It will have your loan number, how to contact the servicer, the servicer’s website information, your payment amount, due date, list of fees, payment methods accepted, information on paying off your mortgage, and some other legal disclosures they’re required to send.

As far as the exact due date, when is the first payment on a mortgage due after closing? Lenders require your first mortgage payment within 60 days of closing your loan. Since they’ve already collected prorated interest for the first month at closing, you’ll be making your first payment at the end of the first full month you’re in the home.

For example, if you close on a home April 15, you’ll have paid prorated interest for the month of April at closing. Your first payment will likely be due June 1 so you will make your payment at the end of May. This payment will include the interest you’re being charged for the month of May.

Recommended: How to Get a Home Loan

Preparing for Your First Mortgage Payment

Now that you know when you’ll likely make your first mortgage payment, you have a few things to do to get everything in order. Sometimes, preparing for your first mortgage payment means waiting for the letter from your new mortgage servicer — so keep an eye on your mail. When you do have the information about where your payments need to go, you’ll want to set up automatic payments as soon as you can.

Setting Up Automatic Payments

Most borrowers can set up automatic payments in one of two ways:

•   With your mortgage servicer

•   With your bank

Setting up an automatic payment from your bank can help you centralize your finances and make things easier for you to see and control. An automatic withdrawal pulled from your bank account by the mortgage servicer will do the same thing, but you’ll need to set it up with the mortgage servicer.

Budgeting for Additional Costs

Your home loan payment usually includes an amount for mortgage insurance, property taxes, and homeowners insurance, but you’ll want to make sure you are saving money for other costs that come your way, such as:

•   Homeowners association (HOA) fees

•   Home maintenance and upkeep

•   Utilities

•   Security system

•   Emergency repairs

Recommended: Mortgage Calculator

Consequences of Missing Mortgage Payments

Missing a mortgage payment can have some serious consequences, but before you get to that point, you’ll have a chance to rectify it. If you miss a mortgage payment, you’ll want to call your lender to work out a repayment plan and try to avoid some of the consequences, such as late fees and penalties, a lower credit score, and foreclosure.

Late Fees and Penalties

Mortgages generally have a grace period, usually around 15 days. After 15 days, you’ll be assessed a late fee. How much the late fee is will vary by lender and mortgage amount. You can find the late fee for your mortgage in your loan documents.

In general, you may see a late fee up to 5% of the principal and interest portion of your mortgage payment. For a $2,000 mortgage payment, that could be up to a $100 late fee.

Impact on Credit Score

Missing a mortgage payment will have a negative impact on your credit score when it is reported. Mortgage companies typically wait until the mortgage is 30 days past due to report it to the credit bureaus. The late payment could stay on your credit report for up to seven years.

Payment history accounts for 35% of your credit score. A missed mortgage payment can drop your credit score approximately 50 points, according to analysis of more than one million mortgage loans by Milliman, an actuarial and consulting firm. Four missed payments lowers a score around 100 points.

If you do miss a mortgage payment by accident, most credit scores are able to recover within two years.

Risk of Foreclosure

In 2023, there were 357,062 foreclosure filings made in the United States, which represents a quarter of a percent of all housing units in the U.S. If you know you’re going to have trouble making a payment, contact your lender as soon as possible to see if there are any relief programs available.

If a borrower misses payments, in most cases a lender may start foreclosure proceedings when they haven’t received a payment for 120 days. From there, the amount of time before the lender forecloses on your home depends on state law. States like Hawaii, Louisiana, and New York average more than 2,000 days (more than 5 years!) to complete the foreclosure process. States like Montana, Virginia, and Texas average 123, 152, and 163 days, respectively.

Tips for Staying on Track

If you’re worried about staying on track with your mortgage payment you can try these ideas:

•   Use a budgeting app. There are a whole host of budgeting tools that can help you keep track of your mortgage payment due date (as well as other important financial information).

•   Set automatic payments. As noted above, you can set up your mortgage payment to be paid automatically, from either your bank or the mortgage servicer. You’ll link account information and set a date for payment to be delivered.

•   Utilize calendar reminders. A calendar reminder, either in the analog or digital world, could help you remember to make your mortgage payment if you don’t have automatic payments set up.

•   Put emergency funds on autopilot. Some mortgage servicers may allow you to link more than one payment method. If there’s not enough money for the mortgage payment in one fund, you may be able to pay your mortgage from savings.

•   Be aware of market changes. If you’re struggling to make payments, you may be able to save money by pursuing a refinance with either a different type of mortgage, a lower interest rate, or a different mortgage term.

If you have the urge to pay off your mortgage early or make extra payments to reduce the principal owed (a process called mortgage curtailment), study your mortgage agreement carefully to understand if there are prepayment penalties.

The Takeaway

Your first mortgage payment is typically due at the end of the first full month after you close on your loan. There’s some leg work involved with setting up and making the first mortgage payment, but if you’re able to create a system, you’ll have a good chance of successfully paying your mortgage on time each month.

