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Paying for college can be daunting, but there’s good news: Plenty of “free money” is available to help cover the costs. Unlike loans, scholarships and grants don’t require repayment, making them a valuable resource for students looking to reduce debt.

By exploring these options, students can significantly offset tuition expenses and make their college dreams more affordable.

Free Money for College‽

Students can find free money for college through scholarships and grants. Both are gifts that do not need to be repaid, and they reduce the need to take out student loans.

According to the Education Data Initiative, average federal student loan debt based on degree is as follows:

•   $19,270 for associate degree holders

•   $26,190 for bachelor’s degree holders

•   $106,850 for graduate degree holders

To bring these numbers down, students can apply for grants and scholarships, federal work-study, or work a part-time job to help pay for some of their college expenses.

What Are Scholarships?

Scholarships are financial awards designed to help students pay for their education. Unlike loans, scholarships don’t require repayment, making them a valuable form of “free money.” They are typically awarded based on specific criteria and can come from schools, private organizations, nonprofits, or government programs.

Merit-based scholarships reward students for their achievements in academics, athletics, leadership, or other areas of excellence. These awards often require maintaining certain standards, such as a high GPA.

Need-based scholarships, on the other hand, focus on financial need, aiming to assist students from low-income families in accessing higher education opportunities without excessive debt.

Recommended: What Types of Scholarships Are There?

What Are Grants?

Grants are a form of financial aid provided to students to help cover educational expenses, such as tuition, fees, and books. Like scholarships, grants do not need to be repaid, making them a valuable resource for funding education.

Grants are often awarded based on financial need, with eligibility determined through applications like the Free Application for Federal Student Aid (FAFSA®). Common sources of grants include federal and state governments, colleges, and private organizations.

Examples include the Federal Pell Grant, which supports low-income students, and specialized grants for specific fields of study or demographics. Grants make higher education more accessible and affordable.

How Much Does Free Money for College Help?

Scholarships and grants can make a big difference in lightening the college debt load. Below is a chart on how families pay for college.

How Families Pay for College
Average college expenditure in the 2023-24 academic year	$28,409
Parent and student income and savings	37%
Scholarships and grants	27%
Borrowed money	12%
Relatives and friends	2%
Source: Sallie Mae “How America Pays for College 2024” report

Finding Scholarships and Grants

With federal and institutional grants, you are automatically considered for need-based financial aid when you submit the FAFSA.

Finding private scholarships can take more time and effort, though. Ideally, students should start looking for scholarships the summer after their junior year of high school.

Researching Scholarships

Here are ideas to look for scholarships:

•   Consider using a database like Scholarships.com that lets you create a profile with all of your information, which could help you match with scholarships and grants.

•   Use the Department of Labor’s CareerOneStop site to sort more than 9,500 opportunities for financial aid.

•   Use SoFi’s Scholarship Search Tool.

•   Ask college financial aid offices about their scholarship availability and process.

•   See if your employer or your parents’ employers offer college aid.

•   Look for scholarships offered by foundations, religious or civic groups, local businesses, and organizations related to your field of interest.

You don’t have to be a scholar or standout athlete to get a scholarship. Students may have success finding non-academic scholarships for their heritage, interests, or area of study.

Finding those private scholarships and completing the essay and application will take time, however.

Recommended: Search Grants and Scholarships by State

Researching Grants

Researching grants for college requires proactive effort and the use of multiple resources. Follow these steps to find the right opportunities:

•   Complete the FAFSA, as this determines eligibility for federal and state grants, such as the Pell Grant.

•   Check with your college’s financial aid office for institutional grants.

•   Explore websites like Grants.gov or Fastweb for a comprehensive list of grants.

•   Look for grants offered by private organizations, nonprofits, and community groups

Grants are typically awarded in a federal financial aid package. In addition to federal grants, schools may award institutional grants.

Other Options to Help Pay for College

There are many ways to pay for school, and students and their parents may use a combination of methods to cover the cost of attendance, an estimate of the total cost of attending a particular college for one year.

Student Loans

Roughly 70% of college students leave school with debt due to the expense of tuition and fees, room and board, books, and living expenses.

When it comes to private vs. federal student loans, it’s best to use federal student loans first, as they come with borrower protections and benefits that private loans do not offer.

One type of federal student loan is a Direct Subsidized Loan. The government pays the interest on those loans as long as the student is enrolled at least half-time. The interest is also covered for six months after the student leaves school, graduates, or enters a period of deferment.

Not all students or parents will be able to rely solely on federal aid to cover all their bases, though, and that’s where a private student loan could come in handy.

Private student loans don’t come with all the borrower protections and programs that federal student loans do, but they can be used to cover any remaining school-certified costs, here or abroad, from transportation to books and lodging.

Federal Work-Study

The federal work-study program allows students to earn money that can be used to pay day-to-day expenses. Students who demonstrate financial need may be eligible for jobs on or off campus.

Not all colleges participate in the program, so it’s best to speak with your specific college if federal work-study is something you’re interested in.

Does a Student Ever Have to Repay a Grant?

You might have to repay all or part of a federal grant if:

•   You withdrew early from the program for which the grant was given to you.

•   Your enrollment status changed. If, for example, you switch from full-time to part-time enrollment, your grant amount will be reduced.

