SoFi

A personal loan is a type of loan offered by many banks, credit unions, and online lenders. Unlike a mortgage loan or car loan, which specifies what the money should be spent on, a personal loan doesn’t have as many restrictions. Typically, you can use the funds from a personal loan to pay for a wide range of expenses.

Various factors will influence which type of personal loan is right for you, like how much money you plan to borrow, your credit and income, and how much debt you already have. To make the best selection for your unique needs, however, it’s important to understand the different types of personal loans there are.

Unsecured or Secured

A common type of personal loan is an unsecured personal loan. This means there’s no collateral backing up the loan, which can make them riskier for lenders. Approval and interest rates for unsecured personal loans are generally based on a person’s income and credit score, but other factors may apply.

Unlike an unsecured loan, there is some sort of collateral backing up a secured personal loan. For example, think of a home mortgage — if the borrower does not make payments, the bank or lender can seize the asset (in this case, the home) that was used to secure the loan.

Since secured loans involve collateral, lenders often view them as less risky than their unsecured counterparts. This can mean that secured personal loans might offer a lower interest rate than a comparable unsecured loan.

Here’s a comparison of some of the features of unsecured and secured personal loans:

Recommended: Choosing Between a Secured and Unsecured Personal Loan

Variable or Fixed Interest Rate

A personal loan with a fixed interest rate will have the same interest rate for the life of the loan. This also means you’ll have the same fixed payment each month and, based on your scheduled payments, can know upfront how much interest you’ll pay over the life of the loan.

On the other hand, the interest rate on a variable rate loan may change over the life of the loan, fluctuating based on the prevailing short-term interest rates. Typically, the starting interest rate on a variable rate loan will be lower than on a fixed rate loan, but the interest rate is likely to change as time passes. Variable rate loans are generally tied to well-known indexes.

If you’re trying to decide on a variable or fixed-rate personal loan, this summary might be helpful (you might also consider crunching the numbers using a personal loan calculator):

Debt Consolidation Loan

This type of personal loan refinances existing debts into one new loan. Ideally, the interest rate on this new debt consolidation loan would be lower than the interest rate on the outstanding debt. This would allow you to spend less in interest over the life of the loan.

With a debt consolidation loan, you may only have to manage one single monthly payment. This streamlining of monthly debt payments is another major perk of this type of loan.

Cosigned Loan

If you’re struggling to get approved for a personal loan on your own, there are circumstances in which you can apply for a loan with a cosigner. A cosigner is someone who helps you qualify for the loan but does not have ownership over the loan. In the event that you are unable to make payments on the loan, your cosigner would be responsible.

Co-borrowers and co-applicants are other terms you might hear if you’re interested in borrowing a personal loan with the assistance of a friend or family member. A co-borrower essentially takes out the loan with you. Unlike a cosigner, your co-borrower’s name will also be on the loan, so they’d be equally responsible for making sure payments are made on time.

Meanwhile, a co-applicant is the person applying for a loan with you. When the loan application is approved, the co-applicant becomes the co-borrower.

Personal Lines of Credit

Slightly different from a personal loan, a personal line of credit functions similarly to a credit card. It’s revolving credit, which typically means there is a maximum credit limit, a required monthly minimum payment, and when the debt is paid off, money can be withdrawn again.

The funds in a personal line of credit are generally accessed by writing checks or using a card, or by making transfers into another account.

Interest rates on a personal line of credit may be lower than the interest rates on a credit card. Like personal loans, there are both unsecured and secured personal lines of credit.

Credit Card Cash Advances

Some credit cards offer the option to borrow cash against the card’s total cash advance limit. This is called a credit card cash advance. The available cash advance amount may be different than the total available credit for purchases — that information is typically included on each credit card statement.

Depending on the credit card company’s policy, there are a few ways to secure a cash advance: you can use your credit card at an ATM to withdraw money, borrow a cash advance from a credit union or bank, or request a cash advance from the credit card company directly.

Cash advances typically have some of the highest rates around. There are often additional credit card fees associated with a cash advance transaction. Check your credit card disclosure terms for full details before taking a cash advance.

