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It is possible to cancel a personal loan after signing the loan agreement. But ultimately, it depends on the lender’s terms and when you choose to cancel. Some lenders offer a “cooling-off” or grace period, giving you a little time to cancel the loan, while other lenders might be less flexible. The details of your loan agreement should outline your options when it comes to canceling your personal loan.

Before you decide, here’s what you need to know about personal loan cancellation and some other strategies to consider.

Factors to Consider Before Canceling a Personal Loan

Whether you can cancel a personal loan hinges on the loan details and when you choose to cancel. Personal loans can often be canceled if they’re not yet approved and the agreement hasn’t been signed. However, once the agreement is signed, you’re in a binding contract.

Some lenders offer a three-day grace period, in which you can cancel the loan for any reason. If the money hasn’t been deposited in your account yet, you might still be able to back out. To cancel, you’ll need to give the lender written notice as soon as possible.

Before deciding to cancel after signing, here are a few things to know:

Check for Additional Fees

If it’s past the cancellation period, early repayment could be an option. Certain lenders may charge a prepayment penalty, while others don’t.

Even if there is a fee, paying off the loan early can sometimes be the right financial move. Just compare the interest savings with the cost of the early payment fee to decide what’s best for you. A personal loan calculator can show you how much interest you can save by paying off your loan.

Adjust the Loan Terms

If you need to adjust the terms of your loan, consider a loan modification. This involves altering the existing loan agreement with the lender’s approval. Borrowers often seek one if they’re facing financial difficulties and want to avoid defaulting on their loan.

What Happens If You Decline a Loan?

If you apply for a personal loan and get approved, you don’t have to accept the offer — you can decline it. However, before you do, there are a few things to consider.

First, check if the loan you’re applying for has an application fee. Most lenders don’t charge one, but it’s important to verify. If there is a nonrefundable fee, be sure this is the lender you want to go with before applying.

Also, remember that submitting a personal loan application usually triggers a hard inquiry on your credit report, which can lower your score by a few points. Unlike soft checks, these hard checks add up and can further impact your score with each application. This can make it harder to get approved for new credit, and these inquiries stay on your report for two years.

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

How to Cancel a Personal Loan After Signing

If you’ve already signed your personal loan agreement and need to cancel, here’s how you can get started:

Review Your Agreement

Take a close look at your loan agreement to find your lender’s personal loan cancellation policy.

Know the Rules

Remember, loan agreements, repayment rules, and laws can differ depending on the type of loan.

Check for a Grace Period

See if your lender offers a short window to return the borrowed money. If the funds are already in your account, find out if you can give the money back. Keep in mind you might have to pay interest and possible penalties for early repayment. Your loan agreement should have all these details.

Prepare for Repayment

If you can cancel, be ready to repay the full loan amount, which will likely include extra fees and might end up costing more than what you originally received.

Understanding the Three-Day Rule

The three-day cancellation rule, also known as the “right of rescission,” is a consumer protection law from the Truth in Lending Act. It gives you three business days, including Saturdays, to change your mind about a loan.

However, this rule only applies if you used your primary home as collateral. It’s typically for mortgages or home equity loans, but it may apply if your home secures your personal loan.

Recommended: Guide to Personal Loans

Does Canceling a Personal Loan After Signing Affect Your Credit Score?

Canceling a loan typically does not affect your credit score as long as you don’t make a habit of it. However, the timing of your personal loan cancellation matters. If you stop the process before a hard credit inquiry, your score likely will stay the same. This is because when you apply for a loan, your lender conducts a hard inquiry, which will show up on your credit report and can slightly lower your score.

If you cancel the loan after it’s approved, the initial application may have already impacted your credit score. That said, canceling the loan at this point won’t result in extra harm to your credit score.

The Takeaway

You can cancel a personal loan after signing the agreement, as long as your lender allows you to do so. While some lenders offer a grace period — giving you the option to cancel for any reason without fees — other lenders may not be as flexible. That’s why it’s important to check your loan agreement to understand your options.

Remember, before making any decisions, be sure you understand the process and any fees or costs involved. Familiarizing yourself with these details will help you make an informed decision about whether to cancel your personal loan and how to go about it.

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

FAQ

Can a personal loan be canceled after approval?

Whether you can cancel a personal loan after approval depends on the lender’s terms. Some lenders offer a grace period for cancellation, while others have stricter policies. Check with your lender to see what options are available.

Does canceling a loan affect your credit rating?

Canceling a loan affects your credit rating, but only if the lender has already done a hard credit inquiry. If you cancel before the inquiry, there’s no impact. If you cancel after approval, the inquiry may have slightly lowered your score, but canceling the loan won’t cause further damage.