•   You received outside scholarships or grants that reduced your need for federal student aid.

•   You received a TEACH Grant, but you did not meet the service obligation. In that case, the grant could be converted to Direct Unsubsidized Loans.

If you don’t meet the expectations of a scholarship, such as GPA or credit-hour minimums, you could lose the gift and have to pay out of pocket.

When it comes to sports, the head coach decides whether an athletic scholarship will be renewed. Injury or poor academics can sack an athletic scholarship.

Recommended: FAFSA Tips and Mistakes to Avoid

The Takeaway

Students can get free money for college through grants and scholarships. Grants and scholarships are worth seeking out because they reduce the need to take out student loans. But if you still need to borrow, you can rely on federal student loans, followed by private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

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

FAQ

What is “free money” for college, and why is it important?

“Free money” for college refers to financial aid like scholarships and grants that do not need to be repaid. It’s important because it helps reduce the cost of education, minimizing the reliance on student loans and lowering the financial burden on students and families.

How can students find scholarships and grants?

Students can find scholarships and grants by completing the FAFSA, consulting their school’s financial aid office, using online scholarship search tools, and exploring opportunities from private organizations, nonprofits, and government programs tailored to their qualifications or financial needs.

What are the key differences between scholarships and grants?

Scholarships are often merit-based, awarded for achievements in academics, athletics, or other areas, while grants are primarily need-based, focusing on financial circumstances. Both provide non-repayable funds to help cover educational expenses.

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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).

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

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

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Switching banks doesn’t have to be a difficult process, and it can benefit your financial health. For instance, one reason you might make a change is to earn a more favorable interest rate or pay lower (or no fees). Or you might get a sign-up bonus at a new financial institution. There might be other reasons to switch banks, such as finding one with branches or ATMs that are more convenient to your daily life or one that offers other financial services you are seeking.

While changing banks isn’t usually an instantaneous process, here are the simple steps to follow to make the switch as quickly and easily as possible.

How to Switch Banks in 6 Steps

If you think changing banks is the right path for you, here are the six steps that can make it happen.

Step 1. Research and Find a New Bank

Identify the key benefits you want but currently don’t have and do an online search to compare options. Here are some points to consider as you evaluate options:

•   Interest rates earned on money on deposit. For instance, you might want to look for a high-yield savings account to help your money grow. These can offer several times the interest rate of standard savings accounts. Also, some checking accounts may pay interest, though most do not.

•   Minimum deposit and balance requirements. Certain accounts require you to open the account with a particular sum of money and/or keep an amount on deposit to earn a specific interest rate and/or avoid fees.

•   Fees assessed for accounts. There can be various fees that can eat away at your money, such as monthly maintenance fees, overdraft and NSF (non-sufficient funds) fees, out-of-network-fees, and more.

•   Convenience. If you want a traditional vs. online bank, make sure the branches are near your home and work. Also, if you use ATMs often, check to make sure in-network machines are easily accessible. If you travel frequently, look at the reach of the financial institution’s network.

•   Customer service. Read reputable online reviews and check availability (24/7? Only on weekdays?) for customer support.

•   If you are planning to buy a home soon, you might want to bank with an institution that also offers mortgages to streamline that process. Or you might prefer a bank where you can access personal financial and investing services. Consider your needs carefully.

Step 2: Open a New Account

Found a new home for your cash? Go and open that checking account to get started. You can typically fill out the information needed online, in the bank’s app, or (with traditional banks) in person. Here’s what you will usually need:

•   Valid ID. This typically means government-issued photo identification, such as your state driver’s license or a passport. Other forms of ID may be accepted. When opening an account online, you may be asked for such details as your name, Social Security number, and birthdate, with an image of your ID needing to be uploaded on the spot or in the future. (Worth noting: You usually must be at least age 18 to open your own bank account.)

•   Contact information. This means your address, phone number, and email address will likely need to be provided.

•   An opening deposit. Some banks will allow you to open an account with no money at first (say, you might sign up to have your paychecks direct-deposited going forward) or others will require you to make a deposit of anywhere from $1, $25, $100, or more to start your bank account. If you are signing up for a premium checking account or high-yield account, there may be higher minimums involved.

Now that you know what’s needed to open a bank account, don’t overlook this important point: Don’t whisk every last cent out of your old account into the new account, though you may be tempted to do so to feel as if you are making progress. You may have pending transactions and autopays coming up that will take time to sort out.

Recommended: Interest APY Calculator

Step 3: Make a List of Automatic Payments and Direct Deposits

Here’s a closer look at those pending money movements. If you’re like most of us, you rely on autopay to simplify your banking; the pros of automatic payments are hard to ignore. This means that each month your various bills and subscriptions are seamlessly deducted from your primary account on their due date.

To avoid falling behind on bills or accidentally getting your streaming service suspended, you need to turn off or redirect every automatic payment that currently comes out of the account you wish to close. As you plan to make the switch, here are items you should keep track of:

•   Automatic payments: Take a careful look at which payments are made automatically from your bank account, such as mortgage, utilities, student loans, and more.

•   Recurring payments: Consider what subscription payments you have automatically coming out of your checking account, such as yoga studio memberships or streaming services

•   Recurring outgoing transfers: Look for payments that move to external accounts, such as funds being funneled into a retirement account or a health savings account.