Different Types of Personal Loan Uses

The common uses for personal loans are wide-ranging. Here are some of the reasons why people consider borrowing money with a personal loan.

Planning a Wedding

The dress, flowers, catering, photographer, venue fees — the list of wedding expenses can go on and on. A personal loan for weddings is one option that you can use to cover all or part of costs. Just keep in mind that this will involve going into debt, and you will pay interest.

Moving Expenses

Whether you’re moving across the country or just across town, the cost of moving can add up quickly. A personal loan could potentially help you make ends meet as you’re relocating.

And if you want to do a few renovations or upgrades on your new place once you’re moved in, a personal loan could help with that too.

Consolidating Debt

Another reason people use personal loans is to consolidate debt. Debt consolidation could allow you to simplify your repayment since you may have just one payment to keep track of every month after consolidating.

Depending on the rate and terms you qualify for, consolidating your debt could potentially help you save money on interest payments while you pay down your debt.

Taking a Vacation

Planning a vacation? Maybe your niece is getting married in Greece or you and your partner are planning a honeymoon. If budgeting and saving aren’t enough to get you to your vacation goal, a vacation loan could be one option to help you fill in the gaps. Just make sure you’re not taking on debt that you won’t later be able to pay back.

Making a Large Purchase

Whether it’s a new furnace, new patio furniture, or an engagement ring, if the cost of your dream item is a little out of your budget, a personal loan could help you afford the option you really want.

The Takeaway

Armed with some knowledge about types of personal loans, you may be ready to make an educated decision about whether or not a personal loan is right for you.

As you consider your options, take a look at SoFi. You can find out if you pre-qualify for a personal loan, and at what rates, in just a few minutes. Plus, as a SoFi member, you’ll be eligible for additional membership benefits like career coaching.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

SOPL0223010

Credit cards and personal information can (and do) get hacked or stolen. Because of this unfortunate reality, it’s important to know how to freeze your credit. A credit freeze can help prevent identity theft or obstruct bad actors from taking out new loans or accounts in a borrower’s name.

Freezing credit isn’t as scary as it might sound. In fact, once you know how to freeze (and unfreeze) your credit, it can be quite useful in the right situations.

What Is a Credit Freeze?

A credit freeze, also known as a security freeze, allows individuals to limit access to their individual credit report. By freezing their credit, the person makes it more difficult for an identity thief to open a new credit account or loan in their name. This is due to the fact that creditors generally review credit reports before okaying new lines of credit, known as a hard credit inquiry.

However, freezing one’s credit does not prevent a person from viewing their free annual credit report. Moreover, it won’t restrict a person from opening a new account in their own name. They’ll simply need to unfreeze their credit to do so (more on unfreezing later).

Recommended: What’s the Difference Between a Hard and Soft Credit Check?

What Does Freezing Credit Actually Do?

A credit freeze does not actually freeze all outstanding accounts, such as credit cards and loans. Instead, it simply limits others from viewing a person’s credit reports. Under a credit freeze, only a limited number of entities will still be able to view a person’s file, including creditors for accounts that individual already holds and certain government entities.

This means that credit bureaus can’t give out personal information about a borrower with a frozen account to new lenders, landlords, hiring managers, or credit card companies. Typically, this halts the lending, renting, and hiring process — as well as anyone attempting to steal a person’s identity and open a new account in their name.

Freezing Credit: What’s the Process?

If a person wants to freeze their credit, they need to reach out to at least the three major credit bureaus:

•   Equifax : 1-800-349-9960

•   TransUnion : 1-888-909-8872

•   Experian : 1-888-397-3742

People can take it one step further by reaching out to two lesser-known credit bureaus, Innovis (800-540-2505) and the National Consumer Telecom & Utilities Exchange (866-343-2821).

Typically, the agencies will ask for a Social Security number, birth date, and other information confirming a person’s identity prior to freezing their account. The bureaus will then give the person a password, which they may use to unfreeze their account. Make sure to store this information in a safe place.

Does Freezing Credit Cost Anything?

