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When you’re looking for a mortgage loan, credit union vs. bank is a key question. Each option comes with pros and cons.

Here’s an overview to help you make the right choice for your situation.

How Credit Union and Bank Mortgages Are Similar

In many ways, banks and credit unions can be quite similar as mortgage providers. At a high level, approval processes are the same at each type of financial institution. Each will have mortgage underwriting guidelines, and after a borrower applies, the loan will be reviewed and approved, suspended, or denied. Plus, both may offer mortgage preapprovals.

Below are more similarities.

Application Process

As you look at credit union mortgages vs. bank mortgages, you’ll see that both typically offer you multiple ways to apply for a loan, including in an in-person appointment at a branch office, over the telephone, or online on the organization’s website.

Types of Mortgages

Generally, you’ll be able to apply for many different mortgage types at a bank or a credit union. Common types of home loans include fixed-rate and adjustable-rate loans as well as conventional and government-insured loans (such as FHA and VA mortgages).

One-Stop Shop for Finances

Both credit unions and banks usually offer a range of financial services, so you can also turn to them for savings and checking accounts, personal or auto loans, and CDs, among other services.

💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home

Differences Between Credit Union and Bank Mortgages

While there are similarities between bank and credit union mortgages, there are also differences to be aware of.

Membership

Banks are typically open to serving most customers, but credit unions are meant for their members. There can be membership criteria – such as living in a certain area or being a member of a specific profession – that can limit the credit union options open to you.

Loan Options

When it comes to options among mortgage loans, credit unions vs. banks may have a disadvantage. Major national banks may have more loan choices available than credit unions, which tend to be smaller institutions.

Profitability

Banks are generally for-profit businesses, and aim to make money for their stockholders. Credit unions, on the other hand, are generally non-profit organizations.

Underwriting Process

Banks, especially large ones, often follow strict underwriting guidelines. Credit unions, which tend to be smaller and more local, may underwrite loans locally, giving them a fuller picture of their members’ financial situations, and may be able to be more flexible

Benefits of Getting a Credit Union Mortgage

Are credit unions good for mortgages? In many ways they are. While a bank has stockholders, a credit union consists of members (account holders) who more or less serve in this same role. A bank must satisfy its investors by making a profit; credit unions don’t have that obligation, so they can return those dollars to members through more attractive interest rates, lower fees, and more.

To enhance their members’ financial wellness, credit unions typically provide the following benefits.

Looser Approval Criteria

In general, credit unions may approve more loans in the lower- to middle-income range for their members. And if your credit scores are less than ideal, a credit union loan is sometimes the better choice.

Lower Interest Rates

Overall, credit unions offer lower rates on their mortgage loans. To estimate how much money this may save you, use a mortgage calculator.

Fewer Fees

Credit unions can pass on savings to members through lower fees as well as lower rates.

The Personal Touch

Because credit unions are less likely to sell their mortgage loans to a third party, a borrower is more likely to know the loan servicer (the credit union). This can lead to more personalized service.

Local Market Knowledge

Since a credit union is typically more local, with ties in the community, you’re likely to be working with a loan officer who is familiar with your area, what’s typically available, and what the going rates for different kinds of homes are. This knowledge can help you find and make a fair offer on your home more easily.

Recommended: How Does the Mortgage Preapproval Process Work?

Disadvantages of Getting a Credit Union Mortgage

Are credit unions better for mortgages? That depends on your needs and preferences. Credit union mortgages also have downsides.

Membership is a Must

In most cases, a borrower must meet certain requirements to join a credit union. This can include living in a certain community, belonging to a certain profession, or otherwise having the appropriate affiliation.

Fewer Locations

Usually, credit unions have fewer branches, which can limit their geographical range. So when you’re away from home, outside the credit union’s range, it may be harder to conduct all the financial transactions you might like. For example, the ATM network may be smaller and less convenient.

Stale Tech

Because credit unions are often more local institutions, they typically won’t have the up-to-date technology found at larger banks. So if a borrower wants first-class online and mobile banking, credit unions may not be the best choice.

Limited Menu

Credit unions may offer fewer financial products, especially on the savings and investment side. They may only offer checking and savings accounts, for example, plus credit cards. Although that may not affect a borrower’s ability to get a mortgage, it can limit what other products they can benefit from at the credit union.