Is there a grace period for canceling a loan?

Certain loans offer a three-day grace period in which you can cancel for any reason without fees or interest (as long as you return the money). After this period, canceling may not be possible. It all depends on the lender’s terms and timing.

Photo credit: iStock/pixdeluxe

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 .

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

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-Q324-012

Earning an MBA, or a Masters of Business Administration, degree can increase your salary, teach you specialized skills, and provide you with new career opportunities. But getting your MBA is expensive, with an average cost of $62,600 for a two-year program vs. $59,684 for a master’s degree in general. A degree from a top-tier school can be considerably more, with tuition and living expenses totaling $200,000 for the program.

Just how big of an MBA pay increase you’ll get in return depends on a number of factors, including the school you attend, the field you’re in, and your previous work experience. Here’s what to know about an MBA salary increase and how much you might expect to receive.

Value of an MBA Degree

An MBA degree can make you more marketable to employers, which can in turn help you land a better job and a higher salary, research shows. And while earning your degree can come with a hefty price tag, taking out MBA loans is one option to help you pay for it.

The median starting salary of recent MBA graduates in the U.S. is $120,000, according to the 2024 Corporate Recruiters Survey from the Graduate Management Admission Council (GMAC). That’s significantly more than the $69,320 starting salary of grads with a bachelor’s degree. Knowing how much you might earn could help you determine if an MBA is worth it.

An MBA can also help you advance in your career. The majority of employers in the GMAC survey said that MBA grads typically perform better and move up the ladder faster than other employees. That places them in high demand in the workplace. One-third of employers from across the globe reported that they plan to hire more MBA graduates in 2024 than they did in 2023.

Average Salary Increase with an MBA

Overall, MBA grads reported a median salary increase of 33% after earning their degree, according to the GMAC’s most recent Enrolled Students Report. Full-time MBA students had a 42% increase in salary, while those who worked and studied for their MBA at the same time said their salary increased by 29%.

However, the amount your salary might increase once you have an MBA depends on the field you’re in. Here’s a closer look.

Salary By Industry and Job Function

The following industries tend to pay well for those who have earned an MBA, making them some of the best jobs for MBA graduates.

Finance

Many MBA grads pursue a career in finance, and it can be lucrative. The average salary for an individual with an MBA in finance is $145,257, but the amount can be as much as $195,000, and that’s not counting possible commissions and bonuses.

Technology

Another hot field for those with an MBA is technology, especially as AI becomes more prevalent. The average salary for MBA grads in tech is about $118,000 a year. However, your MBA salary increase could run higher still and may even include a signing bonus.

Consulting

Those who work as consultants and have their MBA average about $83,797 annually, but the base pay can be as much as $117,000. A consultant’s salary may go up dramatically within a few years, especially if they work at a big firm.

Healthcare

Healthcare management is a popular job for MBA graduates. The average earnings are $88,000 per year, although it’s not uncommon for those in healthcare management to bring home a six-figure salary.

Marketing

After graduating with an MBA in marketing, your annual earnings will be approximately $130,721 on average, and they could be as much as $165,000. That’s well above the average marketing salary for those without a degree, which is $81,330.

Business

The salary for a business analyst with an MBA is $104,629 a year, although it can be as much as $128,000.

Accounting

If you earn an MBA in accounting, you could earn an average starting salary of $126,598. Your pay could even be as high as $166,000.

Factors Influencing MBA Salary Potential

In addition to the field you choose to work in, how much you’ll earn after getting your degree is influenced by such things as the MBA program you choose and your previous work history and salary.

These are the three major factors that can affect MBA salary potential.

School Reputation and Rankings

Although it’s likely to be pricier, going to a top-rated school to get your MBA can pay off in multiple ways. These schools tend to have robust networking programs and employer recruitment opportunities. Some colleges may help prospective graduates find internships and jobs. Also, grads from top 10 schools tend to earn more than those who attend other programs.

Before applying to an MBA program, do your research to see where recent alumni have ended up and which companies have recruitment relationships with the school. For instance, certain coveted employers might always attend a particular school’s job fairs. If a university has connections to companies you might be interested in working at, you may want to apply to their MBA program.

Specialization and Concentration

Every MBA program offers different classes, internships, and hands-on opportunities, and it’s important to look for ones tailored to your goals and career path. Choose a program with specialized concentrations in the field you’re most interested in. For instance, some MBA programs specialize in healthcare while others focus on finance.

If you’re currently in a field that you want to pivot out of — moving from marketing to consulting, say — an MBA could help with career change without going back to an entry-level job.