It costs nothing to freeze and unfreeze one’s credit. This is thanks to the Economic Growth, Regulatory Relief, and Consumer Protection Act, which mandates that credit bureaus must offer the service free of charge to everyone.

The credit bureaus must fulfill the request within one business day when a consumer requests a freeze through any method aside from mail. When consumers request to lift the freeze by phone or online, however, the credit bureaus must do so within one hour. This frees up the consumer to quickly do what they may need to do, whether that’s applying for a new apartment or one of the various types of personal loans.

Differences Between a Credit Lock and a Credit Freeze

A credit lock works in much the same way as a credit freeze, allowing consumers to protect their credit reports against bad actors. But, a credit lock can come with a bit more convenience, as borrowers can opt to open and close their locked credit via an app (rather than needing to reach out to each credit bureau with their password to unfreeze it).

While a credit freeze is complimentary thanks to the federal mandate, a credit lock may require paying a small fee. For example, Equifax offers credit locks for free, while TransUnion offers a free lock with its TrueIdentity product or as an add-on to other subscription services. Experian, meanwhile, only offers credit lock as part of a paid subscription.

Just as you’d crunch the savings numbers with a personal loan calculator, make sure to weigh the costs and benefits between these two options as well.

When to Consider a Credit Freeze

It’s really up to individual consumers and their own risk tolerance to decide when it’s time to freeze their credit report. That being said, if a person isn’t actively shopping for a personal loan or a new credit card, for instance, it may be a good idea to freeze their credit preemptively. This way, a consumer can feel a bit more confident that their credit information is in safe hands.

Another time to consider a credit freeze is when a borrower believes their data may have been breached, or if their Social Security number was recently disclosed, made public, or stolen.

How to Unfreeze Your Credit

Unfreezing credit is simple. All a consumer has to do is reach out to the credit bureaus by phone or online and plug in the password or PIN provided to them when they first froze their credit. Generally, it takes a few minutes for the account to become unfrozen.

A person can choose to unfreeze their report at one or all of the credit bureaus, but they will have to contact each individual credit bureau separately. They also need to go through the entire process again if they ever want to re-freeze their credit down the road.

Individuals can ask to unfreeze their credit for a specific amount of time, such as if they are applying for and hoping to get approved for a personal loan or need someone else to access their account temporarily. Then, the freeze should return automatically when that period ends.

Alternatives to Freezing Credit

While not overly complex, freezing and unfreezing one’s credit can be time-consuming. Additional options are available to consumers.

Setting Up Credit Monitoring

Those who aren’t interested in freezing their accounts might instead consider signing up for a credit monitoring service. While these services charge a fee, they’ll alert users to any and all activity on their credit report. So, any time someone requests information, the person would find out and could then confirm or deny the authenticity of the request.

This could help stop any potential identity theft in its tracks. Still, it should be noted that this service cannot fully prevent theft, and the consumer may not know their identity was stolen until after the fact.

Requesting a Credit Report

For those interested in monitoring their credit for free, it’s possible to request a no-cost copy of one’s credit report each year from all of the major credit bureaus. The consumer might then review the report, in detail, to ensure they recognize all of the activity and accounts described.

If the consumer spots anything out of line, they can then take steps to flag and fix it.

Consolidating Credit Card Debt

Another way that some consumers choose to keep track of their credit is by consolidating credit card debt with a personal loan from a private lender. Taking out an unsecured personal loan with SoFi, for instance, could help substantially lower the amount a person pays each month to different credit card companies.

By consolidating credit card debt into a single personal loan — one of the common uses for personal loans — a borrower may be able to take advantage of a single fixed-rate debt rather than juggling several high-interest rate cards. Additionally, having a single loan to repay each month can make it easier to monitor payment activity.

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.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

SOPL0223006

If you find yourself struggling with debt, it’s important to understand what may happen to your debt so you can better work through the situation. Along the way, you may come across either a debt buyer or a debt collector. Both of these services are used by lenders, like banks, to move debts off of their liability balance sheets.

While these two services may sound similar, a debt buyer vs. collector performs different tasks. Debt buyers purchase past-due accounts from lenders, whereas debt collectors work on behalf of whoever owns the debt in an attempt to get the borrower to pay.