Possibly Higher Interest Rates

Sometimes credit unions can’t compete with banks, especially when a large bank offers especially good interest rates. So be sure to compare rates if you’re looking for the most attractive ones.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

Benefits of Getting a Bank Mortgage

Getting a home loan at a bank has its upsides, including the following.

Variety of Services

Banks often offer a significant range of savings, lending, and retirement-related financial products, making it easier for a borrower to have an all-in-one financial institution.

Multiple Branches and ATMs

Banks, especially national ones, will typically allow you to have access to multiple branches in more locations as well as a larger ATM network. This can make for a more convenient experience.

New Tech

Banks are, overall, more likely to have the latest in banking technology, including the ability to bank online and to use more sophisticated mobile apps.

Access to Loan Products

Because they tend to be larger and serve a broader population, banks often have a wider range of loan products available to their customers, like jumbo loans.

Disadvantages of Getting a Bank Mortgage

Drawbacks of getting a bank home loan can include the following.

Higher Interest Rates

Banks need to generate profit for stockholders — and credit unions don’t — so banks may charge a higher rate on home loans. But this isn’t universally true, so it’s always a good idea to compare rates.

Higher Fees

In general, banks charge higher mortgage fees than credit unions do. Although not always true, this is something to investigate.

Less Personalized Customer Service

Because credit union membership tends to be smaller and more local, bank customers may receive less personal service, especially when using a branch outside their more typical one (perhaps while traveling). Plus, banks are more likely to sell mortgage loans to a third-party loan servicer.

With any lender, bank, or credit union, a house hunter should feel at ease asking a range of mortgage questions.

Recommended: Tips on How to Shop Around for a Mortgage Lender

How to Choose the Right Mortgage Lender

Whether you’re better off with a mortgage from a bank or a credit union depends heavily on your situation and preferences.

First, consider what kind of experience you want. If you’re looking for a wide network of services and many different loan options, a bank may work for you. If you’d like a more personalized approach that could involve less rigorous qualifications and allow you to tap into local expertise, a credit union may be the better option.

You’ll also want to consider the cost. Though credit unions may typically offer lower rates, costs, and fees, that’s not always true, so it’s worth looking around and comparing.

Finally, you may want to factor in convenience. Banks typically have more branches and more up-to-date tech options, but credit unions may more easily allow you to develop ongoing relationships with local loan providers who understand your situation.

Taking all these factors into account, you can make an informed decision about what option will best suit you.

The Takeaway

Thinking about a credit union mortgage vs. a bank mortgage? Each has its upsides and potential downsides. If you’re a borrower looking for a home mortgage loan, explore the pros and cons to make the right choice for your specific situation.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Is it better to get a mortgage at a credit union?

Not necessarily. It’s a good idea to look into what each route offers before making the right choice for you.

What are the disadvantages of credit unions?

Credit unions tend to be smaller and more localized than many banks, so disadvantages can include fewer locations, a smaller ATM network, and more limited financial products. Borrowers must qualify to become a credit union member; technology probably won’t be as modern as that at a larger bank; and, in some cases, rates can be higher.

Are credit unions safe for mortgages?

The National Credit Union Administration insures deposits of up to $250,000 at all federal and some state credit unions, protects the members who own credit unions, and regulates federal credit unions. Eligible bank accounts of the same amount are insured by the Federal Deposit Insurance Corporation.

Can I take out a HELOC or second mortgage through a credit union?

Not all credit unions offer the same products, but many of them do offer home equity lines of credit and home equity loans.

Do credit unions have better mortgage rates than banks?

Sometimes credit unions have better mortgage rates than banks, but that isn’t always true. In some cases, large banks may be able to offer lower rates, so it’s always worth shopping around and comparing credit union mortgage rates vs. bank rates to find the best terms you can get.

Photo credit: iStock/Lemon_tm

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

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

SOHL-Q325-033

A no-interest, or 0%, credit card means you won’t be charged any interest on your purchases for a certain period of time. In some cases, these cards also offer 0% interest on balance transfers for a set period of time.

But these cards also have some potential downsides. For one, the 0% annual percentage rate (APR) is only temporary. Once the promotional period ends, a potentially high APR will start accruing on any remaining balance you have on the card. In addition, you typically have to pay a fee to transfer your balance, which might negate any savings on interest.

Here are key things to know before signing up for a no-interest credit card.

Pros of No-Interest Credit Cards

Using a 0% APR credit card can create some breathing room within your budget. Here’s a look at some of the key perks, and how to make the most of them.

