Oct
28
2024

Financial Consulting Services 101

By | Budgeting & Goals, Growing Wealth, invest, Investing | Comments Off on Financial Consulting Services 101

When you need help putting together a solid plan for your money, you might seek out financial consulting services. A financial consultant can offer advice and guidance on things like investing, retirement planning, and building wealth. You may also hear financial consultants referred to as financial advisors, as the terms are often used interchangeably, though there may be some slight differences.

What is financial consulting designed to do? In simple terms, it’s all about helping clients formulate a strategy for managing their money. What working with a personal finance consultant looks like for you can depend on your situation and goals.

Key Points

•   Broadly speaking, financial consultants help clients identify strategies to help them reach financial goals.

•   Services offered by financial consultants may include investment management, estate planning, tax planning, and retirement planning, among others.

•   Financial consultants and financial advisors may hold certificates or designations that reflect advanced training, such as Certified Financial Planner (CFP) or Accredited Financial Planner (AFP).

•   Choosing the right consultant requires evaluating the scope of services they offer, their professional certifications and designations, their fee structure, and more.

What Is a Financial Consultant?

Broadly speaking, a financial consultant is someone who offers advice about money – be it retirement planning or buying stocks or other securities – in a professional capacity. A financial consultant may work independently or be employed by a financial consulting firm, and they may offer services online or in-person.

Examples of Financial Consulting Services

Financial consultants can offer a variety of services to their clients. Again, those clients may be individual investors, business owners, or even a non-profit organization. The types of services a financial consultant may offer can include:

•   Basic financial planning, such as creating a household budget

•   Estate planning

•   Tax planning and legacy planning

•   Retirement planning

•   College planning

•   Succession planning for clients who own a business

A financial consultant’s overall goal is to help clients create a comprehensive plan for managing their money. Financial consultants may work with a diverse mix of clients, or niche down to offer their services to a specific demographic or client base, such as dual income couples, with no kids or members of the LGBTQ community.

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Financial Consultants vs. Financial Advisors

The terms “financial consultant” and “financial advisor” are often used interchangeably, as their meaning is roughly, but not quite, the same. There are some important differences, including the licensure that each is required to hold in order to practice, and the regulators each operates under. Generally, they both offer financial advice and guidance in a professional capacity, though.

Other Names for Financial Professionals

Financial consultants and financial advisors can go by more specific names, depending on which professional certifications they hold. Certifications and designations signify that a consultant or advisor has completed advanced training and education in a particular area. Here are some of the most common designations for financial professionals:

•   Certified Financial Planner (CFP®)

•   Chartered Financial Consultant (ChFC)

•   Certified Public Accountant (CPA)

•   Accredited Financial Planner (AFP)

•   Registered Investment Advisor (RIA)

•   Certified Annuity Advisor (CAA)

•   Certified Financial Consultant (CFC)

•   Certified Tax Advisor (CTA)

•   Chartered Financial Manager (ChFM)

Navigating the alphabet soup of designations for financial consulting services can be confusing and it helps to understand what type of advice you need.

For instance, if you want to work with an advisor who can help with everything from budgeting to retirement planning, then you might choose a Certified Financial Planner. On the other hand, you might want to work with a registered investment advisor if you’re specifically seeking investment help.

The main thing to know about financial consulting services is that there’s more than one option to choose from. Taking time to research a consultant or advisor’s background and qualifications can make it easier to find the right person to work with when you need consulting services.

When Would You Need Financial Consulting?

Working with a financial consultant is a personal decision. With that in mind, you might start working with a consultant at any time if you feel that you need help managing your finances. If you need more specific examples of when it makes sense to hire a financial consultant, here are a few scenarios to consider:

•   Your parents pass away, leaving you $500,000 in assets. You might work with a financial consultant to figure out the best way to maximize your inheritance while minimizing taxes.

•   After 15 years of marriage, you and your spouse have decided to divorce. You decide to hire a financial consultant to help you create a plan for managing the assets that you’re leaving the marriage with.

•   You’re a parent to a child with special needs who will require long-term care after you’re gone. You reach out to a financial consultant to discuss setting up a trust to pay for their care when the time comes.

Financial consulting services can be an appropriate choice when you have a difficult financial decision to make or you’re trying to navigate a situation that feels overwhelming. Winning the lottery, for instance, could leave you paralyzed with indecision about what to do with the money.