Work Experience and Performance

The more work experience you have, the more likely you are to score a higher salary once you get an MBA. This is especially true if that experience is relevant to the area of study you’re pursuing. Most people going for their MBA have about five years of experience on the job. And some MBA programs require students to have a certain number of years of work experience before they apply.

Your work performance is also a key factor in what you might earn after you obtain your degree. As mentioned above, employers in the GMAC survey found that MBA grads tended to be better performers on the job. High achievers are more likely to command a higher salary.

Maximizing Your MBA Salary Prospects

In addition to choosing the right MBA program, there are other steps you can take to land a good job and a higher salary when you graduate. Here are a few strategies that can help you get ahead.

•   Take advantage of networking opportunities. Get to know your fellow classmates and connect with teachers and faculty members. Go to school gatherings, job fairs, and networking events. Find people who are in the field you’re in, and get to know them.Then make a point to stay in touch with the contacts you make. These people can be valuable resources over the course of your career.

•   Apply for internships. Many MBA schools offer internship programs, and they typically expect students to take advantage of them if possible. An internship can give you real-world experience and also connect you to key contacts who may be able to help you find a job when the time comes.

•   Seek out alumni. Make a list of the companies you’re interested in working for, and then search out any alumni of your school who work there. Ask to meet with them for coffee or an informational interview. Solicit their career advice. If you make a solid connection, they may keep you in mind for future job openings.

Choosing the Right MBA Program

It’s important to find an MBA program that fits your interests and goals. Look for programs that offer concentrations in the areas and fields you want to pursue. Then review the curriculum and the courses offered to make sure they appeal to you.

In addition, learn where graduates of the MBA program have ended up. What companies do they work for and what kinds of jobs do they have? You might even reach out to ask how they felt about the program and if they would recommend it.

Location

Where the school is located is also a prime consideration. If you’re working and going to school at the same time, you’ll need to find a program in your area. You could also explore top online MBA programs if you want to take advantage of a particular school’s offerings when you’re unable to attend it in person. These programs tend to cost $10,000 less than in-person ones, but you may miss out on networking opportunities.

If you’re a full-time student and you have the opportunity to move to attend school, you could choose an MBA program near the area where you hope to work. For instance, if you’d like to be employed in Silicon Valley, a school nearby might be a good choice for you. It may be easier to get an internship there as well as a job after graduation.

Cost

Of course, the cost of an MBA program is likely to be one of the most important factors in your decision. Beyond the tuition, find out the true cost of getting an MBA at any school you’re interested in. This includes living expenses, books, transportation, and so on.

How to Pay for Your MBA

There are a number of ways to pay for your MBA, such as scholarships, grants, and student loans. You may want to consider both federal and private student loans. Federal loans include Federal Direct PLUS loans for graduate students from the Department of Education. The maximum amount you can borrow with these loans is the cost of attendance, which is determined by the school minus any other financial aid you may have, and the loan’s interest rate is fixed.

Private student loans may have fixed or variable rates, and the MBA loan rates you might qualify for depend on your credit history, among other factors. These loans are offered by banks, credit unions, and online lenders. Be aware, though, that with private student loans, you will not have access to the same federal protections and programs you would with federal loans, including income-driven repayment plans. Also, if you refinance federal student loans with a private loan, you could pay more interest over the life of the loan, depending on its rate and term length.

Recommended: Scholarship Search Tool

The Takeaway

Earning an MBA may help you fulfill your career dreams and earn a higher salary. Research shows that the degree can increase your salary by about 33%, depending on such variables as the school you attend and the field you work in. But getting an MBA can be costly, averaging more than $60,000 for a two-year program, up to $200,000 for top-tier schools. So you’ll want to weigh the pros and cons.

If you decide that earning an MBA makes sense for you, there are ways to help cover the costs and develop a solid budget. You can explore all options, including scholarships, grants, and federal and private student loans, as well as refinancing your existing loans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

What is the average starting salary with an MBA?

The median starting salary with an MBA is $120,000, according to the Graduate Management Admission Council’s 2024 Corporate Recruiters Survey. That’s far higher than the $69,320 starting salary of graduates with a bachelor’s degree.

Is an online MBA worth the investment?

Whether an online MBA program is worth the investment depends on the program you choose and what you hope to get out of it. Online programs offer greater flexibility and are typically less expensive than in-school programs. According to one estimate, online MBA programs tend to cost about $10,000 less. However, with an online program, you may not have access to all possible networking opportunities or the opportunity to speak with professors face to face. You may also feel less connected to the school and the overall experience.

How long does it take to recoup MBA program costs?