•   Automatic deposits: This might include the direct deposit of paychecks, alimony, Social Security benefits, a tax refund, and other sources of income (such as payouts via P2P transfers, such as PayPal or Venmo for a side hustle).

Take a look at your monthly account statement and make a list of every automatic deduction. Also scan for those irregular automatic deductions (perhaps a quarterly insurance premium payment?). Once you’ve made your list, log in to each of your service provider accounts and change your payment information.

Step 4: Transfer Funds and Update Automatic Payments

You may have already made an opening deposit to your new account, but if not, now it’s time to transfer some funds from your old one to the new one.

It’s often possible to do this online; check with both banks involved to find the best way to transfer the funds. (Keep in mind, you’ll need to leave a bit of cash in your soon-to-be former account, to cover any pending transactions and miscellaneous charges or fees.)

You’ll also want to update any automatic payments you typically receive. This can involve contacting your job’s HR team about changing your direct deposit details or contacting Social Security about how to redirect your benefits.

Recommended: 7 Tips for Managing Your Money Better

Step 5: Monitor Pending Transactions

After you’ve canceled or rerouted all the automatic payments that deduct from the account you want to close, you will need to wait for any pending transactions to clear. These pending transactions are usually for bills or subscriptions that have one remaining payment left before the company can change your payment information. Or it could require an extra pay cycle for your salary to go into your account by direct deposit.

Waiting for all pending transactions to clear ensures that your bills will be paid and your subscriptions will continue without facing any overdraft fees. Make sure there is enough money in the account you wish to close to cover any pending payments. Wait two weeks to one month for any automatic payments to be deducted. Otherwise, you risk incurring fees for overdrafting.

Step 6: Close Your Old Bank Account

Once you have transferred all automatic payments and possible deposits and waited a cycle for those to update, you’re done. It’s time to close your old account.

•   Depending on where it’s held, you may be able to finalize this online or by phone. In other cases (usually at smaller local banks or credit unions), you may have to send a written request or turn up in person.

•   Be sure to transfer out any remaining funds or get a check for the amount left in the account.

•   Whether you close your account online or in person, make sure to request written confirmation that the account has been closed, says the Consumer Financial Protection Bureau. This is a safety-net move to protect you if some issue were to arise. When you receive the letter confirming your bank account is closed, make sure to save it somewhere safe for future reference.

You’re done! You’ve completed the process and switched banks.

Challenges and Considerations When Switching Banks

There are many good reasons to switch banks, but there are times when changing banks may not be worthwhile. So before diving in, think about the following:

•   If you are switching banks to get a sign-up bonus or short-lived perk, is it worth the trouble? Make sure that the amount of money you will gain is worth the effort, and that you won’t be hit with fees that negate the extra money you bring in. (You might look at what online banks offer; they often have lower or no fees.)

•   Check if the new account will require a hard credit inquiry to gain approval. Typically, financial institutions only do a soft pull, but if you are focused on maintaining or building your credit score, you should make sure.

•   Take extra care in tracking your automatic payments and deposits. It’s not uncommon to have more of these electronic financial transactions than you expect, and some can be infrequent or irregular, such as annual payment of a subscription or insurance premium. Forgetting to redirect payments or direct deposits can create a hassle down the road.

The Takeaway

As the personal banking market becomes ever more competitive, you may find yourself thinking about changing banks for the sake of better services, greater convenience, lower fees, higher interest rates, or other features. If you do find a new home for your money, it takes just six steps to make the switch. Yes, it’s a bit of effort, but the payoff can be well worth it.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Are there downsides to switching banks?

If you’re wondering about cons or how hard it is to switch banks, know that changing banks requires just a bit of effort and patience. You will need to complete some forms and move any automatic payments or deposits to your new account, as well as wait a cycle while these update. But changing financial institutions should not involve a charge or impact your credit score.

Is it difficult to switch banks?

To switch banks, you’ll need to identify a new financial institution and fund your new account. Then, you will need to transfer automatic payments, deposits (say, via direct deposit or PayPal), and wait for them to update. Once that happens, you are ready to transfer any remaining funds and officially close your old account.

What is the easiest way to switch banks?

The easiest way to switch banks can be to identify a new financial institution, complete your application, monitor and redirect automatic deposits and payments, wait a billing cycle, and then transfer any remaining funds and close your old account.

How long does it take to switch banks?

While it can take just a few minutes to open a new bank account, it usually is wise to wait a full billing cycle or two so that automatic payments and deposits can be transferred to your new account. Once that happens, you can feel confident in closing your old account.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Editor’s Note: The new FAFSA form for the 2025-2026 academic year is available. Based on early testing by students and families, the process seems to be improved from the 2024-2025 form. Still, it’s best to get started on the form and aim to submit your application as soon as possible.

Applying for federal aid is a crucial step most high school students take while transitioning to college life. Parents going through the college admissions process for the first time, though, may not realize that they also play a huge role in helping their children apply for grants and scholarships through the Free Application for Federal Student Aid or FAFSA.

Applications for the 2025-2026 FAFSA opened on November 21, 2024, and will remain open until June 30, 2026. If you’re looking for facts about FAFSA that will help your child apply for college aid for the 2025-2026 academic year, we’ve compiled some of the most important information on how you can help your child during the FAFSA process.