A financial consultant can also help you move through changing life stages. That can include getting married or divorced, having a child, starting or selling a business, or changing careers. Financial consultants can look at the bigger financial picture to help you get through the changes while keeping your long and short-term goals in sight.

Finding the Right Financial Consultant

Finding a financial advisor starts with taking inventory of your needs to determine what kind of advice is appropriate. Once you’ve figured out what kind of help you need, the next step is creating a list of advisors in your area that you might want to work with.

Asking questions can help you get a feel for how an advisor operates. Here are some examples of the types of questions you might want to ask:

•   What kind of financial consulting services do you offer?

•   Do you hold any professional certifications or designations?

•   Do you specialize in working with a particular type of client?

•   What is your investment style?

•   How are your fees structured and what do you charge for consulting?

•   What is your preferred method of communication?

•   How often will we meet?

If you’re considering a robo-advisor, then it may be a good idea to look at how the platform manages portfolios, what benefits or features are included, and what you’ll pay for consulting services. Should you choose a robo-advisor vs. financial advisor? There are some pros and cons to consider.

On the pro side, a robo-advisor can be a less expensive way to get financial consulting services. The typical financial advisor cost is around 1% of assets under management per year. Robo-advisors may cost much less, with some offering services charging a fraction of what a human advisor would.

Of course, there’s a trade-off to consider, since you’re not getting financial advice with a human element behind it. For instance, if market volatility sets in and you’re tempted to sell off stocks in a panic, a robo-advisor wouldn’t be able to talk you through it the way a human advisor could. Taking that into consideration can help you decide which one might be right for you.

The Takeaway

A financial consultant’s job is to help you feel more secure and confident when making decisions about your money. Whether you need a consultant’s services or not can depend on where you are financially right now and where you want to go in the future.

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FAQ

Is a financial consultant the same as a financial advisor?

Financial consulting and financial advisory services are typically grouped together, as they generally mean the same thing. A financial consultant or a financial advisor can provide advice about things like investing, retirement planning, and estate planning. The difference is that consultants may offer their services on a one-time basis, while financial advisors may work with clients long-term.

What does a financial consultant cost?

What you’ll pay for financial consulting services can depend largely on the type of professional you’re working with. A typical financial advisor’s fee is around 1% annually, though it’s possible to pay more or less, depending on the kind of services you receive. Robo-advisor financial consulting can cost less, though it does lack the human element.

What does a financial consultant do?

Financial consultants help their clients create a plan for managing money. A financial consultant may work with individual investors, businesses, or organizations to offer financial advice. Financial consulting services may cover a broad scope of topics or concentrate in just one or two areas of financial planning.

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Oct
28
2024

How to Save on Your Electric Bill This Summer

By | Budgeting & Goals, Family Finances, Home Ownership | Comments Off on How to Save on Your Electric Bill This Summer

If you feel like your electricity bills get a little higher every summer, it’s not your imagination. For the June-through-September period of 2024, the average U.S. electric bill is projected to be $719, a nearly 8% increase year over year and the highest average in 10 years.

Fortunately, there are some simple things you can do to shrink your bills back down to size. Better yet, they don’t involve sacrificing comfort. While some measures require a small upfront investment, others are completely free. Read on for some of the most effective ways to save on your electric bill this summer.

Review Your Summer Electric Usage

If high electric bills are impacting your bank account this summer, a good first step is to review your electricity use patterns. Many utilities offer dashboards where you can view your daily and monthly usage to learn when you use the most energy. Some utilities even offer a mobile app that allows you to see your electricity usage in monthly, daily, and 15-minute time intervals to help you manage your energy consumption.

Knowing when you tend to use the most electricity — and how this is impacting your bill — can help you become more mindful of your energy usage. It can also give you motivation to make some changes.

Recommended: 8 Ways to Organize Your Bills

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Optimizing Your Air Conditioning System

Air conditioning accounts for about 19% of electricity consumption in U.S. homes, according to the U.S. Energy Information Administration’s most recent statistics. So one of the best ways to save on utility bills is to maximize the efficiency of your air conditioning system.

If you have central air, it’s a good idea to have a professional HVAC specialist perform annual maintenance on your equipment. This can go a long way in ensuring your air conditioner runs at peak efficiency. There are also some simple things you can do yourself to optimize the performance of your air conditioning system:

•  Vacuum air intake vents regularly. This will remove any dust buildup and allow the unit to function at a higher efficiency.

•  Regularly clean or replace air filters. Dirty air filters can restrict airflow, causing air conditioners to work harder and less efficiently.

