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An apprenticeship program pairs paid on-the-job training with classroom instruction to produce skilled workers, who get a foot in the door of their preferred field without going to college for four years or more.

More than 646,000 apprentices were taking part in nearly 27,000 registered apprenticeship programs in 2024, according to the U.S. Department of Labor’s Office of Apprenticeship.

Here are details about finding an apprenticeship, how much you might earn, the commitment required, and more.

Apprenticeship 101

An apprenticeship is a way to acquire hands-on training, work experience, classroom instruction, and mentorship in a particular trade. Not only is an apprenticeship paid, but it’s also a doorway to a stable and in-demand job.

Most apprentices are promoted or receive a raise during their apprenticeship. The average starting salary is $80,000 after an apprentice completes an apprenticeship program.

Apprentices receive a nationally recognized credential in their industry upon completion of the program, and may even earn academic credit toward a college degree. Ninety-three percent who cross the finish line retain employment, according to the Labor Department.

There are several places to look for an apprenticeship. You can use the federal agency’s Apprenticeship Finder to search by keyword and location, contact your state’s apprenticeship agency, check out trade or labor unions in your area, or use traditional job search engines. If you need more guidance, find an American Job Center near you.

Recommended: Why College Isn’t for Everyone

How Does an Apprenticeship Work?

The majority of apprenticeships are registered either with the Department of Labor or a state apprenticeship agency. Upon entering a program, apprentices receive training under the guidance of an experienced mentor. Many are also required to take academic courses related to that career.

The eligible starting age is 16, but some occupations require apprentices to be at least 18 years of age. Some apprentices may also have the option to enter a pre-apprenticeship program, which aims to better prepare workers for the apprenticeship program.

Upon completion of the program, a nationally recognized credential, certificate, or degree is awarded.

How Long Does an Apprenticeship Last?

An apprenticeship program usually lasts four years. Some take as little as one year, and some take as many as six. Whatever the length, most apprentices must complete at least 2,000 hours of on-the-job learning plus 144 hours of classroom work.

How Much Do Apprentices Make?

The average apprentice salary is $22 per hour, with starting earnings around $15–$20 per hour. Typically, wages increase each year as they gain skills and experience. By the end of their apprenticeship, many earn between $25–$35 per hour or more. Earnings vary based on the industry, location, and whether the apprenticeship is unionized.

Do You Have to Pay for an Apprenticeship?

Apprenticeship training is typically offered by the employer at no cost to the apprentice, but apprentices may need to cover certain expenses, such as tools or educational materials.

Employers may pay for the instruction but specify that if an apprentice leaves the program before completion, related costs must be paid back to the employer.

What Types of Careers Offer Apprenticeships?

If construction jobs come to mind when you think of apprenticeships, that’s logical. Many apprenticeships are in the construction trades, but not all are.

Here’s a sample of jobs and the number of active, registered apprentices:

What About College or Trade School?

Alternatives to apprenticeships include attending a four-year college or a trade school. There, you’ll be provided with a broader set of knowledge along with the key skills required for your area of study.

Trade school costs less than college but still can cost thousands of dollars a semester. As an apprentice, you can learn to do something you enjoy while getting paid. What’s the catch? Trade school degrees often take about two years to complete. Many apprenticeships last longer, and even getting one can be tough.

Then there’s the traditional college route. But is college worth it?

More than half of college students take out student loans, usually federal student loans but in some cases private student loans. The average borrower leaves school owing just over $35,000.

However, the return on investment can be huge. The ROI for a bachelor’s degree is 134% after 20 years on average, according to the Education Data Initiative.

Major U.S. companies have vowed to change their hiring habits by offering career paths to people without four-year college degrees. Almost two-thirds of U.S. workers do not have a bachelor’s degree, and job screening by college degree hits minorities especially hard. But change has been slow in coming. A bachelor’s degree remains the standard in many cases.

Beyond the cost of college tuition, whether you choose an apprenticeship or a degree, you’ll need to evaluate salary and career potential using either path to find the one that’s right for you.