FAFSA Facts and Tips

Filling out FAFSA for the first time? These facts and FAFSA tips can help you prepare for the application process and offer suggestions for getting the most aid.

1. FAFSA Is Required to Receive Government Student Loans

For those who may be new to the financial aid process, FAFSA is the form students fill out to apply for federal financial aid, including federal student loans. More than 17 million students fill out the FAFSA each year. Your child won’t be eligible for government-funded college aid, such as federal loans or grants if they don’t apply.

Recommended: 12 Steps to Filling Out the FAFSA Form for School Year 2025-2026

2. Your Child Could Qualify for Grants by Filling Out FAFSA

While you can get subsidized or unsubsidized loans through FAFSA, your child may also be eligible for grants. One common federal grant is the Pell grant, which is awarded to first-time undergraduate students who show exceptional financial need, such as coming from a low-income family.

3. It Determines Work-Study Eligibility

Federal work-study is a way for students to earn income at a part-time job while in college. These jobs can be on or off-campus and vary by school, although not all schools participate in the program. You have to fill out FAFSA to determine if you’re eligible for work-study programs.

4. Some Schools Use FAFSA to Determine What Aid They Offer

If the schools your child applies to offer their own aid, such as need-based scholarships, they may use FAFSA to determine eligibility. You may want to check with the schools your child is applying to and ask if they have a separate application for internal scholarships and grants.

Recommended: FAFSA Guide

5. Most Applicants Under Age 24 Are Considered Dependents

Most students under the age of 24 who are neither married nor parents themselves won’t be able to apply as an independent student . As a result, for most incoming freshmen, their parents’ income is counted in the determination of financial need.

6. Your Child Needs Your Information to Apply

If your child is filing as a dependent, then they’ll need some basic information about your finances, such as your income and paid taxes. You may also elect to apply for a Parent PLUS loan at some point, which can help cover your child’s educational expenses if they don’t receive enough in loans and grants to cover costs. Note that you may need to provide additional information to apply for a Parent PLUS loan.

7. High-Income Families May Want to Still Apply

If your family is middle- or upper-class, you may wonder if your child will receive any FAFSA aid. However, applying is free, and family income is just one of many factors considered during the application process. Additionally, your child’s school still may require the FAFSA to consider them for institutional aid, such as non-need based scholarships, so it may be worth applying for even if you don’t think your child will need or receive aid.

8. Grades Don’t Affect FAFSA Eligibility

FAFSA does not have a GPA requirement to apply. However, your child may want to keep in mind that they could lose any aid given to them through FAFSA if they have poor grades for multiple semesters after they receive the aid.

9. Deadlines May Differ by State and School

While the FAFSA doesn’t close until June 30, 2026 for the 2025-2026 academic year, FAFSA application deadlines vary by state and school. State and school deadlines may close prior to the federal deadlines. If you’re not sure what deadlines apply to your student, consider checking with the financial aid office of each school your child applies to and asking what their FAFSA deadlines are.

10. Having Multiple Kids in College No Longer Affects Financial Aid Awards

In January 2024, a new law went into effect that removes the number of family members in college from the financial aid calculation. Before, families with multiple children in college may have qualified to receive more aid. That is no longer the case. However, at the same time, the Pell Grant opportunity has been expanded so that students who might not have gotten a Pell Grant before may now get one. These are two of many changes created through the FAFSA Simplification Act, which aims to simplify the FAFSA form and therefore encourage more families to fill it out.

11. Expected Family Contribution Is Also Changing

Expected family contribution (EFC) is an estimate of how much FAFSA believes families can contribute to the cost of a student’s education. However, as part of the FAFSA Simplification Act, EFC was replaced with the Student Aid Index (SAI), which went into effect for the 2024-2025 academic year.

12. FAFSA Is Changing the Process for Children of Divorce

Before the new simplified FAFSA, in the case when a child’s parents are separated, the custodial parent’s information was included on the form. However, with the new changes, the parent who provides the most financial support to the student is responsible for filling out the FAFSA.

13. Your Child Will Need Their Social Security or Alien Registration Number

As your child prepares to fill out the FAFSA, they’ll need their Social Security or Alien Registration number if they are not a U.S. citizen.

14. Have Certain Nontaxable Income Information at the Ready

On the 2025-2026 FAFSA, there are far fewer questions about nontaxable income for parents than there used to be. What you will still need to provide are such things as the amount of the untaxed portion of any IRAs and pensions you may have, and deductions and contributions to self-employed SEP IRA, SIMPLE IRA, and qualified plans.

15. Your Child May Need to Report Grants and Scholarships

Most first-time college students won’t need to report any grants or scholarships they received. However, they may have to include them on the FAFSA if they had to report them on their taxes, such as:

•   AmeriCorps benefits living allowances and education awards

•   Taxable work-studies, assistantships or fellowships

•   Other grants or scholarships reported to the IRS

If you have any doubts about what types of grants may be taxable, consider consulting a tax professional.

16. Have Bank Statements Available

To fill out FAFSA, you’ll need bank statements for both you and your child. This information helps determine how much aid your child will be eligible for.

17. You Don’t Have to Have a Social Security Number to Sign the Form

If you’re filing the FAFSA online and you don’t have a Social Security number, you can create a federal student aid (FSA) ID without it. Your FSA ID is your login and password. Then you can proceed with filling out your portion of the form.