•  Keep outdoor units clean. If you have a central unit outside, you can optimize performance by keeping your outdoor unit clear of debris and plant growth. The outdoor unit needs space to release heat, so make sure it has at least two feet of clearance on all sides.

•  Use fans to your advantage: Utilizing ceiling fans to circulate air can help you maintain a comfortable temperature while reducing the load on your air conditioner. For the most cooling effect, be sure the fan is turning counterclockwise (if it’s going the other way, you can typically change it by flipping a switch on the fan body).

•  Click up the thermostat: While the most energy efficient temperature is 78°F, that may not be cool enough to keep you comfortable. However, any uptick in your thermostat is helpful. In fact, you’ll save about 3% on your utility bill for every degree you raise the set temperature for your central air.

•  Install a smart thermostat. A smart thermostat can learn your schedule and adjust temperature automatically, ensuring energy is not wasted.

Recommended: How to Split Bills With Roommates

Energy-Efficient Cooling Alternatives

While air conditioning is effective, it is not the only way to keep your home cool. Consider these energy-efficient cooling alternatives to reduce your reliance on AC and lower your electric bill.

Attic Fan

Air from a hot attic can seep into your house and make your air conditioner work harder and more often. Not only does that increase your electricity bill, but it can also shorten the life of your AC system. An attic fan can help by circulating air and pushing stuffy, warmer air out of the house. This, in turn, can keep the entire house cooler. On days when it’s not too hot, it could be all you need.

Geothermal Heating/Cooling

Geothermal systems rely on stable underground temperatures for heating and cooling. They work by circulating liquid through buried tubes, exchanging heat between your home and the ground. It’s an efficient process that uses 25% to 50% less electricity than traditional HVAC systems, according to the Department of Energy. This can lead to a significant savings on utility bills over time.
On the downside, installing a geothermal system involves substantial digging to bury the pipes, which can be costly. Despite the initial expense, however, the long-term energy savings can make it a worthwhile investment.

Recommended: 15 Easy Ways to Save Money

Evaporative Coolers

In dry climates, evaporative coolers (also known as swamp coolers) can be an efficient, cost-effective cooling option. These units work by using a fan to blow air through a water-soaked pad, cooling the air before it enters your home. By cracking windows, hot air can escape, and cool air circulates effectively.

These coolers use less energy and water compared to traditional air conditioning, leading to lower utility bills. However, they are generally only effective in low-humidity climates.

Reducing Heat Gain in Your Home

One of the best ways to use less air conditioning is to reduce the overall heat that comes into your home. If you stop heat from coming inside in the first place, then you don’t have to pay to cool it. This can be one way to lower your energy bill when you’re working from home or if you’re home a lot during the day.

Some strategies include:

•  Ensure you have adequate insulation in the attic and walls. This greatly reduces the flow of heat into your home in the summer.

•  Seal up any cracks. Adding weatherstripping or caulk around doors and windows can help seal up any openings. This prevents the warm exterior air from leaking into your home.

•  Close windows and doors. Whenever it’s warmer outside than inside, it’s wise to close all windows and doors and latch them tightly to reduce heat gain.

•  Cover the windows. Another way to keep the heat outside is to cover windows with shades, blinds, or curtains during the day to block out the sunlight.

Recommended: 14 Reasons Why It’s So Hard to Save Money Today

Smart Appliance Usage and Vampire Energy

Vampire energy refers to electricity that devices consume while not actively in use but in “standby mode.” Common offenders include TVs, desktop computers, printers, device chargers, and kitchen appliances. While each device uses a small amount of power, when added all together, it can make up a significant source of your home’s electricity use.

The simplest way to cut standby power consumption in the summer (and year round) is to unplug devices, or turn off the power strips they are plugged into, when you’re not using them. Another option is to get some smart power strips. These strips help reduce energy waste by automatically turning off power to connected electronics when they are not in use.

When it comes time to replace an old appliance, consider purchasing an Energy Star-certified device. These appliances are designed to minimize phantom loads and improve your home’s efficiency.

The Takeaway

If you’re seeing significantly higher electric bills this summer, know that there are several steps you can take to save on the cost of electricity, even during the hottest months of the year. Some strategies — like cleaning your AC unit or reducing heat gain in your home — require just a small upfront cost, if any. Others (like replacing your heating/cooling system) call for a more significant investment, but can pay off over time by cutting your electricity bills both in the summer and year round.

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FAQ

What temperature should I set my thermostat to save money?