Student Loans, Grants, and Scholarships

Whether you choose trade school, college, or an apprenticeship with a community college component, you might need financial aid in the form of grants, scholarships, federal student loans, federal work-study, or private student loans.

Private student loans can be helpful, but because they lack the benefits and borrower protections available with federal student loans, they are intended to fill in gaps after other funding sources have been spoken for.

Apprentices in a credit-bearing college program who qualify can receive federal Pell Grants.

And yes, it’s possible to take out student loans for community college.

Do hunt for scholarships. Every year sees $2 billion in unclaimed scholarships, meaning merit- and need-based aid was left on the table.

Recommended: Grants and Scholarships by State

Pros and Cons of an Apprenticeship

Here’s a snapshot of the upsides and potential downsides of apprenticeships.

Apprenticeship vs Internship

Both apprenticeships and internships aim to help you gain expertise with hands-on training in a certain industry, but several differences should be noted. Here are some of the most common ones.

•   Duration: Internships typically last only one to three months, while an apprenticeship can last up to six years.

•   Pay: Apprentices receive at least the minimum wage specified by the Fair Labor Standards Act for hours on the job. Wage increases are earned as the apprentice gains and uses skills while working for the employer. Internships are usually unpaid, temporary positions.

•   Structure: Apprenticeships have a structured training plan and prepare an apprentice to fill an occupation within the organization. Internships aren’t always structured and only prepare interns through entry-level work.

•   Mentorship: Apprentices work with an experienced mentor. Internships don’t always include mentorship.

•   Credential: After completing an apprenticeship program, nationally accredited certification is awarded. Interns generally don’t receive any type of credential.

•   Job opportunities: Interns are usually in college and get an opportunity for career exploration and skill development. An apprenticeship provides in-depth training, and apprentices can potentially transition into the same role after completing the program and earn a higher salary.

The Takeaway

An apprenticeship can be an excellent way to gain access to a company or a field you wish to work in without going the traditional college route. They aren’t for everyone, though; nor are they available in every field.

While apprenticeships are typically covered by your employer, you may still find you need funding to cover additional costs or living expenses. In that case, you can rely on cash savings, grants, scholarships, and federal 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.

FAQ

What is an apprenticeship?

An apprenticeship is a structured program that combines paid on-the-job training with classroom instruction, allowing individuals to gain practical skills and experience in a specific trade or profession. Apprenticeships are often offered in fields like construction, healthcare, and IT, providing a pathway to industry-recognized credentials or licensure.

How long do apprenticeships typically last?

The length of an apprenticeship varies by field and program but generally ranges from one to six years. Most programs include a set number of hours for on-the-job training and classroom instruction, ensuring participants gain comprehensive knowledge and practical experience in their chosen industry.

What are the benefits of an apprenticeship?

Apprenticeships provide hands-on training, mentorship, and a salary while learning. They often lead to industry-recognized certifications, higher earning potential, and strong job prospects. Unlike traditional education programs, apprenticeships allow participants to “earn while they learn,” reducing or eliminating student debt.

Photo credit: iStock/JohnnyGreig

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

SOISL-Q424-060

Subprime personal loans provide financing to people with poor credit who cannot qualify for a conventional prime-rate loan. Borrowers who have poor credit have a higher risk of defaulting on loans, so lenders protect themselves by adding charges to the loans. These charges come in the form of higher interest rates, longer term lengths, and higher financing fees.

Read on to learn how subprime personal loans work, the different types of loans, some alternatives to these high-interest loans, and whether they might be an option for you.

What Is a Subprime Personal Loan?

A subprime personal loan is a loan that caters to borrowers with subprime credit, who are considered to be at a high risk of default. Credit scores typically run from 300 to 850 (that’s the range for the most popular FICO Score). According to the Consumer Financial Protection Bureau, a subprime credit score is below 620. A subprime lender will usually charge a higher interest rate and fees to cover the cost of their risk.

There are fairly rigid credit score requirements for a personal loan. The Consumer Financial Protection Bureau lists five credit score levels; the first column shows what type of loan someone will qualify for.