How long it takes to recoup MBA program costs is different for everyone, depending on the price of the program and the salary increase they enjoy after earning their degree. According to the Graduate Management Admission Council, it takes grads of two-year full-time MBA programs about three and a half years of working to recoup the cost. Those who enroll in online MBA programs recoup the cost in about two and a half years of work.

Photo credit: iStock/Xavier Lorenzo

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSLR-Q324-023

When you rent an apartment or home, you typically need to provide a security deposit, often equal to one month’s rent, or the first and last month’s rent. This is cash the landlord sets aside to cover the cost of any damage you might do to the property or recoup any unpaid rent. You get it back (assuming you keep up your end of the rental agreement) when you move out. In the meantime, though, you have to come up with the cash.

If you don’t have the potentially thousands of dollars you need to secure a rental just sitting in the bank, you might consider taking out a security deposit loan. This is a type of personal loan that can give you quick access to the funds needed to secure a rental. However, these loans come with costs, as well as some other drawbacks. Here are key things to know about security deposit loans.

Understanding Security Deposit Loans

Definition and Purpose

A security deposit loan is a type of personal loan specifically structured to help renters cover the cost of their security deposit when moving into a new rental property. However, even if a personal loan isn’t specifically marketed as a “security deposit loan,” you can likely use it for this purpose. Unlike a mortgage or car loan, personal loans aren’t tied to a specific use. They’re a form of flexible funding that you can use for a wide variety of expenses, including covering the security deposit on a rental, or even to purchase new furniture for your new place.

How Security Deposit Loans Work

Personal loans for apartment deposits are available from banks, credit unions, and online lenders. They are a type of installment loan: You receive the full amount of the loan upfront, then repay it (plus interest) in monthly installments over the term of the loan.Security deposit loans typically have fixed interest rates, which means that the interest rate — and your monthly payment amount — will remain the same throughout the life of the loan.

Most personal loans are unsecured, so you don’t need to provide an asset of value (called collateral) to back up the loan. There are some secured personal loans, however, which do require collateral. If you opt for a secured loan, the lender can seize your collateral if you default on your payments. Since this lowers the lender’s risk, secured loans typically have lower interest rates and can be easier to qualify for than unsecured loans.

Eligibility and Requirements for Security Deposit Loans

If you are wondering if you can get a loan for a security deposit, here’s a look at common criteria for approval.

Credit Check and Income Verification

When you apply for a security deposit loan, the lender will typically perform a credit check to assess your past borrowing behavior (a.k.a., creditworthiness). You can often prequalify for a security deposit loan, which involves a soft credit pull and won’t impact your credit. When you officially apply, however, the lender will do a hard credit check, which can temporarily lower your score by a few points.

A positive credit history and solid credit score increase your chances of approval and may result in more favorable loan terms, such as a lower interest rate. While there’s no universal minimum credit score for a personal loan, many lenders like to see a credit score of at least 580.

Lenders also require proof of income to ensure that you have the financial means to repay the loan. This can include recent pay stubs, tax returns, and/or bank statements. Some lenders may also consider the applicant’s employment history and stability as part of the approval process.

Repayment Term and Interest Rate

Repayment terms for security deposit loans can vary widely depending on the lender and loan amount, but commonly range from six months to three years. The rate you’ll pay will depend on the lender, the loan amount, and your creditworthiness as a borrower. The average personal loan interest rate as of July 2024 is 12.36%.If you have good or excellent credit, you may get a lower interest rate; if you have poor credit, the rate could be higher.

Additional Fees and Costs

Security deposit loans may also come with fees. Some lenders charge an origination fee to cover the cost of processing the loan. These are often between 1% and 5% of the loan amount but can be as high as 10%.

Other fees you may see tacked onto a security deposit loan include late fees (which you’ll only pay if you don’t make a payment on time) and a prepayment penalty (a fee for paying off your loan early).

Not all lenders charge fees, and in some cases you may be able to negotiate with your lender for lower fees or to have them waived entirely.

Pros and Cons of Security Deposit Loans

As with any form of financing, apartment deposit loans have both benefits and drawbacks. It’s important to understand both so you can make an informed decision. 

Advantages of Security Deposit Loans

•  Can secure the rental: If you don’t have sufficient savings to cover your security deposit, a security deposit loan can make the difference between getting — and not getting — the rental apartment or home you want.

•  Fast access to cash: Many personal loan lenders offer funding within two to five business days after approval. Some even fund the loan the same day you’re approved.

•  Can help you build credit: Making on-time payments on a security deposit loan can help you build a positive credit history. Adding an installment loan to your credit mix can also have a positive impact on your credit.

•  Spreads out costs: By repaying the loan over time, renters can spread out the cost of the security deposit, making it easier to manage.