To save energy, as well as money, the U.S. Department of Energy recommends setting the thermostat to between 68°F and 70°F while you’re awake, and then making it a higher temperature (or, if it’s winter, a lower temperature) while you’re sleeping or away from home.

Are ceiling fans effective in lowering electric bills?

Yes, ceiling fans enhance air circulation and create a cooling effect, allowing you to raise the thermostat by about 4°F without sacrificing comfort.

During the summer, be sure your ceiling fan is turning counterclockwise — this creates a downward draft and circulates the cool air around you. If your fan blades are turning clockwise, you can typically reverse it by turning off the fan and flipping the switch on the fan body. You may also be able to do this using your ceiling fan’s remote.

How much can LED bulbs reduce my summer electric costs?

Lighting accounts for around 15% of an average home’s electricity use, so switching out your incandescent bulbs with more energy-efficient LED bulbs can lead to significant savings over time. According to the U.S. Department of Energy, the average household can save about $225 in energy costs per year by using LED lighting.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

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

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Oct
25
2024

Top Cosmetology Scholarships in 2024

By | Going to College, Student Loans, student_loan | Comments Off on Top Cosmetology Scholarships in 2024

Cosmetology scholarships can be a game-changer for students who want to pursue their passion for hair, makeup, or skincare but worry about the cost. Scholarships are free money for your education, and you do not need to pay them back.

Cosmetology school costs can range quite a bit, but most programs cost less than $20,000. That’s still a significant amount of money, especially if you’re just starting out. Fortunately, cosmetology scholarships are out there to help lighten the financial load.

To help you offset the costs, here are some of the top cosmetology scholarships in 2024 and where to find them.

How to Find Scholarships for Cosmetology Students

When searching for scholarships for cosmetology school, there are plenty of resources available, including:

•   Free scholarship search tools, such as SoFi’s Scholarship Search Tool

•   High school guidance counselors

•   The financial aid office at your college or career school

•   Local resources, like libraries, businesses, and community groups

•   Nonprofits like the Professional Beauty Association

•   Your employer or your parents’ workplace

•   Professional organizations in your field of interest

How to Qualify for Cosmetology Scholarships

Every cosmetology scholarship has unique eligibility requirements, so make sure to review them carefully before applying.

Requirements might include things like:

•   Maintaining a minimum GPA

•   Completing a certain amount of community service

•   Being a U.S. citizen

•   Planning to enroll (or being enrolled) in an accredited cosmetology program

•   Demonstrating leadership skills or potential

•   Providing letters of recommendation

•   Submitting your resume

•   Submitting the FAFSA® (Free Application for Federal Student Aid)

Top Cosmetology Scholarships

Here are some top cosmetology scholarships to help you fund your education so you can kick-start your beauty career.

Buy-Rite’s Annual Beauty School Scholarship

Scholarship amount: $1,000

Application deadline: November 1

Buy-Rite’s Annual Beauty School Scholarship is a $1,000 scholarship for cosmetology and barber students who best embody Buy-Rite Beauty’s core values. To apply, you must submit an essay detailing your most meaningful achievement and explain how it relates to your future career in cosmetology.

Great Clips Great Scholarship Program

Scholarship amount: Up to $5,000

Application deadline: March 1

The Great Clips Great Scholarships Program is for future stylists and barbers in the U.S. and Canada, offering up to $5,000 to help launch their careers. To apply, answer the question, “What is exciting to you about a career in the cosmetology or barbering industry? Why?”

Beauty & Wellness Professionals Scholarship

Scholarship amount: $2,500

Application deadline: March 1

BeautySchoolDirectory.com offers a $2,500 Beauty & Wellness Professionals Scholarship twice a year for students and professionals passionate about making a difference in beauty and wellness. It’s open to both U.S. residents and international students. To be considered, you must submit a three-minute video answering one of the prompts on the application.

The Rosy Rewards Scholarship

Scholarship amount: $250

Application deadline: October 1

The Rosy Rewards Scholarship, offered by Rosy Salon Software, awards two $250 scholarships each year to cosmetology students who are passionate about the industry. To qualify, you must be enrolled in a cosmetology, barber, or esthetics program, and submit a letter of recommendation, resume, and two of your best pictures to showcase your skills.

The Joe Francis Haircare Scholarship

Scholarship amount: $3,000 or more

Application deadline: June 1

The Joe Francis Haircare Scholarship is a $3,000 scholarship (or more) that supports students pursuing a career in the beauty industry. To apply, you must fill out the application and submit two letters of recommendation.