Whether they are new to accessing credit or have not managed credit well in the past, a borrower with a FICO® score below 620 will find it difficult to secure a loan from a traditional lender. Many online lending platforms allow consumers to search a network of subprime personal loan lenders to find the best deal. Borrowers submit a loan application online to prequalify.

In general, subprime loans have certain characteristics. They may require a larger down payment for a mortgage or auto loan. For example, someone with a fair credit score who takes out a car loan may have to pay 5% down, whereas someone with poor credit might have to put 10% down. A subprime loan, however, may come with an adjustable interest rate or a fixed interest rate, and the term may vary from several months to several years.

Types of Subprime Loans

There are three main types of subprime loans: interest-only, fixed-rate, and adjustable-rate.

Interest-Only Subprime Loan

An example of an interest-only loan is an adjustable-rate mortgage where the borrower pays only the interest for the first few years before beginning to cover some of the principal. If interest rates have gone up at the end of this period, the payments can become much higher and more difficult to afford.

Fixed-Rate Subprime Loan

Fixed-rate subprime loans allow the borrower to lock into a fixed interest rate for the life of the loan. The monthly payments don’t change, so there are no surprises for the borrower. However, the terms of these loans are longer, and borrowers pay more interest over the life of the loan.

Adjustable-Rate Subprime Loan

Interest rates on an adjustable-rate subprime loan are fixed for an initial period. After that, the interest rate will become variable, and your monthly payments will go up and down with market interest rates.

Pros of Subprime Personal Loan

The pros of a subprime personal loan can be summed up as “perceived affordability” for those who can’t qualify for prime personal loans.

Adjustable Interest Rate

Adjustable interest rates are a double-edged sword. On the one hand, subprime loans with an adjustable rate are attractive because the initial rate is low. This frees up cash that savvy borrowers can use to earn money elsewhere or pay off the loan principal sooner. However, once the initial period is over, the rate can skyrocket with market rates.

May Enjoy Flexibility of Funding

The lump sum a personal loan provides can usually be applied to help the borrower’s finances in a variety of ways, from financing a wedding to paying off a major car repair or dental bill. Also, if the rate is fixed and gets locked in as interest rates climb, this can benefit the borrower, keeping monthly costs low and having some wiggle room in one’s budget to pay down debt.

Cons of Subprime Personal Loans

The perceived affordability of subprime personal loans comes with trade-offs.

Higher Interest Rate

Subprime loans have significantly higher interest rates than prime loans. That means a subprime borrower can pay much more in interest over the life of their loan.

For example, the average personal loan rate for a borrower with a credit score of 720 to 850 in January 2025 was 11.30%, while the rates were 20.28% for those with credit scores between 300 and 629. So if you are a subprime borrower and see offers saying rates can range from, say, 8.00% to 35.99%, expect that you may qualify for APRs at the higher end.
Also note that an adjustable rate loan may have a low initial interest rate, but higher rates can increase your monthly payments substantially. How economic fluctuations will impact your loan can be hard to predict.

Higher Fees

Subprime personal loan lenders charge higher fees to subprime borrowers to cover the cost of potential default.

What Credit Score Is Required for a Subprime Personal Loan?

According to the Consumer Financial Protection Bureau, credit scores of 619 and below qualify for a subprime personal loan. Here are the typical ranges of credit scores, which span from 300 to 850:

•   Under 580: Poor

•   580-669: Fair

•   670-739: Good

•   740-799: Very good

•   800 or more: Exceptional or excellent

The average credit score in the U.S. at the end of 2024 was 717.

The Impact a Subprime Personal Loan Has on Your Credit

Taking out a subprime loan will not affect your credit score. When a lender runs a credit check on a potential borrower, it affects the credit score by fewer than five points, but that is the same regardless of the type of loan.

On the other hand, how you manage the payments can impact your score. Making regular payments can build your credit because it contributes positively to your payment history. You may then be able to qualify for a prime-rate loan once you have paid down your debt.