No Interest During the Promotional Period

Of course, one of the biggest advantages of a zero-interest card is that you’ll pay just that — zero interest — for a certain period of time, which may be anywhere from six to 18 months or perhaps a bit longer. If you use the card to make a large purchase and are able to pay it off in full before the end of the promotional period, it can be the equivalent of getting an interest-free loan.

Opportunity to Pay Down Debt Faster

In some cases, you also get the 0% APR on any balance you transfer over from another credit card. This can make a no-interest card a good option for consolidating and paying off high-interest credit card debt. If you have a plan in place to pay off the debt within the promotional period, a balance transfer could improve your financial situation.

💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

Perks and Bonus Rewards

Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. This might include a welcome offer and/or cash back or rewards points based on each dollar you spend. These extras can lead to even more savings.

For example, say you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory 0% APR for 15 months and a $200 rewards bonus after you spend $500 on purchases within the first three months of opening the account. You decide this will work for your financial situation, so you apply and are approved. After buying the chair with the new credit card, you pay the balance in full before the promotional period ends.

With this example, not only would you have paid nothing in interest, you would also have netted $200 in rewards cash.

Cons of No-Interest Credit Cards

Some might look at no-interest credit cards as too good to be true. That’s not necessarily the case, but there can be some drawbacks to them. Here are some potential pitfalls to be aware of.

Temporary Promotional Rate

Alas, that 0% APR doesn’t last forever. If you use the card for a large purchase but are unable to fully pay it off before the end of the promotional period, any balance will start accruing the card’s regular APR.

At that point, the card may not have any advantages over any other card. In fact, the card could have an APR that is higher than the average credit card interest rate. When comparing 0% rate cards, it’s important to look at what the rate will be when the promo period ends and exactly when it will kick in.

Also keep in mind that you could lose the 0% intro APR before the end of the promo period if you are late with a payment. Here again, it pays to read the fine print.

Fees for Balance Transfers

Some — but not all — no-interest credit cards also feature a 0% APR on balance transfers. However, you typically still have to pay a balance transfer fee, often around 3% to 5% of the transferred balance. If you’re transferring a large balance from another card, the balance transfer fee could actually be significant. You’ll want to do the math before making the switch to be sure it will work in your favor.

Interest May Apply Retroactively

Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly a feature of retail or store cards. If you’ve been asked if you’d like to apply for a store’s credit card when you’re making a purchase, it might be one that comes with a deferred interest promotion.

Like no-interest credit cards, a deferred-interest card doesn’t charge interest as long as the balance is paid in full within a certain time period. The biggest difference between the two: If the balance is not paid in full before the promotional period ends, interest will be applied to the entire purchase — not just the remaining balance. And APRs on deferred-interest cards can be even higher than APRs charged by regular credit cards.

Recommended: Personal Loan Calculator

Can Credit Scores Be Affected by No-Interest Credit Cards?

Applying for a new credit card results in a hard inquiry on your credit report, which can have a minor, temporary negative impact on your credit scores. This is generally nothing to worry about.

However, repeatedly opening new credit cards and transferring balances to them can cause a long-term negative impact on your credit. That’s because too many hard inquiries too close together can lead lenders to believe you’re applying for more credit than you can pay back.

While no-interest credit cards have their advantages, credit card debt could escalate. If that occurs, it can be wise to seek credit counseling or look into a credit card consolidation loan, which can offer a lower interest rate and streamlined payments.

The Takeaway

A 0% intro APR card can help you avoid paying interest on your purchases for a set period of time. It can also allow you to consolidate and pay down credit card debt faster.

Keep in mind, however, that cards with no interest often come with a balance transfer fee. Also be aware that your interest rate will likely be much higher when the intro APR offer ends if you haven’t paid off your balance by then. Another option could be paying off high-interest credit cards with a personal loan.

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

FAQ

Is it a good idea to get a zero-interest credit card?

If you make on-time payments and pay off your balance before the intro period ends, then it can be a good idea to get a 0% APR credit card. But if you overspend and carry a balance, you may face high interest rates when the introductory period is over.

Does a 0% credit card affect your credit?

Credit bureaus don’t look at your interest rate, but they do look at your credit limit and what percent of that you are utilizing. So in that way, no-interest cards can impact your credit score. Also, when you apply for one of these cards, the issuer likely conducts a hard credit pull, which will usually lower your score by a few points temporarily.

Is 0% interest a trap?