Elevate Your Education Scholarship

Scholarship amount: $1,400 value

Application deadline: March 1, July 1, November 1

Elevate your education with Dermalogica offers scholarships to support passionate and talented new skincare professionals. These scholarships cover the cost of either the Expert Program or the Product Expert Program workshops, valued at over $1,400.

Sallie Mae Scholarship

Scholarship amount: $2,000

Application deadline: December 31

The Sallie Mae Scholarship Sweepstakes awards $2,000 to U.S. beauty students who are over 17 years old. A sweepstakes scholarship is a random drawing where winners are picked by chance, giving every eligible student an equal shot at the award.

SoFi Scholarship Giveaway

Scholarship amount: $2,500

Application deadline: Monthly

The SoFi Scholarship offers students a chance to win $2,500 every month through a sweepstakes. It’s an easy, monthly drawing that can provide some extra financial support for your education.

Recommended: How to Pay for College

Can You Get a Federal Student Loan for Cosmetology School?

Yes, as long as your cosmetology program is accredited, you can apply for federal student loans and other types of aid. To check if your school is accredited, you can use the Database of Accredited Postsecondary Institutions and Programs or just call the school directly.

Federal aid includes grants, work-study, and federal student loans. To find out what aid you qualify for, complete the Free Application for Federal Student Aid (FAFSA®). The FAFSA for the 2025-26 academic year will be available to all students on or before December 1, 2024.

How to Make Money While in Cosmetology School

While it’s important to prioritize your schoolwork, you can still find money-making opportunities that fit into your busy schedule. Options for making money while in cosmetology school include:

•   Find a full-time or part-time job. There are numerous jobs for students to make money during school. For example, you may consider working at a salon as an assistant or receptionist. By choosing a job within your field of study, you can earn money and gain hands-on experience.

•   Start a side hustle. If a flexible gig is more your style, think about ways to generate income in your free time, like driving for Uber, delivering food, or offering freelance beauty services for events. With a side hustle, you can usually set your own hours, allowing you to work around your cosmetology school schedule.

•   Offer your services to friends and family. Providing haircuts, manicures, and makeup services to people you know is another good way to make money and build your experience.

•   Start a beauty YouTube channel. If you love sharing beauty tips, consider starting a blog or YouTube channel. You can create tutorials, conduct product reviews, and feature other content so you can grow your audience and earn money through sponsorships and ads.

The Takeaway

If you’re looking for ways to pay for cosmetology school, applying for cosmetology scholarships can be a good option. While some scholarships are competitive, many others go unclaimed each year. It’s always worth it to apply since it doesn’t cost you anything and may significantly lower your out-of-pocket expenses.

You can also consider exploring other ways to cover college costs to find what works best for you. Options include cash savings, grants, federal student loans, 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

When should I start applying for cosmetology scholarships?

When it comes to applying for cosmetology scholarships, the earlier you start, the better. Applying early gives you access to more opportunities and helps you avoid that last-minute rush. It might feel a bit overwhelming at first, but starting early makes the whole process much more straightforward.

Can I get a scholarship for cosmetology school?

There are many scholarship opportunities available for students pursuing a career in the beauty industry. Whether you’re just starting or already enrolled, you can find scholarships tailored to support aspiring cosmetologists, estheticians, and other beauty professionals.

Does the FAFSA cover cosmetology?

If you’re enrolled in an accredited cosmetology school, you might qualify for federal financial aid by filling out the FAFSA. This can help cover tuition, fees, and other expenses, so it’s worth applying to see what kind of funding you can receive.

Photo credit: iStock/Sergey Pakulin

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.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Oct
25
2024

How Does a Non-Purpose Loan Work?

By | Credit, Family Finances, personal_loan | Comments Off on How Does a Non-Purpose Loan Work?

A non-purpose loan is an alternative type of loan that allows individuals to use investment securities they own as collateral to borrow money. With a non-purpose loan, borrowers can get access to the funds they need and continue to earn potential returns on their investments. However, non-purpose loans come with some financial risks to be aware of.

Read on to learn how non-purpose loans work and their benefits and drawbacks.

Key Points

•   Non-purpose loans are unconventional loans that use investment securities as collateral.

•   Borrowers get access to loan funds and can still continue to earn returns on their investments.

•   These loans can be used for almost any purpose except purchasing securities.