Top 3 Subprime Loans

Here are three subprime lending platforms to consider, drawn from online research conducted in early 2025. Lending platforms allow borrowers to search a network of subprime lenders for the best loan terms.

Upstart.com

Loans are available from $1,000 to $50,000. The subprime personal loans can be used as debt consolidation loans or to finance a wedding, vacation, or medical expense. The origination fee can typically range from 0% to 10% of the loan amount, withheld at the start of the loan term, which is usually between 36 and 60 months. Interest rates as of January 2025 ranged from 7.80% to 35.99% APR (annual percentage rate).

Upstart says that one credit report of 300 can help an applicant qualify, and those who are too new to credit to have a score may still be able to access funds.

OneMain Financial

Loans are available from $1,500 to $20,000. Funds are deposited into the borrower’s bank account the next business day. APRs ranged from 18.00% to 35.99% in January 2025, with terms of 24 to 60 months. Origination fees can be a flat fee of up to $500 or up to 10% of the loan amount.

While they don’t publish a specific minimum credit score to qualify, OneMain Financial says loans are available to those with credit scores in the fair and poor ranges.

PersonalLoans.com

Another approach can be to use a site that aggregates offers from a network of lenders. At PersonalLoans.com, loans can be available from $250 to $35,000. Funds are deposited into the borrower’s bank account within one business day.

Lenders from the site’s network offer APRs up to 35.99%, and loan durations are typically from 90 days to 72 months. Fees will vary, as will credit scores required, but a quick search can provide options for many subprime borrowers.

Getting a Subprime Loan

Subprime personal loan lenders list few requirements. But the process for a subprime loan is generally the same as the steps to apply for a personal loan with good credit.

1.    Check your credit score. Look for any errors on your report that could be erased to boost your score. (Checking your own score doesn’t affect your rating.)

2.    Compare multiple lenders. Shop around for the best rate and term. Your current bank or credit union might offer good subprime terms to existing account holders.

3.    Select a lender. Make sure you understand the interest rate, repayment terms, and fees.

4.    Gather your documentation. Scan them ahead of time for quick uploading. Applicants are typically required to show:

a.    Proof of identity. Such as a driver’s license or passport.

b.    Proof of address. You can use a utility bill, rental agreement, voter registration card, or insurance card for your home or car.

c.    Proof of income. Choose from a paycheck, W2 or 1099, tax return, or bank statement showing paycheck deposits.

d.    Current monthly expenses. Use a bank statement, and highlight your major monthly bills.

5.    Complete the application. Once approved, you’ll need to sign for the loan to receive the funding.

Alternatives to Subprime Personal Loans

Subprime personal loans are not ideal. If you find yourself in the bad credit score range, consider alternatives like borrowing from friends or family, getting a cosigner to help you get a loan or credit card, or selling some of your assets to provide immediate cash.

For the future, try to build your credit by paying debts on time and lowering your debt levels, among other moves. In addition, it can be wise to check your credit report for errors that could be negatively impacting your score. This can have a positive impact on your efforts to access credit across many financial products, from personal loans to mortgages.

The Takeaway

Subprime personal loans are typically offered by online lenders that cater to customers with a low credit rating who cannot qualify for loans with conventional financial institutions. Subprime lenders charge high-interest rates and financing fees to cover the risk of default. You can choose a fixed or adjustable interest rate.
If you build your credit score higher, you may have more options, including personal loans with more favorable rates and terms.

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

FAQ

What credit score do you need to get a subprime personal loan?

According to the Consumer Financial Protection Bureau, credit scores of 619 and below qualify for a subprime personal loan.

What are subprime personal loans?

A subprime personal loan caters to borrowers with subprime credit. That means they are considered at a high risk of default, so a lender will likely charge them a higher interest rate and fees to cover the cost of their risk.

What are the requirements for subprime personal loans?

To obtain a loan, borrowers must submit a loan application online and provide financial documents to show they can manage the payments.

Photo credit: iStock/shapecharge

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.