•  Don’t have to resort to other forms of financing: You won’t need to rely on more expensive forms of financing, such as a payday loan or a credit card cash advance.

Drawbacks and Risks

•  Increases your costs: Taking out a personal loan to cover your security deposit ultimately makes that deposit more expensive. Even if you get the full amount back from the landlord when you move out, you won’t recoup the interest and fees you paid for the loan.

•  Added financial responsibility: Once you take out a loan, you’ll be on the hook for keeping up with loan payments. That’s another bill to pay – on top of your new rent and other monthly costs.

•  It could potentially hurt your credit. Missing payments or defaulting on a security deposit loan can negatively impact your credit, making it more difficult to secure loans or credit cards with low rates in the future.

•  It may be a sign that you’re not ready to move. Going into debt to pay for a security deposit may indicate that you aren’t ready for financial independence. You might consider more affordable rental properties, partnering up with roommates, or living with family until you can save more.

•  Eligibility requirements: Not all renters will qualify for a security deposit loan, especially those with poor credit or an unstable income.

Alternatives to Consider

If taking out a loan for an apartment deposit doesn’t make financial sense for you, here are some other options to consider.

•  Saving up: Planning and saving for a security deposit in advance can help avoid the need for a loan. Consider setting up an automatic transfer from checking to saving for a set amount each month to build your moving fund. To fast-track your savings, you may want to cut back on expenses and/or look for ways to bring in more income. 

•  Applying for a rental with a smaller security deposit: Some landlords only request one month’s rent (rather than first and last), which could make it easier to cover the deposit without taking on debt. 

•  Negotiating with the landlord: Some landlords may be willing to negotiate the security deposit amount or offer a payment plan, allowing renters to pay the deposit in installments rather than a lump sum.

•  Borrowing from family or friends: Borrowing from trusted family members or friends can be a cost-effective alternative, often without the interest and fees associated with loans.

•  Getting a roommate: This will allow you to split the security deposit, as well as other moving costs, not to mention the rent moving forward. 

Recommended: Personal Loan Versus Credit Card

The Takeaway

Taking out a security deposit loan to cover the deposit on a new rental can be a relatively easy way to come up with the money you need to get the keys and move in. However, you’ll need to weigh the pros and cons of taking on debt. 

It might be better to assess whether you’re financially ready to make the move or consider other ways to raise the cash. If you decide that using a personal loan for a security deposit makes sense for your situation, you’ll want to shop around for the best possible deal and be sure to manage the loan responsibly. 

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

FAQ

Are security deposit loans only for apartments?

No, security deposit loans are not limited to apartments. They can generally be used for any rental property that requires a security deposit, including single-family homes, condos, and townhouses. The primary purpose of these loans is to help renters cover the upfront cost of the security deposit, regardless of the type of rental property. However, you’ll want to check with the lender to ensure that the loan terms align with your specific rental situation.

What happens if I move out before repaying the loan?

If you move out before repaying a security deposit loan, you’re still financially responsible for making the agreed-upon payments until the loan is paid in full. The loan is a separate financial obligation from your rental agreement, meaning that moving out does not clear your debt.

Can I use a security deposit loan for a home purchase?

No, security deposit loans (which are a type of personal loan) are specifically designed for rental properties and are not meant to be used for a down payment on a home. In fact, many mortgage lenders forbid you to use a personal loan to cover a down payment for a home, since this involves taking on two debts at once.

Photo credit: iStock/Happy Kikky

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

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

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.

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 .

SOPL-Q324-001

When taking out a personal loan, one of the key decisions you’ll have to make is what term to select. A loan’s repayment term (i.e., how long you have to pay it off) can significantly impact your monthly payments, the total amount of interest you pay, and how quickly you become debt-free. Understanding how different term lengths affect loan repayment can help you make an informed choice that aligns with your budget and financial goals.

Below, we walk you through how personal loan term lengths work, and the pluses and minuses of going with a shorter- versus a longer-term loan. 

What Does Personal Loan Term Length Mean?

Put simply, the term length of a personal loan is how long you have to pay it off. More specifically, it’s a period of time that starts when you receive the loan funds and ends when your final payment is due. 

Personal loan terms vary depending on the lender and the amount of the loan, but typically range from two to seven years. Lenders will often give you a choice of loan terms. The length you choose will determine your monthly payment amount and the total amount of interest you’ll pay over the life of the loan. It can also impact the interest rate you’ll pay.

How Do Personal Loan Terms Work?

When you take out a personal loan, you’ll receive the full amount of the loan (called the principal) up front. Typically, you need to start paying back the principal, plus interest, in monthly installments within 30 days. These monthly payments will continue throughout the term of the loan. 