18. You Don’t Need to File Taxes Before Submitting the FAFSA

If you filed for an extension for your tax return, you can use your W-2 or 1099 statements. But you will need to update the FAFSA once you file. This is because which tax bracket you’re in can impact how much aid your child is eligible for.

19. You’ll Need to Have a List of Assets Ready

FAFSA uses parental assets to help determine aid eligibility. You’ll need to know how much in assets you have, which include (but are not limited to):

•   Money in cash, savings, and checking accounts

•   Non-retirement investments (such as stocks and mutual funds)

•   Businesses

•   Investment farms (in other words, you don’t live on and operate the farm)

•   Other investments, such as real estate and stock options

20. Some 529 Plans Are Also Considered Assets

When filling out information about assets, you’ll also need to provide the value of the 529 College Savings Plans you own. Also, if your dependent child owns a 529 plan, you will need to report it as a parental asset — and not as the student’s asset. However, a 529 owned by anyone else, such as the student’s grandparents, is no longer reported as an asset on the FAFSA.

21. Your Primary Home Doesn’t Need to Be Listed as an Asset

One common FAFSA mistake is listing your primary home as an asset. However, FAFSA does not require you to do so. In fact, listing it as an asset can decrease the amount of aid your child receives.

22. You Don’t Need Your Retirement Information

FAFSA also doesn’t count the value of retirement accounts as assets. Again, including them can inflate the number of assets you have and therefore may decrease the amount of aid your child is offered. However, as mentioned above, you will need to report the untaxed contributions and withdrawals from these accounts on the FAFSA.

23. You’ll Need to Include Each School Your Child Is Applying To

When you and your child fill out the FAFSA, you’ll want to have a list of all the schools your child may be interested in applying to. You’ll need each school’s federal school code to add them to the list of schools you want your FAFSA information sent to, although you can also search for this information on the form itself if you can’t find it on the school’s website. It may be wise to include schools your child isn’t sure they want to apply to yet since it’s easier to simply add the school to the list now than having to send the school your FAFSA information later.

24. Schools, Not the Government, Will Give You Financial Aid Updates

Part of the reason you’ll need to send your FAFSA to schools your child is considering applying to is because schools, not the government, send out financial aid packages. As such, each school your child applies to may offer a different financial aid package.

25. Skipping Information Can Be Costly

Before hitting submit, you might want to double check that every section of the FAFSA is filled out (and accurate). Skipping FAFSA sections may result in delays in your application being processed, errors that prevent you from submitting, or even a decrease in the amount of financial aid you may get.

26. Your Child Will Need to Take Student Loan Entrance and Exit Counseling

Students who receive Direct Subsized or Unsubsidized loans or Direct PLUS loans for graduate students are required to take student loan entrance counseling. If a student is a first-time student loan borrower or a graduate student who has not previously received a Direct PLUS loan, they will need to take entrance counseling before their loans are disbursed. The counseling informs student borrowers about the terms and conditions of their loans, including interest rates, repayment options, and how to avoid default or delinquency.

Your child can take entrance counseling by logging into their account on StudentAid.gov. The session must be completed in one session. It’s important to note that some schools have different entrance counseling requirements, so check with the financial aid office to make sure nothing else is needed.

Similarly, after graduation, federal student loan borrowers need to take mandatory student loan exit counseling to help them navigate how the student loan repayment process works. A reminder will be sent to your child’s email in their last year of school about when this exit counseling is due. However, you and your child may want to consider reviewing student loan exit repayment options before the counseling is due to ensure they pick the best option based on their financial situation.

27. File Early to Get the Most Aid

While it may seem like you have a ton of time to fill out the FAFSA, it may be best to complete it sooner rather than later. Delaying can mean financial aid for your state or school dries up before your child can even be considered for it. Additionally, knowing how much aid each school is offering your child may help them when deciding on which school to attend.

28. You Could Be Selected for FAFSA Verification

After your child receives their student aid report, they may get a message saying they were selected for verification. FAFSA verification is used by some schools to simply verify that students’ FAFSA information is accurate. Some schools randomly select people to be verified, some verify all students, and some may elect not to verify any students.

29. You Can Appeal Your Aid Package

Once your child has their financial aid packages, they may find that they were offered less than they expected or hoped for. If your child’s dream college didn’t offer enough aid (or perhaps even didn’t offer them any aid), they may be able to appeal for more financial aid. This process may be especially important if your financial situation has changed since you and your child first applied for FAFSA. While schools may deny the request, it doesn’t cost you or your child anything but time to ask for more aid.

30. You Can List Unusual Circumstances That Affect Your Finances

Another way to try and increase your financial aid package is by listing unusual financial circumstances both on your FAFSA and in an appeal letter to schools you’re applying to. Some common unusual circumstances include (but are not limited to):

•   Having tuition expenses in elementary and/or secondary schools

•   Experiencing unusual medical or dental expenses not covered by insurance

•   Having a family member become unemployed recently

•   Experiencing changes in income and/or assets that could affect aid eligibility

31. You’ll Have to Reapply Every Year

Once you’ve filed your FAFSA, you may want to keep your login information in a safe place. You’ll need that information to file for FAFSA every year your child is in school, and losing your FSA login information may delay your ability to apply next year. You may also want to set a reminder on your phone or calendar to apply next year, although FAFSA will send you an email reminder when next year’s FAFSA is open.