If you get into trouble or need help with your mortgage payment, contact your mortgage servicer as soon as possible. They may have a plan to help get you back on track with your mortgage payment and keep you in your house.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I make my first mortgage payment before the due date?

Yes, lenders accept mortgage payments (including your first mortgage payment) before the due date. It might be helpful to wait until the mortgage servicer’s instructions come in the mail to know exactly where you need to send your mortgage payment.

What happens if I miss my first mortgage payment?

Mortgage payments have built-in grace periods, so if you miss your first mortgage payment by a few days, you’ll likely be fine, but you should make your payment promptly to keep your mortgage current and your credit in good shape. If you can’t find a letter from your mortgage servicer, give the servicer a call and ask if they’ll take payment over the phone.

How long is the grace period for mortgage payments?

The grace period for mortgage payments is typically 15 days.

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Photo credit: iStock/PIKSEL

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

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

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

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.

SOHL-Q324-019

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A passbook loan is a loan that allows you to borrow against the money you have in your savings account. In other words, your savings serve as collateral for the loan.

While you will likely have to pay interest when borrowing money in this way (which you wouldn’t have to do if you used your savings directly), a passbook loan can help you build credit if your financial institution reports the activity to the credit bureaus and you manage the loan well. Passbook loans may also be a valuable financial tool if you’re having trouble securing a personal loan or find their interest rates to be higher than you can afford.

Keep reading for all the details about how passbook loans work, plus their pros and cons.

Understanding Passbook Loans

Here, learn more about the definition and history of passbook loans as well as how they usually work.

Definition and Historical Background

Passbook loans (often called share-secured or savings-secured loans) are a way to borrow funds, typically at a lower interest rate, by using your savings as collateral.

Passbooks are physical books that record a bank account holder’s transactions. These passport-sized books originated in the 18th century; bank tellers and postmasters could record account transactions in them. For example, a bank teller could write the date of a transaction, the amount deposited or withdrawn, and the amount of money available to the customer. In the late 20th century, bank statements began to make their appearance and replaced passbooks to a large degree. (For those who want them, however, passbook accounts are still available from some financial institutions and can provide a customer with a classic booklet to track transactions.)

A passbook loan borrows from the name of these old-fashioned books. With passbook loans, you use your savings account, held at the same institution, as collateral for a loan, and you may pay a relatively low interest rate. Putting the money in your account up for collateral, however, means your lender can seize that cash if you default on your loan payments.

How Passbook Loans Work

Here’s how a passbook loan works:

•   First, you’ll have to find a bank or lending institution that offers passbook loans. Most banks don’t offer them, so you might consider checking at a credit union.

•   Once you find a potential lender and establish a savings account or a certificate of deposit (CD) there, the financial institution will usually let you borrow up to 90% to 100% of the money in your savings account. For example, if you have $20,000 in your savings account, you may be able to borrow $18,000 to $20,000. Check with the lender to learn the exact amount.

•   Once you receive the loan from your financial institution, it’s important to note that you can’t access your savings. The financial institution might put a hold on your account, or you might have to hand over your savings passbook until the loan is repaid.

•   As you repay your loan with interest, your lender will usually release the amount you repay from your withheld savings.

•   Your payments may be reported to the national credit bureaus, but check with your lender to be sure. Timely payments can help build your credit score, while making late payments on your passbook loan can damage your score.

Obtaining a Passbook Loan

Next, take a closer look at the usual eligibility and requirements, interest rates, and repayment terms for passbook loans.

Eligibility and Requirements

You’ll need a funded savings account or certificate of deposit to be eligible for a passbook loan, and it’ll typically have to be held at the institution you plan to borrow from. These types of loans are usually easier to get and less risky to the lender because they use collateral to back them (unlike unsecured loans, which don’t require collateral).

Interest Rates and Repayment Terms

It’s important to understand passbook loan interest rates (the amount you repay in addition to the principal), particularly because you’re basically paying interest on your own money.

These loans can offer some of the lowest interest rates of any type of loan, likely because, since they are secured, they pose less risk to your financial institution. For instance, BankFive charges passbook loan rates of 3.00% to 3.50% APR (annual percentage rate) over the interest rate of the savings account used as collateral.

You repay the loan in regular, monthly installments over a specified period, such as three years.

Application Process

You’ll have to fill out an application for a passbook loan. Each bank or credit union has its own application. Simply request the application from your financial institution. Depending on the lender’s requirements, you may be able to complete the application online, in person, over the phone, or via mail.

You may find the paperwork simpler and shorter than what is required for other kinds of loans. That can reflect the fact that you are already a customer of the financial institution and that you are borrowing against your own money.

Advantages and Disadvantages of Passbook Loans

It’s important to consider the pros and cons of passbook loans before you pursue one.