Generally, the larger the loan, the longer the term will be. For example, a $500 personal loan will often have a term of one year or less, while a $15,000 loan might have a three- to four-year term. Loans of $30,000 or more can have terms ranging from five to seven years.

Recommended: How Personal Loans Work

Factors to Consider When Choosing a Personal Loan

There are a number of things to consider when taking out a personal loan. These include:

•   Loan amount: It’s important to take out a loan that’s enough to cover your needs but not more than you’ll need, since you’ll be paying interest on these funds. While you can find personal loans as small as $500, many lenders have loan minimums of $1,000 to $2,000.

•   Interest rate: Rates for personal loans can range anywhere from 5.99% to over 29.99%. The rate you’ll pay will depend on the lender, the loan amount, the loan’s term, and your credit score. Generally, you’ll get a lender’s lowest rate if you have a good or excellent credit score and select the shortest available term.

•   Repayment term: The less time you’re in debt, the less time interest has to accrue. Thus, going with a shorter loan term can lower the overall cost of a personal loan. However, it means your monthly payments will be higher. Repayment terms can also impact personal loan rates, with longer terms typically linked to higher rates, since they pose more risk to the lender.

•   Collateral: Personal loans are typically unsecured, which means you don’t have to pledge a valuable asset (collateral) to back up the loan. There are some secured personal loans, however. Since collateral lowers a lender’s risk, secured loans tend to have lower interest rates than unsecured loans. However, should you fall behind on payments, the lender can seize your collateral to recoup their losses.

•   Origination fee: Some lenders charge origination fees to cover the processing costs of the loan. These fees can range from 1.00% and 8.00% of the total loan amount. In some cases, you need to pay this fee in cash at closing; in others, the lender adds it to the amount you’re financing or subtracts it from your loan before it’s dispersed. Some lenders, however, don’t charge origination fees for personal loans.

•   Prepayment penalty. If you pay off your personal loan early, a lender might charge you a prepayment penalty to make up for the loss in interest. But not all lenders charge a prepayment penalty.

Pros of Short Term Loan Length

Here’s a look at some of the advantages of taking out a personal loan with a shorter repayment term.

Faster Debt Repayment

One of the main advantages of a short-term loan is that you can become debt-free more quickly. By committing to higher monthly payments, you reduce the loan balance faster, which can free up your income for other uses sooner.

Lower Total Interest Costs

Because you are paying off the loan more quickly, there is less time for interest to accrue. As a result, shorter-term loans typically result in lower total interest costs, saving you money in the long run.

Potential for Lower Interest Rates

Since shorter terms reduce risk to the lender, you may be able to get a lower interest rate by choosing a shorter loan term. This can further decrease the overall cost of the loan.

Cons of Short Term Loan Length

Short-term personal loans also have some downsides, Here are some to keep in mind.

Larger Monthly Payments

One of the main drawbacks of a short-term loan is that you’ll have higher monthly payments. This might be challenging if your budget is already tight. It also means you’ll have less money to save and invest. 

Less Financial Flexibility

With higher monthly payments, there is less room in your budget for unexpected expenses. This can be problematic if you encounter financial difficulties or need to redirect funds for emergencies.

Smaller Loan Amounts

Short-term personal loans tend to be for smaller amounts and may not be sufficient to cover your expense.

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

Pros of Long Term Loan Length

Here’s a look at some of the advantages of choosing a personal loan with a longer term. 

Smaller Monthly Payments

A longer term spreads the repayment over a more extended period, resulting in lower monthly payments. This can make the loan more manageable, especially if you have a tight budget or your income fluctuates.

Frees Up Funds

Lower monthly payments give you more flexibility in your budget, freeing up funds for other goals, such as saving, investing, or covering other expenses. This can be beneficial if you anticipate future financial needs or want to maintain a comfortable lifestyle while repaying the loan.

Larger Loan Amounts

Longer-term personal loans typically give you access to larger loan amounts. This can work well if you have a big expense, such as consolidating credit card debt, a wedding, or a home renovation.

Cons of Long Term Loan Length

There are also some disadvantages to going with a longer loan term. Here are some to keep in mind.

Higher Costs

While longer terms generally make monthly payments smaller, extending the time you take to repay a loan typically leads to higher overall interest costs.

Extended Debt Duration

A longer loan term means you’ll be in debt for many years. This prolonged commitment could potentially become a drag on your budget or impact your financial planning, such as saving for retirement or other long-term goals.

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

Potential for Higher Interest Rates

Longer terms lead to increased risk for lenders. As a result, they may charge higher interest rates, which can further increase costs.