The Takeaway

Filling out and submitting the FAFSA is an important first step in helping your child pay for college. Knowing how the FAFSA works and how to optimize the amount of aid your child receives can help increase the amount of federal aid they’re offered.

However, if your child’s financial aid package isn’t enough to cover college costs, they may want to consider private student loans. It’s important to note, however, that private student loans don’t offer the same borrower protections as federal student loans. That’s why it’s wise to consider all the options to make the best choice to help pay for your child’s education.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

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

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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).

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

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

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

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

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It’s getting to be that time of year again: tax time. But what happens if you don’t have all your tax information ready to go by April?

While keeping track of everything can be a headache, the good news is, most of your tax information is probably recoverable, even if it doesn’t show up on time. Here’s what to do.

What Paperwork Do You Need to Keep for Taxes?

There are many types of IRS forms that contain the information necessary to file a tax return, whether you’re doing so through IRS Free File or with tax software, a professional preparer, or an accountant.

Income Statements

If you’re an employee of a company, your employer will need to supply a W-2 form, which shows your income, the amount that was already withheld for taxes, and any “elective deferrals” made to a tax-deferred 401(k) or similar employer plan.

Employers have until January 31 to send W-2s.

If you’re self-employed — such as an independent contractor, sole proprietor, member of a business partnership, freelancer, or gig worker — you’ll receive a Form 1099 from each client that paid you $600 or more. It’s specifically a 1099-NEC, which replaced what used to be recorded on Form 1099-MISC, Box 7.

The many types of 1099 forms serve to report income from nonemployment-related sources like freelance work, passive income streams, interest earned from bank accounts, or investment dividends. Which means you might get a 1099 if you’re an employee who has a savings or investment account.

You should receive most of your 1099 forms by January 31 each year to report the prior year’s payments. In certain instances, the1099 due date is February 15.

Recommended: How to File Taxes for Beginners

Interest and Health Care Statements

Other common statements include Form 1098, which comes in several variations and lists expenses that may be tax deductible. Two common ones:

•   Mortgage interest, if you itemize deductions

•   Student loan interest

The IRS requires most 1098s to be sent to taxpayers by Jan. 31 each year.

Form 1095 includes information pertaining to health care coverage. You may get a 1095-A if you had a health care plan from the Marketplace, a 1095-B if you or someone in your household had “minimum essential coverage,” or a 1095-C if you received employer-provided health insurance.

The annual deadline for providers to issue Form 1095s is Jan. 31.

Expense Receipts

If you’re trying to lower your taxable income come tax time (and who isn’t), start by gathering the records you kept in a real or digital folder, or excavating that not-so-carefully kept cache of receipts and bills.

To deduct medical expenses on your federal tax return, you’ll need to itemize your deductions. In addition, your qualified medical expenses must exceed 7.5% of your adjusted gross income. Qualified deductions include:

•   Premiums for medical, dental, vision, long-term care, Medicare Part B, and Medicare Part D insurance that you were not reimbursed for and that were not paid with pretax money.

•   Copays for medical, dental, or vision care.

•   The cost of prescriptions, eyeglasses, contact lenses, lactation aids, medical aids, and medical exam or test fees.

You may be able to claim the child and dependent care credit if you paid for the care of a qualifying person to enable you (and your spouse, if filing a joint return) to work or look for work.

For self-employed individuals, it’s a good idea to save receipts from every business-related purchase and to keep track of utility bills and rent or mortgage information. The home office tax deduction is available to self-employed people who use part of their home, owned or rented, as a place of work regularly and exclusively.

Reasons You May Not Have Gotten Your Tax Forms

First, you’ll want to ensure the form is actually late. Most tax forms should be issued by Jan. 31, but as a general rule of thumb, you may not receive all of your tax forms until closer to Valentine’s Day.

If a form hasn’t appeared by then, a glitch with your address might be the reason. If an employer does not have the right address, a mailed W-2 could be rejected and sent back. An address problem can also trip up the delivery of a 1099.

Make sure payers have your correct address, and, if needed, put in an address forwarding order at your local post office or at USPS.com.

It’s also a good idea to file an IRS change of address Form 8822. The IRS doesn’t update an address based on a change of address filed with the U.S. Postal Service.

You can avoid mail-related delays by signing up for paperless tax forms with your employer and any financial institutions you work with.

What Do You Do If You Don’t Get Your Tax Forms?

If the deluge of heart-shaped candy boxes has come and gone, there are steps you can take to retrieve your information.

What If You Don’t Get Your W-2?

If your employer provides electronic access to your earnings statement, it will typically email an OK to download it. If that message hasn’t appeared by Jan. 31, you might want to check your spam folder. Or you may have just overlooked the email in the slush pile.

If you can’t get your W-2 by mail or electronically, contact your employer’s HR or accounting department.

If you still aren’t able to resolve the problem, you can turn to the IRS. Call 800-829-1040, the IRS’ toll-free service, with the following information:

•   Your name, contact information, and taxpayer identification number

•   Your employer’s name and contact information

•   The dates you worked there

•   An estimate of how much you earned and how much was withheld from your income in federal taxes; pay stubs might help with this part

You may be asked to file Form 4852, which serves as a substitute for Form W-2 if the W-2 can’t be located. On Form 4852, you’ll need to estimate wages earned and taxes withheld. Base the estimate on year-to-date information from your final pay stub, if possible.