•   A borrower may need investment assets with a market value of at least $100,000 to qualify for a non-purpose loan.

•   If the value of the collateral investments drops, you may have to add more funds to your account or partially repay the loan.

What Is a Non-Purpose Loan?

A non-purpose loan — also known as a securities-backed line of credit (SBLOC) — is a type of secured loan offered by some financial institutions and brokerage firms. Instead of using collateral such as a home or car to back the loan, a borrower uses securities in their investment portfolio.

Interest rates on non-purpose loans tend to be variable, and they may be slightly higher than the rates on personal loans. (A personal loan calculator can help you determine the personal loan rate you might qualify for.) The borrower must make interest-only monthly payments on a non-purpose loan until you decide to pay it off. The loan’s principal can be repaid in increments or all at once.

The Way a Non-Purpose Loan Works

With a non-purpose loan, you borrow money using your investments to back the loan, and you continue to earn any interest, dividends, and capital appreciation on those investments.

The amount you can borrow with a non-purpose loan varies, although you can typically borrow between 50% to 95% of your portfolio. The exact percentage depends on two main factors: the types of assets in your accounts and the value of your portfolio. Lender requirements may also be a determining factor. To qualify for a non-purpose loan, a lender may require you to have assets with a market value of at least $100,000.

Unlike traditional lending products such as personal loans, non-purpose loans are subject to maintenance calls. That means if the value of your investment accounts falls below a certain level, the brokerage or financial institution will ask you to boost the equity in your investments to meet the margin requirements.

In the case of a maintenance call, you’ll need to increase your accounts’ value by either depositing more money in them or partially repaying the loan.

Non-Purpose Loan vs Margin Loan

A margin loan is another type of lending product that’s backed by a borrower’s investment securities. Like a non-purpose loan, a margin loan allows you to borrow against the investments in your portfolio while continuing to earn any dividends and interest. Margin loans are subject to maintenance calls just as non-purpose loans are.

However, there are differences between the two. A margin loan is typically used for the sole purpose of purchasing more securities. A non-purpose loan, on the other hand, can be used for virtually anything other than purchasing securities. To obtain a margin loan you can only use the investments in one account as collateral, whereas you can get a non-purpose loan by using investments in several accounts.

Pros and Cons of a Non-Purpose Loan

Non-purpose loans have distinct benefits and drawbacks. For example, these loans are flexible and can be used for many purposes, but they often require borrowers to have investment accounts with a high value.

This chart gives an at-a-glance comparison of the advantages and disadvantages of non-purpose loans.

Pros of a Non-Purpose Loan

 Cons of a Non-Purpose Loan
May not involve a credit check High asset value may be required
Allows borrowers to earn returns on investments Typically has variable interest rates
You don’t have to sell investments to secure the loan so you avoid capital gains tax. Subject to maintenance calls
Can be used to finance almost anything Can’t be used for purchasing investments

Pros of a Non-Purpose Loan

Non-purpose loans have several features that can make them attractive to borrowers.

May not require a credit check. Unlike traditional loans such as unsecured personal loans, a non-purpose loan might not involve a credit check. Instead, the lender may base the amount of the loan on the value of your portfolio.

Allows investment returns. Borrowers don’t have to sell their securities to obtain a non-purpose loan. They can continue to get possible returns on investments.

May avoid capital gains tax. Because you don’t have to sell securities to get a non-purpose loan, you won’t have to pay capital gains tax.

Provides flexibility. With a non-purpose loan, you can use the proceeds in almost any way you wish. For instance, you can use the money to pay off medical expenses, tide you over during a job loss, or for home improvement funds.

Recommended: Using a Personal Loan for Taxes

Cons of a Non-Purpose Loan

Along with possible benefits, there are some significant drawbacks of non-purpose loans to consider.

High asset value requirements. To qualify for a non-purpose loan, a lender typically requires you to have assets with a high minimum value of at least $100,000.

Variable interest rates. Non-purpose loans generally have variable interest rates, which means the rates can go up and down throughout the life of the loan. You may want to check personal loan rates to compare the interest rates of other lending options.

Subject to maintenance calls. The investments that serve as your collateral for a non-purpose loan are prone to market volatility, so you could be impacted financially. For instance, should the value of your securities go down, the value of your portfolio may no longer meet the collateral requirements for the loan, prompting a maintenance call. In that case, you might have to deposit money in your accounts or partially repay the loan.

Loan funds cannot be used for investing. Unlike margin loans, you can’t use the money from a non-purpose loan to purchase investment securities.