Choosing the Best Loan Term Length

When deciding on the best term length for a personal loan, you’ll want to factor in your monthly budget, financial goals, and the total cost of the loan. Here are some tips to help you decide on the best term length for a personal loan.

•   Assess your financial situation: You might start by taking a look at your current monthly income, expenses, and savings targets. From there, you can determine how much you can afford to pay each month without compromising your lifestyle or future goals.

•   Compare interest rates: It’s a good idea to shop around for lenders offering the best interest rates for different term lengths. A slightly higher interest rate might be acceptable if it results in more manageable monthly payments.

•   Calculate total costs: There are online calculators that can help you compare the total interest paid for different term lengths. Understanding the long-term cost implications can help you make an informed decision.

•   Consider flexibility: Check if the loan allows for early repayment without penalties. This flexibility can be handy if your financial situation improves and you want to pay off the loan faster.

The Takeaway

The right personal loan term length for you will depend on several factors, including your budget and future goals. Generally, going with a shorter term makes sense if you can afford a higher payment, want to save money on interest, and prefer to get out of debt quickly. However, you might be better off with a longer term if you need a more affordable monthly payment and want more flexibility, since you can typically pay your loan off ahead of schedule (just watch for any prepayment fees). 

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

FAQ

Can personal loans be 10 years?

Yes, personal loans can have terms up to 10 years, although they are less common. Long-term personal loans typically range from two to seven years, but some lenders offer 10-year terms for specific purposes or higher loan amounts. 

While a 10-year term can provide lower monthly payments, it often results in higher total interest paid over the life of the loan. Before you sign a long-term loan agreement, you’ll want to carefully consider the total cost and your ability to commit to such an extended repayment period.

Is it OK to pay off a personal loan early?

Yes, it’s generally okay to pay off a personal loan early, and can even be beneficial. Paying off your loan ahead of schedule can save you money on interest and free up money for other goals. 

However, it’s important to check your loan agreement for any prepayment penalties. Some lenders charge fees for early repayment to compensate for the lost interest. If there are no penalties or the savings outweigh the fees, early repayment can be a smart financial move.

Do personal loans hurt your credit?

Personal loans can have both positive and negative impacts on your credit. Initially, applying for a loan results in a hard inquiry, which can temporarily lower your credit score. Taking on new debt may also affect your credit utilization ratio.

However, consistently making on-time payments can benefit your credit over time by demonstrating responsible credit behavior. Taking out a personal loan may also diversify your credit mix, which could also positively impact your credit. The key is to manage the loan responsibly and avoid missing payments to maintain or improve your credit profile.

Photo credit: iStock/Pekic

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

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

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.

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 .

SOPL-Q324-002

EFTs, or electronic fund transfers, allow consumers, businesses, and banks to move money quickly between accounts. These transfers can take a few minutes to a few days, depending on their size and scope.

Examples of EFTs include your paycheck arriving in your bank account every pay period without you lifting a finger or your scheduling recurring payments to a service provider (such as your utility company) without needing to write a check and mail it. These electronic transactions allow money to move between a payor and payee, often within seconds. In this article, you’ll learn more about EFTs in banking and the pros and cons of this powerful financial tool.

What Is the Meaning of EFT (Electronic Funds Transfer)?

The definition of an electronic funds transfer (EFT) is the digital movement of money between financial institutions, bank accounts, and people. Unlike paper methods, such as cash or checks, EFTs facilitate payments through an electronic network. Individuals, businesses, and banks use EFTs daily to purchase goods and services and pay workers.

Different EFT Payments

The term EFT includes many types of transactions. Here are some of the different kinds of EFTs that are possible:

Credit and Debit Card Transactions

Credit and debit cards use electronic payments to process purchases made in person or online. In addition, you can use EFTs to pay bills, such as for phones or utilities, and transfer a credit card balance to a new credit card account.

Direct Deposit

Direct deposit is how approximately 95% of employees are paid by their employers. The majority of U.S. employees receive their paychecks electronically by direct deposit instead of a paper check. This type of EFT is usually an Automated Clearing House (ACH) transfer (more on what that means below).

Electronic Checks

With electronic checks (or Echecks), you can make a payment with your checking account without paper checks. Instead, you can provide your routing and account numbers to a business and authorize a payment from your bank account.

ATM Transactions

ATMs use EFTs to enable cash withdrawals and transfer funds between your bank accounts. Every time you turn up at a terminal to take out some $20s, that’s an electronic funds transfer at work, fueling the transaction.

Pay by Phone

As with an electronic check, you can make a purchase by providing a business with your bank account and routing numbers over the phone. Then, the business can communicate with your financial institution to obtain payment.