You could also try the IRS “Get Transcript” tool, which you can access through your individual online account (if you don’t have an account, you can create one at IRS.gov). Once you’re logged into your account, you can request your wage and income transcript, which shows the data reported on W-2s, the Form 1099 series, Form 1098 series, and Form 5498 series. Keep in mind that information for the current processing tax year may not be complete until the earnings are reported.

What If You Don’t Get Your 1099?

If you have not received an expected 1099 by several days after Jan. 31, when most are due, contact the payer.

If you aren’t sure where the 1099 reporting your investment income or interest earned in a high-yield savings account is, try logging on to your online brokerage or bank account and clicking around. Digital forms are often offered directly to account holders.

The good news is, you aren’t required to attach your 1099s to your tax return unless taxes were withheld from the payments reported on them. So if you have another record of that income — such as year-end account statements — you may file your taxes with that information.

Recommended: Visit the Tax Season Help Center

What If You Don’t Get Your 1095?

If you don’t have your 1095, you can reach out to the source it should have come from. For the 1095-A, log into your Health Insurance Marketplace account and look for the digital version of the form there.

According to the IRS, you should only wait to file if you’re missing Form 1095-A. The other two types, 1095-B and 1095-C, are not required.

What If You Don’t Get Your 1098?

This is another tax document that’s not formally required by the IRS, but it does contain information you probably want to include on your return, since it could translate to a tax deduction.

If you haven’t received your 1098 in the mail, one first step is to log into the account you have with the lender that issued the mortgage or student loan. Again, digital tax documents are often offered directly to borrowers through the online portal. If you can’t find the documents yourself, call the lender’s customer service line. You might also be able to find the necessary numbers on your year-end statement.

What to Do If You Don’t Have Your Stuff Together On Time

If all else fails and you’re simply feeling crunched for time, you can always file for an extension with the IRS, which involves — of course — a form: Form 4868. Individual tax filers, regardless of income, can electronically request an automatic tax-filing extension.

To get the extension, you must estimate your tax liability on the form and pay any amount due, the IRS says.

You can also get an extension by paying all or part of your estimated income tax due and indicate that the payment is for an extension using IRS Direct Pay, the Electronic Federal Tax Payment System, or a credit or debit card.

An extension gives you an additional six months to get your paperwork in order.

Finally, if you use a tax preparer service, whether a human or software product, keep in mind that your information from the prior year is probably on file, which may help fill in some gaps. Taxpayers can also request a transcript of their prior year’s tax return directly from the IRS.

The Takeaway

Tax time can be stressful even for the most organized among us, and missing tax forms can add angst. If tax forms have not materialized by mid-February, don’t hit the panic button. There are workarounds and simple solutions.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Do you get penalized for missing tax forms?

Tax filers are not penalized for missing forms. If they can’t get the forms, they must still file their tax return on time or get an extension to file.

A business may be penalized for failing to issue W-2s, 1095-Cs, 1099-NECs, or 1099-MISC forms by the deadline to do so.

How long does it take to send missing tax forms?

Copies of W-2s can be requested from the IRS. It can take up to 10 days for an online request to be processed, and up to 30 days for a mail or fax request.

Can I look up my tax forms online?

Yes. You can access your personal tax records by logging into your individual online account at IRS.gov. According to the IRS, this is the quickest and easiest way to view or download your tax transcripts, find out how much you owe, check your refund, view your payment history, make a payment, and see your prior year adjusted gross income (AGI).

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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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If you need cash to cover an emergency expense, like a car repair or medical bill, a payday loan or an installment loan are two options you may consider. However, these two loans are different in key ways that are important to understand before making a choice between them. Namely, a payday loan tends to have a short turnaround before you need to pay it off, and typically offers extremely high interest rates.

We’ll explain more about the features of each loan type, and why people choose payday loans vs installment loans.

Understanding Payday Loans

There is no set definition of a payday loan. Generally speaking, they are short-term loans that are due to be paid back on your next payday. Payday loans don’t charge interest per se, but they do charge high fees.

Payday loans are typically for relatively small amounts. In fact, many states limit the amount of a payday loan to $500. Borrowers usually repay the loan in a lump sum on their next payday. The specific due date is often between two and four weeks from when the loan was made.

To repay the loan, borrowers must make out a post-dated check to the lender for the full balance of the loan plus any fees. As an alternative, borrowers can give permission for the lender to electronically debit the funds from their bank account on a certain date. If the borrower doesn’t repay the loan by the due date, the lender can cash the check or debit the funds. Either way, the lender gets paid.

In some states, borrowers may be able to roll over the amount of the loan, paying only the fees when it comes due, while the lender pushes out the due date.

To qualify for a payday loan, you generally need to be 18 years or older and have proof of income, a valid ID, and an active bank, credit union, or prepaid card account.

Risks of a Payday Loan

The risks of payday loans include sky-high fees and the potential for falling into a cycle of debt. Many states set a limit on payday loan fees, but they can still run from $10 to $30 for every $100 borrowed. Consider that a $15 fee for $100 is the equivalent of a nearly 400% APR.