A 0% interest credit card can be a valuable financial tool if used responsibly. However, if you can’t pay off your balance, when the introductory period ends, you may be stuck with your debt growing thanks to the high interest rate that kicks in. In that way, you could find yourself in a debt trap.

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

SOPL-Q325-043

If you don’t have a bank account, you will likely run into a few obstacles when trying to get any type of loan, including a personal loan. While it’s not impossible to get a loan if you don’t have a bank account, it can be difficult to get approved, will likely cost more in interest and fees, and may require collateral to guarantee the loan.

However, if you need money fast, there are options available. Here’s a look at how to get loans without a bank account.

Is It Hard To Get a Loan With No Bank Account?

Yes, not having a bank account — in particular, a checking account — can make it difficult to qualify for a loan.

When you apply for a personal loan (or any other type of loan) the lender will typically ask for your bank account information and the last one to three month’s worth of bank statements. This helps them verify your income and gives them an idea of whether you have the cash to keep up with your loan payments.

However, if a financial emergency arises and you need money quickly, there may be loan options available that do not require a bank account. The hitch is that these loan products typically come with high interest rates, multiple fees, and short repayment terms.

Why Is Getting a Loan With No Bank Account Hard?

When a lender reviews an applicant to assess their loan requirements, they consider how risky the loan might be to their own business. In other words, they want to predict how likely it is that the borrower will be able to pay the loan back. When a loan applicant doesn’t have a bank account, the lender has more difficulty assessing that person’s income or cash flow.

There is also a logistical issue: Where should the lender send the loan proceeds? Typically, the money is sent to the borrower’s bank account. But if the borrower doesn’t have a bank account, there may be some question of where the money will be deposited and how it will be accessed, as well as how loan payments will be made.

Can You Get a Loan With Bad Credit and No Bank Account?

It’s possible but it might not be a good idea to get a loan without a bank account or good credit, since your options will be limited and expensive.

To assess your risk as a borrower, lenders will not only look at your banking history but also your credit history and scores. Your credit reports contain a record of how you’ve handled credit accounts in the past, including whether you pay your bills on time, what types of credit you use, how much debt you carry, and any delinquencies and collections you’ve experienced. This information is used to calculate your credit scores. Borrowers with excellent credit are not only more likely to qualify for a loan, but also get the best rates and terms.

If you have poor credit and no bank account, you will likely be seen as high risk to lenders. If you’re applying for an unsecured loan (meaning no collateral is required), you may not be approved.

You might, however, be eligible for a secured loan that’s backed by collateral, such as a car or other asset of value that you own. If you are unable to repay the loan as promised, the lender has the right to take that collateral as payment on the loan.

Pros and Cons of Loans With No Bank Account

If you’re looking for a loan with no bank account, you’ll want to carefully consider the pros and cons.

Pros of No Bank Account Loans

•  Fast access to cash No bank account loans, such as payday and title loans, typically provide a lump sum of cash right away.

•  No credit check Some no bank account loans won’t take your credit history or score into account, allowing borrowers with bad credit or who haven’t yet established any credit to access funds.

Cons of No Bank Account Loans

•  High costs Lenders who consider applicants with no bank account generally make up for risk by charging extremely high interest rates and fees.

•  Short repayment terms Unlike other types of personal loans, which usually give you years for repayment, no bank account loans (such as title loans and payday loans) often need to be paid in 30 days or less.

•  Can lead to vicious debt cycle Due to the short repayment terms for no bank accounts loans, borrowers often need to roll the loan over into a new short-term loan, leading to a cycle of debt.

5 No Bank Account Loan Options

Even if you don’t have a bank account, you may be able to access a loan. Here’s a look at some potential options.

1. Borrowing Money From Loved Ones

If you’re having a hard time financially, your loved ones may be able to step in. Whether you ask for money from friends or family members, it’s a good idea to have clear, written loan terms, and maybe even have the loan agreement notarized so there’s no confusion. Make sure expectations are clear for each party.

•   Does the loan have interest attached?

•   Are you expected to pay back the loan or is it a gift?

•   Are there in-kind options for paying back the loan, such as babysitting or tutoring hours?

•   What would happen if you were not able to pay back the loan?

Answering these questions can help create clear expectations and lessen the chance of a misunderstanding that could strain your relationship.

2. Payday Loan

A payday loan is usually for a small amount (often $500 or less) for a short period of time, typically until the borrower’s next paycheck. While it can be a source of quick cash, payday loans are problematic, given their high annual percentage rates (APRs).