How Do EFTs Work?

EFTs work by digitally transferring funds between parties, such as a payor and a payee. The payor provides the information necessary for payment, such as a card number or account information. Then, the relevant financial institution performs an EFT, sending the designated amount of funds to the payee’s account at their financial institution.

For example, say you make a purchase online using your credit card. The merchant will use your card information, including the number, expiration date, and security code, to obtain payment from your credit card company. Then, the merchant receives payment through an EFT.

P2P vs EFT

A peer-to-peer payment system (P2P) like PayPal or Venmo also uses EFTs to move money between users and their financial accounts. Specifically, you can connect your credit card, bank account, or debit card to your P2P account. Then, to send money to another user, the P2P company will initiate an ETF from your financial institution to pull the money needed. In addition, you can also deposit funds from your P2P account into your bank account.

You can also usually leave funds in your P2P account to eliminate the ETF needed to move funds to and from your bank account. Instead, money can sit in your P2P account until you want to pay another user.

What Is ACH vs EFT?

Automatic Clearing House (ACH) indicates a specific type of EFT and the network in which it occurs. For example, your direct deposit from your job is through an ACH payment. Likewise, bank transfers are performed by ACH.

What sets the ACH network apart is that it facilitates payments in batches three times daily. As a result, transactions can usually take one to three days to process. Conversely, an EFT from a credit card, which is not an ACH transaction, typically happens instantaneously.

Pros and Cons of EFT

EFTs revolutionized how money is transferred. However, they have advantages and disadvantages to consider.

Pros

First, the upsides of EFTs:

Convenience

Firstly, EFTs are typically very convenient. They save consumers trips to the bank and eliminate the need to carry around cash and paper checks. Likewise, they facilitate a multitude of transactions without effort from the sender or recipient.

Speed

EFTs can also allow you to send and receive payments over long distances within a span of hours or a few days at most, depending on the type of transaction. In fact, some EFTs may occur within seconds.

Consumer Protection and Security

The Electronic Fund Transfer Act (EFTA) provides a layer of protection for EFTs. This legislation empowers consumers to dispute unauthorized transfers and seek repayment for fraudulent activity or bank negligence.

In addition, the EFTA spells out guidelines and recourse if your debit card is lost or stolen and used without authorization. Depending on how quickly you report the issue, you could be liable for nothing, $50, $500, or (if you fail to report the issue for more than 60 days) the full amountaccessed by a thief or scammer.

Also, while no financial transaction can claim to be 100% secure, EFTs do use multiple layers of encryption to protect transactions, which means sensitive data is encoded several times so it cannot be read by others. Identity verification procedures also play an important role in transactions to keep them as safe as possible.

Cons

Next, consider the potential downsides of EFTs:

Limited Reach

Certain EFTs aren’t compatible with foreign accounts. For example, sometimes debit cards aren’t accepted overseas. Instead, you might need the country’s currency, a card with specific international capabilities, traveler’s checks, or a wire transfer to pay for things. In addition, your international EFTs may incur extra fees.

Fees

EFTs aren’t always free. For example, paying your utilities by credit card might require a fee (say, 1% of the total amount or a flat fee) on all charges. As a result, you might pay for the convenience of an EFT.

Potential Hacks and Scams

EFTs use digital networks to transfer your financial information. Most of these are constantly updating their security protocols, but there is the chance, however slight, of losing money to hackers or fraudsters. Although the EFTA provides your transactions with a level of protection, you might become a victim of a scam or have your banking information fall into the wrong hands.

For a quick comparison, here’s a table of the potential upsides and downsides of EFTs:

The Takeaway

EFTs, or electronic funds transfers, are speedy, convenient monetary transactions that can make everyday financial activity possible. For example, EFTs power credit and debit card payments and direct deposits. These transactions are often free and save time for all parties involved. Though you may not realize it, EFTs conduct many of the transactions that typically occur in personal banking.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How do EFT payments work?

EFT payments work by moving money electronically between financial institutions and people. Specifically, financial institutions work with the sender’s and the receiver’s account information to move funds to process bill payments, direct deposits, account transfers, credit card transactions, and more.

What is the main difference between an ACH and EFT?

An ACH (Automatic Clearing House) transfer is a specific type of EFT activity. For example, your direct deposits, payment app transfers, and online bill payments usually use the ACH network to conduct transactions.

How long do EFT transfers take?

EFT transfers take varying amounts of time depending on the transaction. For example, credit and debit card payments are usually instantaneous. On the other hand, your bill payments may take one to three days to clear.

Photo credit: iStock/dragana991

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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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