By comparison, the average personal loan interest rate as of December 2024 is 12.33%, according to the Federal Reserve of St. Louis.

Pros and Cons of Payday Loans

Before signing on for a payday loan, carefully consider the advantages and disadvantages.

Pros of Payday Loans	Cons of Payday Loans
Provide quick access to cash, often with same-day turnarounds.	Very expensive, with fees equivalent to a 400% APR.
No credit check required. To qualify, you typically need to be 18 years old, have a government I.D., bank account, and regular source of income.	Lenders don’t consider your ability to repay the loan, and the loan doesn’t help you build credit. As a result, these lenders are considered “predatory.”
Unsecured: Borrowers are not required to put up property as collateral.	Borrowers can get trapped in a cycle of debt. If they are unable to pay back the loan, borrowers will pay expensive fees each time they roll over or renew their loan.

Exploring Installment Loans

When a borrower receives an installment loan, their lender will give them a lump sum upfront, which the borrower has to repay in fixed payments with interest over a set period of time.

Personal loans are a good example of an installment loan.

They can range in size from a few hundred dollars to $100,000, and the money can be used for any reason, from covering unexpected expenses or consolidating debt to remodeling a home. Repayment terms may stretch from a few months to a few years.

How Installment Loans Work

During the loan application process, lenders will consider factors such as a borrower’s credit score and reports, their income, and the amount and length of the loan.

Typically, borrowers with good credit scores will receive the best terms and interest rate options. These loans may have variable interest rates or fixed, meaning they don’t change over the life of the loan.

Installment loans may be secured or unsecured. Unsecured loans, such as unsecured personal loans, do not use collateral to back the loans. Secured loans do require collateral and may offer borrowers a lower interest rate since they present less risk to the lender.

Pros and Cons of Installment Loans

Personal installment loans tend to offer borrowers the option of borrowing at lower rates than are available through revolving credit or payday loans. However, it’s still important to consider disadvantages in addition to benefits.

Pros of Installment Loans	Cons of Installment Loans
Borrowers can finance a big purchase over 2-12 years.	Interest rates may be higher than other alternatives, such as a home equity line of credit.
Payments typically remain fixed over the life of the loan, unless the borrower chooses a variable interest rate.	May be subject to fees, such as closing costs.
Secured loans don’t require collateral, while unsecured loans may offer lower interest rates.	Missed payments can damage credit scores. Defaulted loans may be sent to collections.

Pros and Cons of Installment Loans

Eligibility requirements vary by lender, but generally speaking, you’ll need:

•   Proof of identity

•   Proof of income

•   Proof of address

Your credit score is an important factor, as it helps determine the interest rate you’re offered.

Key Differences Between Payday Loans and Installment Loans

By now you’ve likely got a good sense that installment loans and payday loans differ in some important ways. Here’s a side-by-side comparison.

	Payday Loans	Installment Loans
Repayment terms	Payment is due on the borrower’s next payday, usually two to four weeks from the date the loan was taken out.	Loan is repaid in regular installments, often monthly, typically over 2 to 7 years. Large personal loans can be repaid over 12 years.
Loan amounts	Often limited to $500.	Can range between a few hundred dollars and $100,000.
Interest rates	Payday loans don’t charge interest, but they do charge costly fees that can be the equivalent of up to 400% APR.	Interest rates vary, depending on a borrower’s credit history, among other factors. The average personal loan interest rate is 12.33%.
Use cases	Payday loans are typically targeted to borrowers with poor credit and few other lending options. Loan money can be used for any reason.	Some installment loans, such as auto loans or mortgages, are limited in how they can be used. Personal loans can be used for any purpose.
Risk	Payday loans are predatory loans that can trap borrowers in a cycle of debt. Lenders don’t consider a borrower’s ability to repay the loan, and the loan won’t help build credit.	Failure to repay an installment loan on time can damage credit. Defaulting on secured loans may result in loss of property.
Credit requirement	None.	The application process for installment loans requires a credit check.

Choosing the Right Loan for Your Needs

As you can see, there are important differences between payday and installment loans. Not sure which sort of loan is right for you? A good place to start is to determine what your short- and long-term financial goals are and which type of loan best aligns with them. Interest rates, terms, fees, and repayment options are all factors to consider.

You’ll also want to assess your repayment capabilities. Can your income cover your normal expenses plus the loan debt? Finally, check your credit score and the eligibility requirements of potential lenders to see where your application is more likely to be approved.

The Takeaway

Payday loans and installment loans both provide quick cash to cover emergency expenses. However, because of their astronomical fees — equivalent to a 400% APR — payday loans fall under the heading of “predatory lending.” On the other hand, installment loans vary in their terms but generally are a much better deal, provided that you meet eligibility requirements.

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.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Are payday loans installment loans?

No, payday loans usually require you to pay off the loan amount in full on your next payday, usually two to four weeks from when the loan was made.

What is an installment loan?

When you take out an installment loan, you immediately receive the money you’re borrowing. You then pay it back to your lender in a series of regular fixed payments known as installments.

Are personal loans installment loans?

Personal loans are one type of installment loan. Money from the loan can be used for any purpose, such as debt consolidation or a home remodel.

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Photo credit: iStock/Prostock-Studio

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

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

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

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