Benefits of Passbook Loans

First, the upsides of passbook loans:

•   Lower interest rates: Passbook loans typically carry a lower interest rate than other types of loans, which means the amount you pay back (principal plus interest) could total less than what you’d pay for other types of loans.

•   Credit building: Passbook loans may help you build credit, provided your lender reports the loan activity to the credit bureaus and you make your payments on time.

•   Few approval requirements: You usually don’t have to meet as many approval requirements to get a passbook loan as you would with other types of loans. That’s because your savings account, typically at the same financial institution, serves as collateral.

Potential Drawbacks and Risks

Now, the downsides of passbook loans:

•   Credit may not improve: Though unlikely, your lender may not report your passbook loan payments to the credit bureaus. In that case, a passbook loan might not help you build your credit, even if you are meticulous about paying it back on time. It’s wise to check this point in advance. (Also, you must manage the debt responsibly to build credit if the lender does report your activity.)

•   Uses your account as collateral: If you fail to make your payments on your passbook loan, your financial institution can take the money from your savings account.

•   Cannot access your money while you borrow: You cannot access your savings account when you borrow money using a passbook loan. This can put you in a tricky situation if you need money immediately.

•   Paying the bank for your own funds: At a basic level, a passbook loan means you’re paying the bank to borrow your own money.

•   Restricted amount: In a best-case scenario, you can only borrow the amount you have in the bank. So if you have $3,000 in your savings account but are hoping to borrow $10,000 via a passbook loan to buy a car, you won’t be able to do so.

Alternatives to Consider

Passbook loans may not be the right fit for your situation, so you might consider these options instead.

•   Personal loans: Personal loans, which generally range between $1,000 to $50,000, are unsecured loans that come from a wide variety of financial institutions, including banks and credit unions. You can use them for any purpose, including home improvements, debt consolidation, and more. Personal loans may cost you more in interest compared to passbook loans, and repayment terms usually range from two to seven years.

However, you typically don’t need collateral for a personal loan, unless it’s a secured personal loan.

Use a personal loan calculator to learn more about how much a personal loan might cost you.

•   Credit-builder loans: If you have little to no credit, a credit-builder loan may help you improve your credit score. These loans, which usually range between $300 and $1,000, involve depositing money into a certificate of deposit (CD) or savings account, which the lender holds as collateral. You don’t receive a lump-sum disbursement upfront, as you do with many loans. Instead, you make fixed monthly payments toward the loan (principal plus interest). Your lender may release some of the borrowed funds when you make a monthly payment, or they might hold the full amount till you make the final payment. Interest and fees are usually deducted from the amount you receive. This activity is reported to credit bureaus and contribute to an uptick in your score.

•   Secured credit cards: You may want to consider a secured credit credit card instead of a passbook loan. A secured credit card is a credit card that requires a security deposit, which becomes your line of credit. If you don’t make your payments on time or default on your loan, your lender can take your deposit. However, using the credit card responsibly can help you build credit because your lender typically reports your payments to the three major credit-reporting agencies — Experian®, Equifax®, and TransUnion®.

Recommended: What Is the Average Interest Rate on a Personal Loan?

Using Passbook Loans for Different Purposes

There are many uses for funds borrowed via a passbook loan, such as:

•   Purchases, such as a new laptop

•   Expenses, like homeowners insurance or summer camp for the kids

•   Debt consolidation, such as paying off your credit card bill

•   Buying a car

•   Home improvement projects

•   Wedding costs

•   Medical or educational expenses

•   Vacations

Ultimately, you can use a passbook loan for whatever you want.

Future of Passbook Loans

Will passbook loans be part of the future financial landscape? Given all the other financial products currently available (such as the personal loans described above), consumers may not want to pay interest to borrow against their own savings.

Decline in Popularity

Passbook loans are not very common, having seen their popularity ebb over the years. Their usefulness is often limited to those who want to build their credit in this particular way or are seeking an especially low interest rate. If you find yourself in that situation, you may want to check with various lenders, especially credit unions, to see what’s available.

On the other hand, market data indicates that personal loans are gaining popularity.

The Takeaway

Passbook loans are a way of borrowing money against your savings, which can be useful for some people looking to build their credit. Ultimately, however, you end up paying a financial institution to borrow your own money with a passbook loan.

If you’re looking to access funds for debt consolidation, home improvement projects, a wedding, or other needs, you might want to consider a personal loan instead.

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.

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

FAQ

Are passbook loans still available today?

Yes, passbook loans are still available today. Not every lender offers them, so search online for options. You may find that credit unions are more likely to fund these loans.

Can I get a passbook loan without a savings account?

Typically, you need a savings account or a certificate of deposit (CD) account for a passbook loan, typically with the institution you intend to borrow from.

What happens if I default on a passbook loan?

If you default on a passbook loan, your lender could seize your savings (the loan’s collateral) to repay the delinquent balance. Defaulting on your loan can also hurt your credit score.

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Photo credit: iStock/Jinda Noipho

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.

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.

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.

SOPL-Q324-006

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