When and Why Do Companies Sell Your Debt?

A borrower will likely only ever deal with the company they’re borrowing from — so long as they make payments on their debt regularly and on time. However, if the borrower does not make timely payments, the debt may get sold to a third party, known as a debt buyer.

The lender will sell the debt in an effort to lower their liability. There’s no real timetable for when debt may be sold or go into collections — it can depend on the state you live in, the lender’s policies, and the type of debt it is. Debt collectors can then attempt to collect the debt from the debtor.

What Is a Debt Buyer?

Technically a type of debt collector, a debt buyer is a company that purchases past-due accounts from a business, such as a bank. They typically purchase the debt for a small percentage of what’s actually due to the original lender. The amount a debt buyer pays for debt can vary, but it’s often just cents on the dollar.

For example, a debt buyer may only pay $100 for a $1,000 debt from the original lender. This means that if the new debt buyer actually collects the debt they purchased, they will make a $900 profit. Debt buyers can typically purchase older debt for even lower amounts because it’s less likely to actually get collected.

Debt buyers don’t typically do this as a one-off purchase. Instead, they’re usually in the business of purchasing many delinquent debts at once to increase their odds of turning a profit. This strategy has the potential to be quite lucrative. If, for example, a debt buyer purchases 10 different $1,000 debts at $100 apiece, the buyer needs just one person to pay their debt to break even, and just two out of the 10 people to pay their debts to turn a profit.

What Is a Debt Collector?

Debt collectors are third-party companies that collect debts on behalf of other companies. They can attempt to collect debts on behalf of the original lenders, or they can attempt to collect debts for debt buyers.

Debt buying companies may also function as debt collection agencies to collect the debts they’ve purchased. But a debt-buying company can also assign debts to another third-party debt collecting company, paying it a portion of the profit they make when the debt is paid.

To get the debt paid, debt collectors will typically attempt to contact the original debtor through letters and phone calls, letting them know what’s owed and attempting to convince them to pay the debt. Collectors will often use the internet to find a person or even go as far as hiring a private investigator. Debt collectors also can look into a person’s other financial information, such as their bank or brokerage accounts, to assess if they’re theoretically able to repay their debts.

However, a debt collector typically cannot seize paychecks. The only way a collector may be able to seize a paycheck or garnish wages is if there is a court order, known as a judgment, requiring the debtor to pay. For this to happen, the debt collector must first take the debtor to court within the debt’s statute of limitations and win the judgment. Still, there could be other negative consequences, such as collectors reporting a debtor to credit agencies, which could affect their credit score for some time to come.

Debt collectors often get a bad reputation for using aggressive tactics. The federal government introduced the Fair Debt Collection Practices Act to protect people from predatory practices. The law dictates certain reasonable limitations under which a debt collector can contact the debtor. If the collection company violates the law, the debtor could bring a lawsuit against it for damages.

How to Avoid Collections and Pay Off Debt

Paying off all debt on time is the best way to avoid encountering either a debt buyer or a debt collector. But if you’ve found yourself in debt, don’t despair. Rather, take a bit of time to plot out the best method of repayment for your financial situation, which could entail getting into the nitty gritty of your spending or crunching the numbers with a personal loan calculator.

Here are some of the different strategies to pay off debt you might consider:

•   Creating a monthly budget: This can help to track spending and identify potential areas to cut back in order to pay off debts faster. After sitting down and looking through your monthly expenditures, you might be surprised how much fat there is to trim. Then, put all of that extra cash toward paying down your debts.

•   Using the snowball or avalanche method: The snowball method focuses on paying off your debts in order of smallest to largest balances, while continuing to pay the minimum due on each debt. With the avalanche method, you’d target the debt with the highest interest rate first while continuing to make minimum payments on other debt balances. In both methods, after the first debt is paid off, the amount that was going toward that debt is put toward the second debt on the list, and so on, thus helping to pay down each consecutive balance as fast as possible.