Recommended: How to Pay Tax on Personal Loans

The Takeaway

A non-purpose loan may be attractive to certain borrowers because it gives them the ability to use their investment securities as collateral while continuing to earn money on their investments. However, these loans tend to have high minimum balance requirements and variable interest rates, and they’re subject to maintenance calls, which could be financially challenging. Consider the potential pros and cons of a non-purpose loan to make sure it’s a good option for you.

You can also look into other lending products. While SoFi doesn’t offer non-purpose loans, we do offer personal loans with amounts ranging from $5,000 all the way up to large personal loans of $100,000. You can explore the different types of loans available, and shop around for the best rates, to decide which option is right fit for your borrowing needs.

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

What is the meaning of a non-purpose loan?

A non-purpose loan is an unconventional loan that allows you to use securities from different investment accounts as collateral for the loan. For some borrowers, the main advantage to this type of loan is that their investments stay intact, and they can potentially earn money from interest and dividends.

However, there are disadvantages to non-purpose loans. For instance, if the value of your investments drop, you may be required to add money to your accounts or repay part of the loan.

What is the difference between a purpose and a non-purpose loan?

A purpose loan uses investment securities as collateral and is typically used to buy more securities. A non-purpose loan is also backed by investment securities, but it can be used for almost any purpose, except for purchasing securities.

Is a non-purpose loan better than a purpose loan?

Non-purpose loans and purpose loans have different uses and requirements, and one isn’t necessarily better than the other. It mainly depends on what you’re using the loan for. A purpose loan is generally used for one specific purpose, typically to purchase securities. A non-purpose loan can be used for almost anything except purchasing securities. Only you can decide which type of loan is best for your intended use of the funds.

Photo credit: iStock/RgStudio

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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.

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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Oct
25
2024

What Is Principal, Interest, Taxes, Insurance (PITI)? A Comprehensive Guide

By | Home Ownership | Comments Off on What Is Principal, Interest, Taxes, Insurance (PITI)? A Comprehensive Guide

When your mortgage payment comes due every month, it may look like a single bill. But in reality, you’re likely paying four separate things: principal, interest, taxes, and insurance. PITI is an acronym that bundles these four elements together. But in order to better understand where, exactly, your monthly mortgage money is going, we’re going to take PITI apart and explain each element for you.

Understanding PITI

As discussed above, PITI is the acronym for the four basic components of a monthly mortgage payment. PITI includes:

•  Mortgage principal (the amount you borrowed from the bank)

•  Mortgage interest (the amount the bank charges you for the loan)

•Property taxes (levied by the local government)

•  Homeowners insurance (which covers the cost of repairing or replacing your home under certain covered circumstances)

Importance in Mortgage Payments

Together, these amounts add up to your total monthly mortgage payment — though that amount is not the same as your total monthly home expenses, which also include things like utilities and maintenance. (More on that below.)

Breaking down your PITI and calculating each separate component helps you better understand where your money is going each month. During the home-buying process, it helps you narrow your home search to those that are actually affordable on your budget. And later, knowing what does PITI stand for and what numbers comprise the components of your PITI will help you if you need to request a mortgage interest deduction on your taxes.

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Breaking Down PITI Components

Principal and interest are paid to your mortgage lender, and include both the money you borrowed and the money the bank is charging you for the service of offering the loan. Keep in mind that the amount of principal versus interest will change over the lifetime of the loan in a process known as amortization. To get a full picture of how that works, try out a mortgage calculator that includes an amortization chart.

Meanwhile, your property taxes and homeowners insurance will likely flow into an escrow account, where funds will be used to pay those bills as they come due. Property taxes are almost always included in your mortgage payment, and if you owe money on your home, you will be required to carry homeowners insurance. (Even if you don’t, buying a policy is a good idea. After all, if you’re like many Americans, your home is likely the single most valuable asset in your portfolio.)

Finally, there are also other components that may be part of your monthly mortgage payment — though not part of your PITI. These include extras like PMI (private mortgage insurance) or HOA fees. Not every home purchase will come with these payments, but if you make a down payment of less than 20%, some sort of mortgage insurance is usually inevitable.

Recommended: Property Tax and Your Mortgage: Everything You Need to Know

How PITI Affects Home Affordability

PITI in real estate affects home affordability in a pretty straightforward way: Knowing your PITI ahead of time helps you ensure you’re making an offer on a house that’s truly within your budget. Knowing the cost of a home is one thing, but knowing how much the mortgage will actually take out of your account each month is another. One important rule of thumb: Most lenders prefer that your PITI is less than or equal to 28% of your gross (pre-tax) monthly income.