Some states may cap the maximum allowable APR, but many payday loans charge fees of $10 to $30 for every $100 borrowed. A fee of $15 per $100 equates to an APR of almost 400%, which is significantly higher than the APR of a typical personal loan. If you can’t pay back your payday loan quickly, the fees can add up fast and make your existing financial problems snowball.

Risks of Payday Loans

The drawbacks of a payday loan may outweigh the benefits, and include:

•  High fees Lenders charge exorbitant fees and APRs for payday loans just in case the loan can’t be paid off.

•  Debt spiral If you can’t repay your payday loan on time, you’ll have to roll it over into a new loan and end up with even more fees and interest charges. This makes the loan even harder to pay back and can lead to a dangerous debt spiral.

•  Small loan amounts If you need a large sum of cash, a payday loan likely won’t offer enough, since they are usually $500 or less.

3. Title Loans

If you own your vehicle, you may be eligible for a title loan. Also called an auto title loan or vehicle title loan, this type of loan uses your vehicle as collateral. The lender holds your vehicle title in exchange for the loan. You then may be able to borrow a portion (often 25% to 50%) of the vehicle’s current value. As with payday loans, interest can be exceptionally high — as much as 300% — and there may be additional fees. If you are unable to pay back the loan, the lender has the right to take ownership of your vehicle. This can be a high-stakes situation for borrowers who depend on their car to go to work and school.

4. Pawn Shop Loan

If you have a valuable piece of jewelry, an antique, or other collectible to use as collateral, you might be able to get a pawn shop loan. The pawnbroker will assess the value of the item and provide a loan based on a certain percentage of its value. The loan terms will include interest. If the loan isn’t paid back according to the terms, the pawnshop then owns your item and can sell it.

5. Cash Advance

A cash advance is a short-term loan typically offered by your credit card issuer. A credit card cash advance allows you to borrow a certain amount of money against your card’s line of credit. You can usually get the cash at an ATM or through a bank teller.

A cash advance is a way to access quick cash but the interest rate will likely be higher than your card’s standard purchase APR, and higher than interest rates on personal loans. In addition, you typically need to pay a hefty cash advance fee.

Loan Options With a Bank Account

Before looking into loan options with no bank account, you may want to consider opening a checking account. If you’ve had past checking account errors or misuse, look into a second chance checking account. These accounts are designed to help people who have negative banking history get back in the door.

Borrowers with bank accounts generally have more — and better — loan options available to them. If you are able to open a checking account, here are types of loans you may be able to access.

Personal Loans

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in regular installments over time. Loan amounts can be anywhere from $1,000 to $50,000 or $100,000, and repayment terms range from two to seven years. Personal loans usually have fixed interest rates, so the monthly payment is the same for the life of the loan.

Personal loans are typically unsecured, meaning they’re not backed by collateral. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

You can generally use a personal loan for almost any purpose, including debt consolidation, home improvement projects, medical bills, emergencies, and refinancing an existing loan.

Recommended: How to Apply for a Personal Loan

Auto Loan

An auto loan is a loan that is used specifically to purchase a vehicle. They are available through banks, credit unions, and online lenders. Typically, auto loans are secured loans, which means the vehicle to be used as collateral for the loan.

When you take out an auto loan, the proceeds go to the vehicle’s seller to cover the cost of the vehicle. You then make monthly payments to the lender for a set period of time, which might be anywhere from two to seven years. The lender owns the car and holds the title until you pay off the loan. If you fail to keep up with payments, the lender can repossess the vehicle.

Student Loans

A student (or education) loan is a sum of money borrowed to finance college expenses, including tuition, supplies, and living expenses. Payments are often deferred while students are in school and, depending on the lender, for an additional six-month period after earning a degree.

Student loans are available from the government as well as through private lenders. Federal loans may have lower interest rates, and some also offer subsidized interest (meaning the government pays the interest on the loan while a student is in college). Private student loans are generally available in higher amounts.

The Takeaway

Getting a personal loan with no bank account may be possible but can be both costly and risky. Before committing to a lender that charges high interest and fees or requires collateral, you may want to explore opening a bank account.

Once you have a checking account, you may be able to access traditional personal loans with more favorable rates and terms.

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

FAQ

Can you get a loan without a bank account?