•   Consolidating your debts: Another option to try is consolidating debts with a debt consolidation loan, which is one of the types of personal loan. Typically, a debt consolidation loan offers lower interest rates than credit card interest rates, which can make those debts more affordable and easier to pay off. This is why debt consolidation is among the common uses for personal loans. Plus, with a debt consolidation loan, you’ll just have one monthly payment to stay on top of.

Recommended: Get Your Personal Loan Approved

The Takeaway

A debt buyer vs. collector plays a different role when it comes to debt, but they are both parties you might encounter if you’re way past due on payments. Debt buyers purchase debt from lenders, often for pennies on the dollar. Meanwhile, debt collectors can take a number of steps in an effort to collect owed debt on a company’s behalf, including reporting that debt to the credit bureaus.

As such, it’s worth taking steps to avoid this situation, whether that’s the debt avalanche method or consolidating your debt with a personal loan. SoFi personal loans offer low fixed rates and no fee options, and make it possible to get out of credit card debt by having a payment end date. Personal loans can be used to pay off credit cards or other high-interest debt. Best of all, it takes just 1 minute to apply.

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.

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.

SOPL0223008

Some people may have emergency savings to dip into or family or friends who can help them out if the unexpected happens. But for those who can’t access such resources, help may come in the form of a hardship loan, a type of loan offered to help people get through financial challenges, such as unemployment or medical debt.

Taking out a hardship loan can offer the cushion needed until a person’s financial prospects brighten. There are a variety of hardship loans to consider, from personal loans to home equity borrowing, and each has its own application requirements.

What Is a Hardship Loan?

A hardship loan doesn’t have an official definition, but many personal finance institutions may offer their own version of hardship loans. At its core, a hardship loan is a loan that can help you get through unexpected financial challenges like unemployment, medical bills, or caregiving responsibilities.

What Can You Use a Hardship Loan For?

As one of the types of personal loans, a hardship loan typically works much like any standard personal loan. The borrower receives a lump sum of money to use as they need, with few limitations. Potential uses could include:

•   Rent or mortgage payments

•   Past-due bills

•   Everyday expenses like groceries and transportation

•   Medical needs

A hardship loan could overwhelm already strained finances, however. Debt in any form will have to be repaid eventually, with interest, even in the case of hardship loans.

Hardship Borrowing Options

When you’re experiencing financial difficulties, you may feel the need to make a quick decision. But assessing your options can help you find the best solution for your needs and financial circumstances. Here are some options you may consider when looking for financing during times of hardship.

Personal Loans

A personal loan allows you to borrow a lump sum of money, typically at a fixed interest rate, that you’ll then repay in installments over a set amount of time. Unlike a credit card, which is revolving debt, a personal loan has a set end date. This allows you to know exactly how much interest you’ll pay over the life of the loan (a personal loan calculator can always help with that determination, too).

The common uses for personal loans are wide-ranging. In addition to using a personal loan to help cover current expenses, you could also use personal loans to consolidate high-interest debt that you may have incurred, whether due to hardship or other reasons.

Typically, personal loan interest rates are lower than credit card interest rates, making them an attractive alternative to credit cards. When it comes to getting your personal loan approved, expect lenders to look at your credit history, credit score, and other factors.

Credit Cards

Some people also may use credit cards to cover hardship expenses. While this strategy can help in the moment, it can lead to larger bills over time.

For instance, a credit card that offers a 0% annual percentage rate (APR) could allow you to minimize interest charges throughout the promotional period. However, you’ll need to ensure the balance is paid in full before the introductory period ends. Otherwise, you could start racking up interest charges quickly, adding to your financial challenges.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is becoming more common as people seek out nontraditional financing. P2P loans are generally managed through a lending platform that matches applicants with investors.

While it may offer more flexibility than a traditional loan, a P2P lending platform still looks at an applicant’s overall financial picture — including their credit score — during the approval process. Like a traditional loan, a P2P’s loan terms and interest rates will vary depending on an applicant’s creditworthiness.

Generally, lenders in the P2P space will report accounts to credit bureaus just as traditional lenders do. So making regular, on-time payments can have a positive effect on your credit score. And, conversely, making late payments or failing to make payments at all can have a negative effect on your credit score.