Fortunately, there are some things you can do to lower your interest rate — which lowers your overall PITI. By keeping your debt-to-income ratio (DTI) low and maintaining a good credit score, you can help ensure you get the lowest interest rates possible, which may expand your home-buying power by qualifying you for a lower rate, no matter the purchase price.

Calculating Your PITI

These days, the easiest way to calculate your PITI is by using an online mortgage calculator with taxes. You’ll need to estimate the home’s annual property taxes based on records kept by your county, and add the insurance premium quoted to you into the mix.

Keep in mind, however, that PITI can (and likely will) change over time as both tax rates and your insurance premiums change each year. Although a fixed-rate mortgage keeps your “PI” static, the “T” and “I” may change your overall monthly mortgage payment over the course of its term. To ensure long-term affordability, consider how increases in each of these categories might work with your budget.

PITI vs. Non-PITI Expenses

As discussed above, PITI doesn’t cover the whole range of homeownership expenses. Along with additional extras like homeowners association (HOA) fees and mortgage insurance, owning a home also means paying monthly utilities as well as any regular repair and maintenance costs.

Those costs can add up, especially if you’re not expecting them. One common rule of thumb is to set aside 1% of your home’s value for repairs each year, with exact figures depending on where you live. (In other words, in some expensive states, like Hawaii, California, and New York, repair costs may be even higher.)

Strategies to Manage and Reduce PITI

Keeping your PITI low keeps your housing expenses low, and while some parts of your mortgage may seem set in stone, others are more negotiable.

For example, did you know that you can challenge property tax assessments (that determine the amount of “T” in your PITI)? Once your home is valuated, if you disagree with the findings, you may reach out to your county or local governance to challenge them. Doing so may lower your taxable property value. (Be warned, however, that if the current valuation does not include recent renovations or, say, a new outbuilding, the taxable value could actually rise.)

Additionally, shopping around for insurance can go a long way toward lowering the second “I” in your PITI. Different insurance companies have different proprietary algorithms and therefore different rates for similar coverage. Additionally, you can play with how much coverage you buy — but use caution before skimping on protecting your home.

Finally, if you already have a home mortgage loan but your creditworthiness profile has substantially improved (and market interest rates are lower than they were when you took out the loan in the first place), refinancing may serve to substantially lower the “P” and initial “I” in your PITI. Remember, though, that you’ll pay closing costs again, so factor in that expense before deciding this is the right financial move for your situation.

Recommended: What Is a Home Inspection

The Takeaway

The acronym PITI describes the four most basic elements of a monthly mortgage payment — but they’re far from the only costs associated with homeownership. Still, understanding PITI can help you find a home that’s within a reasonable purchase price range in the short term — and taking strategic steps to reduce your PITI can help you keep your costs low for years to come.

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

How does PITI change over the life of the loan?

If you have a fixed-rate mortgage, your principal and interest payments will always amount to the same total — though the ratio of how much of those funds go toward interest versus principal will shift over the lifetime of the loan in a process known as amortization. Your property tax rate and insurance rate may change over time based on the valuation of your home, changes in the local tax code, and insurance premium changes (or a change in insurers). Thus, your monthly housing cost could shift, and even increase, over time, even if the loan is fixed-rate.

Can I pay property taxes and insurance separately from my mortgage?

In most cases, property taxes and homeowners insurance are paid together with the mortgage, and the funds go into an escrow account where they pay their respective bills as they come due. However, it is possible to secure an escrow waiver from your home lender, which would allow you to pay these expenses separately.

How does PITI affect my ability to qualify for a mortgage?

Lenders calculate your PITI before approving your mortgage application — and if your PITI is too high, you might not get approved. Generally speaking, lenders like to see your PITI equal to or less than 28% of your gross monthly income, though some lenders may approve you if your PITI is slightly higher.

What happens if I can’t afford the full PITI payment?

If your financial circumstances change and you can no longer afford to pay your mortgage, your first move should be to contact your lender. They may be able to negotiate or offer a mortgage assistance service. Talking to a U.S. Department of Housing and Urban Development foreclosure avoidance counselor could also help — but simply allowing your loan to fall into default could lead to home foreclosure.

Photo Credits: iStock/

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

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

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

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.

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.

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.

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