It’s possible, but you will likely be limited to loans with sky-high rates and short repayment terms, such as payday loans, pawn shop loans, and title loans. The lender may also require collateral (an asset you own, such as a car) that they can seize if you don’t repay the loan.

Can you get a loan with your SSN?

Having a Social Security number (SSN) can make getting a loan easier, since a lender can use it to retrieve information they need to process the loan. In addition to an SSN card, you also typically need to provide an additional proof of identity (such as a birth certificate, driver’s license, passport, or certificate of citizenship); proof of income; an proof of address (such as a utility bill, rental agreement, bank/credit card statement).

Can you get a cash advance without a bank account?

It’s possible, but it may be hard to find a lender who is willing to work with you. Your best option might be a credit card cash advance, which involves withdrawing cash from an ATM or bank using your credit card account. Just keep in mind that credit card advances generally come with high interest rates and fees. Another option for fast cash might be a payday or title loan, though these can have extremely high interest rates and other disadvantages.

Photo credit: iStock/MicroStockHub

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

SOPL-Q325-042

You may have heard that you should spend three months’ salary on an engagement ring. But that rule of thumb is now considered pretty outdated.

Instead, it can be a good idea to consider your particular financial and personal situation when calculating how much to spend. As a point of comparison, the average cost of an engagement ring is currently $5,200, according to the wedding website The Knot.

What follows are some guidelines that can help you figure out how much you should spend on an engagement ring, along with options for covering the cost.

The Average Cost of an Engagement Ring

According to The Knot’s 2024 data, the average cost of an engagement ring is around $5,200.

While that number may represent the average, the amount couples actually spend on a ring varies widely. In The Knot’s study, roughly one-third of respondents spent less than $3,000.

Why do rings vary so much in price? The cost of an engagement ring depends on a number of factors, including the size and quality of the stone, where the gem was sourced, how the gem is set, and the type of metal chosen (such as yellow gold, white gold, or platinum). There may also be markups that come along with a luxury brand name.

Diamond engagement rings, sourced from a mine, tend to be the most expensive choice. But there are many other, less costly options, such as lab-grown diamonds, moissanite (a lab-grown gem that looks like a diamond), and semi-precious gemstones (such as tourmaline, morganite, and aquamarine).

Whether you’re in the market for a large, eye-catching dazzler or a more dainty design, the good news is that these days there are ways to accomplish almost any look for a range of price points.

Recommended: How to Plan a Wedding

How to Pay for an Engagement Ring

While paying in cash can be the simplest (and often the cheapest) option, it may not be feasible for all couples. Below are some other payment options that you may want to consider, along with their pros, cons, and potential costs.

Financing an Engagement Ring Through Your Jeweler

Many jewelers offer financing options, but just because you’re buying from a jeweler does not mean you have to use the financing they offer. It can be a good idea to take note of the following:

•   Promotional offers Some jewelers offer a 0% introductory interest rate during a set period of time. But after that period of time, interest rates may be very high.

•   Down payment requirements Some jewelers may require a certain percentage down payment prior to financing.

Financing through a jeweler directly may make sense if you’re confident you can pay back the loan prior to the end of the promotional period. As with any loan, it’s likely that there will be a credit check prior to being approved for financing.

Buying an Engagement Ring With a Credit Card

Putting a large purchase like an engagement ring on your credit card can be a simple solution at the moment, but it may become a financial headache in the future. Here are some things you may want to consider before getting out the plastic.

•   Interest rate If you put the engagement ring on a card with a relatively high interest rate and don’t pay it off right away, the ring will end up becoming significantly more expensive over time. Also, keep in mind that many credit cards have a variable interest rate, which means the interest rate at the time of purchase could go up.

•   Credit-utilization ratio A large purchase like an engagement ring can mean using a significant percentage of credit available on your card. Having a high credit-utilization ratio may negatively affect your credit score.

•   Rewards and protections Some buyers like putting large purchases on credit cards because of the consumer protections offered by the card. They also may want to take advantage of the rewards offered by the credit card company. Those rewards, however, may only be worth it if you can pay the amount back in full at the end of the billing cycle or during a 0% interest promo rate.

Using a Personal Loan to Finance an Engagement Ring

A personal loan is another avenue for engagement ring funding. A personal loan from a bank, credit union, or online lender may have a lower interest rate than a jeweler financing program. Personal loans also typically have significantly lower interest rates than credit cards.