Recommended: Understanding How P2P Lending Works

Home Equity

If you own your home, you may consider borrowing against your home’s value. You could do this in the form of a home equity loan, a home equity line of credit (HELOC), or by refinancing your mortgage through a cash-out refinancing option.

With a home equity loan, you’ll pay back the amount borrowed (with interest) over an agreed-upon period of time. While a home equity loan is offered in a lump sum, a HELOC is a revolving line of credit that can allow you to withdraw what you need. However, HELOCs often have variable interest rates, which can make it challenging to plan for repayment.

With a cash-out refinance, on the other hand, you’d refinance your current mortgage for more than what you currently owe, allowing you to get a bit of extra cash to use as you need. This process replaces your old mortgage with a new one.

In all of the options outlined above, if you can’t pay back the loan or follow the agreed-upon terms, there’s the potential that you may lose your house.

401(k) Hardship Withdrawal

It also may be possible to withdraw funds from your retirement plan. Under normal circumstances, a penalty typically is incurred for early withdrawal. There’s a chance the penalty will get waived due to certain types of financial hardship, but exceptions are limited.

Additionally, making a hardship withdrawal from your retirement account means a missed opportunity for these funds to grow. This could potentially put your retirement goals at a disadvantage or later require you to come up with an alternative catch-up savings strategy. In other words, really pause to think it through before using your 401(k) to pay down debt or put toward current expenses.

Alternative Options

While you can use personal loans for a variety of financial needs, there may be other options to consider depending on your situation. For example, if you’re a single parent, you might consider seeking out loans for single moms or dads who have sole financial responsibility for their household. Here are some other options you might explore:

•   Employer-sponsored hardship programs: If you’re facing financial hardship, ask your employer if they have an employee assistance program (EAP). Financial assistance might be offered to help employees who have emergency medical bills, who have experienced extensive home damage due to fire or flood, or who have experienced a death in the family. Employees will likely have to meet specific qualifications to receive EAP funds.

•   Borrowing from friends and relatives: Asking for an informal loan from a friend or family member is certainly an option for getting through financial hardship, although not one that should be considered lightly. Having clear communication about each party’s expectations and responsibilities can go a long way to keeping a relationship intact. Consider having a written loan agreement that outlines details about the loan, such as the amount, interest rate (even if it’s nominal), and when repayment is expected.

•   Community-based resources: There may be specific grants within your community available for people with emergency financial needs. Organizations like 211.org help individuals find the assistance they need. Community-based social services organizations also may be able to make referrals to other organizations as needed.

•   Government programs: Federal and state governments list resources on their websites for individuals seeking financial hardship assistance. Depending on your circumstances, you may be eligible for certain government programs that could help reduce expenses for food, childcare, utilities, housing, prescription medication, and others.

The Takeaway

Researching all of your options for financial relief is a wise move. You might find help from government or community resources, your employer, or a friend or family member. Or, you might consider options such as a financial hardship loan, a home equity loan, or a P2P loan.

If you’re looking for financial help in the form of a hardship loan, a SoFi personal loan could be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score^*, and it takes just one minute.

Photo credit: iStock/staticnak1983

^*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOPL0223009

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 or more years.

Nearly 600,000 apprentices were taking part in 27,300 registered apprenticeship programs in 2022, 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 salary is $77,000, the Department of Labor says.

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. 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, as many as six. Whatever the length, apprentices must complete at least 2,000 hours of on-the-job learning plus 144 hours of classroom work.

How Much Do Apprentices Make?

During training, apprentices earn about $17 to $21 per hour, but pay varies by location. Raises are given when new skills are learned.

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 in 2022.

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 nearly $29,000.

Yet the return on investment may appear only after 10 or more years. The ROI for a bachelor’s degree is 38% 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, or scholarships (try this scholarship search tool), 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.

If you decide to pursue a bachelor’s or graduate degree and find that you could use some extra help, a SoFi Private Student Loan could be a lifeline. The loans come with no fees and can cover up to 100% of school-certified costs.

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. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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

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.

SOIS1222005