SOPL-Q424-067

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

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

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

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

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

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

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

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

How to Qualify for a $50,000 Personal Loan

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

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

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

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

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

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

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

Understanding the Costs of a $50,000 Personal Loan

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

Interest Rates

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

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

Fees

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

Total Repayment Cost

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

Monthly Payment Amount

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

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

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

How Much Do You Really Need?

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

Can You Afford the Monthly Payment?

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

Is a Personal Loan Your Best Financing Option?

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

How Will the Loan Affect Your Credit?

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

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

What Are the Pros and Cons of Borrowing?

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

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

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

FAQ

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

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

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

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

Is it hard to get a 50k personal loan?

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

Photo credit: iStock/undefined undefined

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

SOPL-Q424-066

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

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

What Is a Short-Term Loan?

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

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

Recommended: Personal Loan Guide for Beginners

How Do Short-Term Loans Work?

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

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

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

What Can You Use a Short-Term Loan For?

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

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

Recommended: Guarantor vs. Cosigner: What Are the Differences?

Example of a Short-Term Loan

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

How Long Is a Short-Term Loan?

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

Characteristics of Short-Term Loans

Short-term loans have unique features, such as:

•   Smaller borrowing amounts compared to other loans.

•   Typically offered as unsecured loans.

•   High annual percentage rates (APRs).

•   Short repayment periods.

•   Sometimes weekly payments are required.

Benefits of a Short-Term Loan

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

High Approval Rates

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

Online Application

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

Quick Access to Funds

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

Lower Accrued Interest

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

Lower Credit Score Requirements

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

No Collateral

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

Disadvantages of a Short-Term Personal Loan

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

Lower Limit

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

May Lead to a Cycle of Debt

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

Types of Short-Term Loans

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

Payday Loans

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

Installment Loans

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

Lines of Credit

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

Merchant Cash Advance

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

Invoice Financing

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

Short-Term Loan vs Long-Term Loan

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

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

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

Typical Requirements to Get a Short-Term Loan

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

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

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

Personal Loan Options From SoFi

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

The Takeaway

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

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

Photo credit: iStock/kitzcorner

About the author

Ashley Kilroy

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

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.

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You’ll likely need a credit score in the Good range (670 to 739) or higher to qualify for a $20,000 personal loan with a competitive interest rate. If your credit rating is Poor or even on the lower end of Fair, you may have difficulty getting approved for a personal loan of that size.

Personal loans offer relatively low interest rates compared with other options, such as high-interest credit cards. Ultimately, the interest rate will depend on the size of your loan, the term, and your credit score.

Here’s a closer look at what it takes to apply for a personal loan.

Why Choose a $20,000 Personal Loan

Let’s start with the basics: A personal loan is money you borrow from a bank, credit union, or online lender, which you then pay back in regular installments with interest over a set number of years. You can use the funds for nearly any purpose, but many borrowers choose to put the money toward consolidating debt, paying for home repairs, or covering an unexpected expense.

💡 Quick Tip: Planning your dream wedding? A $20,000 wedding loan can help cover venue costs, catering, attire, and more—allowing you to focus on enjoying your big day.

A personal loan for $20,000 has some advantages over other financing options, such as high-interest credit cards.

•   Flexible terms. With a $20,000 personal loan, you may be able to select the repayment terms that best fit your budget and financial goals. You’ll also likely have a fixed interest rate. This means you’ll pay the same amount each month over the life of the loan, which can be easier to budget for.

•   Competitive interest rates. A strong credit profile and steady income can help you qualify for the lowest rate available. Shop around to ensure you get the best deal.

•   Fast, easy application process. Compared to some other financing options, applying for a personal loan is a relatively simple process. To avoid hiccups, make sure you understand your options, meet the lender’s requirements, and gather the necessary paperwork ahead of time.

Recommended: What Are Personal Loans Used For?

Factors to Consider Before Applying for a $20,000 Personal Loan

Twenty thousand dollars is a sizable chunk of money — and you can do a lot with it. But applying for a loan of that size is a major decision, and there are questions to consider ahead of time.

How Is My Financial Situation?