A personal loan also works differently than jeweler financing and credit cards. With a personal loan, you’ll get the money in your bank account and can then pay the jeweler as though you were paying in cash. You then pay back the loan (plus interest) in monthly amounts set out in the loan agreement. One option to consider: You might fold the ring’s cost in other upcoming expenses as part of a wedding loan.

Here are some things you may want to consider before using a personal loan to pay for an engagement ring.

•   Interest rate In many cases, a personal loan interest rate is fixed, meaning it doesn’t change after the agreement has been signed. This means that you know exactly how much you will need to pay back for the length of the loan.

•   Loan terms You may have an option to pick the length of the loan. Shorter loans may mean you’re paying less interest over time but have larger monthly payments. Conversely, a longer term loan may lower your monthly payment but have you paying more interest over the life of the loan.

•   Loan costs There may be fees associated with the loan, including an origination fee when the loan begins and a prepayment penalty if you pay off the loan before the end of the agreed-upon term.

•   “What if” scenarios Some lenders provide temporary deferment for people facing financial hardship, such as a job loss.

Recommended: Typical Personal Loan Requirements

The Takeaway

Spending three months’ salary for an engagement ring is a long-standing tradition, but these days there is no one-size-fits-all formula. While couples currently spend an average of $5,200 for a ring, ultimately, the amount paid is a personal decision and will depend on your income, debt, expenses, savings, and preference.
If paying for an engagement ring upfront in cash isn’t feasible, you may want to look into different financing options such as financing by your jeweler or a personal loan.

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

FAQ

How much should you spend on an engagement ring?

There’s no rule about how much to spend on an engagement ring. The old “three months’ worth of salary” guideline is outdated. How much to spend is a personal decision, though it’s worth noting that the average amount is currently $5,200.

How much should I spend on an engagement ring if I earn $100,000?

If you follow the old rule of spending three months’ worth of income, that would mean a $25,000 budget for a ring. But this has largely fallen by the wayside, with couples deciding the amount that best serves their big-picture financial needs and their budget. Currently, the average paid for an engagement ring is $5,200.

Is $5,000 enough to spend on an engagement ring?

There’s really no specific amount that’s enough or not enough to spend on an engagement ring. While the average spent on a ring is currently $5,2000, one survey found that most respondents spent between $2,500 to $5,000. Some couples will spend still less, while others might decide to go much higher. Take time to figure out your budget.

Photo credit: iStock/ljubaphoto

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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.

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Refinancing a personal loan can be a worthwhile process in some situations. It holds the potential to lower your monthly payments and/or the interest paid over the life of the loan.

Personal loans can be used for many purposes, which is part of their appeal. Consolidating credit card debt is a common use of personal loans. And it makes sense, given that personal loans typically have lower interest rates than credit cards (which currently average 24.35%).

Even if you’ve already taken out a personal loan, it can be wise to look at your refinance options for getting terms that better suit your needs.

Why Refinance a Personal Loan?

While there may be a variety of reasons to refinance a personal loan, it mainly comes down to two.

1.    To lower the overall interest rate and total interest paid.

2.    To lower the monthly payment.

These two might seem like the same thing, but they’re not.

When you refinance any type of loan, you are essentially replacing your old loan with a new loan that has a different rate and/or repayment term. If the new loan has a lower annual percentage rate (APR), you can save money on interest. If the APR is the same but the repayment term is longer, you can lower your monthly payments, making them easier to manage, but won’t save any money. (In fact, a longer repayment term generally means paying more in interest over the life of the loan.)

Another reason why you might consider refinancing a personal loan is to consolidate your debts (so you just have one payment) or to add or remove a cosigner.

Possible Advantages of Refinancing a Personal Loan

Here’s a look at some of the benefits of refinancing a personal loan.

Pay Less in Interest

If you are able to qualify for a personal loan with a lower APR, it may be possible to save a significant amount of money over time, provided you don’t extend your loan term. You can also save on interest by shortening your existing loan term, since this allows you to pay off the loan sooner.

Lower Your Monthly Payment

Refinancing to a lower APR and/or extending the length of the loan can lower your monthly payment. A lower monthly bill could help you get back on track, especially if you’ve been struggling to make your monthly payments.

Consolidate Multiple Debts

If you have a personal loan as well as other debts (such as credit card debt), you can use a new debt consolidation loan to combine those debts into one loan and a single monthly payment. If your new loan has a lower APR than the average of your combined debts, you may also be able to save money.

Recommended: Personal Loan Calculator

Possible Disadvantages of Refinancing a Personal Loan

Refinancing a personal loan might not be the right move for everybody. Here are some disadvantages to consider.

You May Pay More in Interest

If you refinance a personal loan using a loan that has a longer repayment term, you could end up paying much more in interest over the life of the loan.

You May Have to Pay an Origination Fee

Many personal loan lenders charge origination fees to cover the cost of processing and closing the loan. This is a one-time fee charged at the time the loan closes and, in some cases, can be as high as 6% of the loan. Since the fee is deducted before the loan is disbursed to you, it reduces the amount of money you actually get.

You Might Get Hit With a Prepayment Penalty

Some lenders charge a fee if you pay off the loan before the agreed-upon term, which is known as a prepayment penalty. If your original lender charges you a prepayment penalty, it could cut into your potential refinancing savings.

Refinancing a Personal Loan

If you are thinking about refinancing a personal loan, here are some steps you’ll want to take.

Check Your Credit Report and Score

To benefit from personal loan refinancing, you typically need to have stronger credit than you had when you got your original personal loan. With a more favorable credit profile, you might qualify for a lower APR on the new personal loan.

You can access your credit report for free from each of the three major credit bureaus — Equifax®, TransUnion®, and Experian® — through Annualcreditreport.com. It’s a good idea to scan your reports for any errors and, if you find one, report it to the appropriate bureau.

You can typically access your credit score for free through your credit card company (it may be listed on your monthly statement or found by logging into your online account).

Shop Around for Loans

Every bank has different parameters for determining who they’ll offer loans to and at what rate, so it’s always worth it to shop around. This could mean looking at traditional banks, credit unions, and online-only lenders.

Many lenders will give you a free quote through a prequalification process. This typically takes only a few minutes and does not result in a hard inquiry, which means it won’t impact your credit score. Prequalifying for a personal loan refinance can help compare rates and terms from different lenders and find the best deal.

Applying for a Loan

Once you’ve decided on a lender who can help you refinance to a new loan, it’s time to formally apply for a personal loan. You’ll likely need to submit several documents, including pay stubs, recent tax returns, and a loan payoff statement from your original lender (which will show how much is still owed).

Paying Off the Old Loan

Once you have your new loan funds, you can pay off your original loan. You’ll want to contact your original lender to find out what the process is and follow their instructions. It’s also a good idea to ask your original lender for documentation showing the loan has been paid off.

Making Payments on the New Loan

Be sure to confirm your first payment due date and minimum payment amount with your new lender and make your first payment on time. You may want to enroll in autopay to ensure you never miss a payment. Some lenders even offer a discount on your rate if you sign up for autopay.

The Takeaway

You can refinance a personal loan, and doing so may allow you to get a more favorable rate and/or more affordable payments. However, you’ll want to factor in any fees (such as origination fee on the new loan and/or a prepayment penalty on the old loan) to make sure the refinance will save you money. Also keep in mind that extending the term of your loan can increase the cost of the loan over time.

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

FAQ

Can you refinance a personal loan?

Yes, it is possible to refinance a personal loan. Refinancing involves taking out a new loan to pay off the existing personal loan, ideally with more favorable rates and terms. However, whether you can refinance your personal loan will depend on factors such as your creditworthiness, the terms of the original loan, and the policies of the new lender.

Does refinancing a loan hurt your credit?

Refinancing a loan can have both positive and negative impacts on your credit. Initially, the process of refinancing may result in a hard inquiry on your credit report, which can cause a small, temporary decrease in your credit score. However, if you use the refinanced loan to pay off the existing loan and make timely payments on that loan, it can positively impact your credit over time.

Can I refinance a personal loan with another bank?

Yes, it is possible to refinance a personal loan with another bank. Many banks, credit unions, and online lenders offer loan refinancing options. This allows you to transfer your personal loan balance to a new loan with a new lender. However, eligibility criteria, terms, and interest rates will vary by lender. It’s a good idea to shop around, compare offers, and consider factors such as interest rates, fees, and repayment terms before deciding to refinance with another bank.

What are the pros and cons of refinancing a personal loan?

The pros of refinancing a personal loan include the potential to secure a lower interest rate, reduce monthly payments, consolidate multiple debts into a single loan, and switch to a more favorable lender. Potential downsides can include paying an origination fee for the new loan, owing a prepayment fee from your original lender, and extending your loan term, which can increase the total cost of the loan

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

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