To help boost your chances of getting approved for a loan, it’s a good idea to take stock of your finances. Determine how much you’ll need to borrow. Check your credit report and fix any inaccuracies you see. And calculate your debt-to-income (DTI) ratio — a good rule of thumb is to maintain a ratio of 36% or less.

Can I Afford the Monthly Payments?

Remember, when you take out a loan, you’re taking on more debt. Crunch the numbers and see if paying it off will put a strain on your finances. Using a personal loan calculator can give you an idea of how much you’d need to come up with each month.

How Will Applying for a $20,000 Loan Impact My Credit Score?

When you apply for a loan, the lender will likely do a hard pull of your credit. This can cause your credit score to drop temporarily by a few points.

How to Apply for a $20,000 Personal Loan

To secure your money, you’ll need to get approved for a personal loan. Once you know how much you want to borrow, you may consider getting prequalified for a loan. Lenders will ask you to provide basic information, including your address, income, and Social Security number. They may then perform a soft credit check that won’t hurt your credit score.

Finally, they’ll offer you a prequalified quote, including how much money you qualify to borrow, your monthly payment, and your interest rate. You can use this process to shop around with a few lenders to secure the best quote.

Once you’ve decided which lender to go with, you’ll submit an application. You’ll need to provide proof of income, address, and employment, and you’ll need to submit to a hard credit check.

It typically takes anywhere from one day to one week to get approved for a personal loan. Once you are approved, review the offer and the loan’s terms and conditions. If everything looks good, then sign the loan agreement and the lender will disburse the funds.

If the terms aren’t right for you, you have the option to apply with a different lender. But note that every time you apply for a loan, the lender will perform a hard inquiry, which can temporarily cause your credit score to drop by a few points.

Recommended: 11 Types of Personal Loans

Eligibility Requirements for a $20,000 Personal Loan

When applying for a $20,000 loan, there are certain criteria you’ll need to meet in order to be approved. These vary by lender but typically include:

•   A minimum credit score. A FICO® Score in the Good range (670 to 739) or higher will help you qualify for loans with better interest rates from a wider variety of lenders. If you have Poor credit (a FICO Score of 300 to 579), or even in the low end of the Fair range (580 to 669), you may have difficulty getting approved for a personal loan.

•   Proof of a steady source of income. Examples may include pay stubs, tax return documents, and bank statements.

•   Age and citizenship requirements. In general, you’ll need to be at least 18 years of age and a legal U.S. citizen.

•   DTI ratio. As we mentioned, lenders usually prefer a DTI ratio below 36%.

Understanding the Loan Repayment Process

Repaying a loan means paying back the principal amount (the original sum of money you borrowed) plus interest. Payments are usually paid in monthly installments over the agreed-upon length of your loan.

Staying on top of those payments is crucial. Not only do timely payments help you establish or build a positive credit history, they also mean you can avoid costly late fee penalties. Want to pay extra every now and then? Talk to your lender or check your loan agreement first to find out if you can make additional payments without being slapped with a prepayment penalty.

Because on-time payments are good for your credit — and your credit score — it’s important to speak up if you’re having trouble making payments. Consult your lender and ask if they’d be willing to work with you on adjusting your loan terms or setting up a new payment plan.

The Takeaway

To get the best terms and interest rate for a loan for $20,000, you’ll likely need a Good credit score (670 to 739). But no matter your score, shop around and consider using prequalification to find the loan that’s best for you.

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

FAQ

How long does the personal loan application process take?

Once you have all the necessary paperwork in order, you may be able to complete a personal loan application in just a few minutes. However, it can take anywhere from one to seven days to be approved and receive your funds.

What is the typical repayment period for a $20,000 loan?

Personal loan terms are generally anywhere from two to seven years. However, this can vary by lender. Typically, shorter terms will carry higher monthly payments and lower interest rates, while longer terms will have smaller monthly payments and higher interest rates.

Can I use the loan for any purpose?

One advantage of a personal loan is that you can use the funds for nearly any purpose. In many cases, borrowers take out a loan to consolidate high-interest debt or pay for expensive bills or home renovations.

Photo credit: iStock/AsiaVision

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.

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