Loan Modification vs Loan Refinancing: The Differences and Similarities

Loan Modification vs Loan Refinancing: The Differences and Similarities

Both a loan modification and a loan refinance can lower your monthly payments and help you save money. However, they are not the same thing. Depending on your circumstances, one strategy will make more sense than the other.

If you’re behind on your mortgage payments due to a financial hardship, for example, you might seek out a loan modification. A modification alters the terms of your current loan and can help you avoid default or foreclosure.

If, on the other hand, you’re up to date on your loan payments and looking to save money, you might opt to refinance. This involves taking out a new loan (ideally with better rates and terms) and using it to pay off your existing loan.

Here’s a closer look at loan modification vs. refinance, how each lending option works, and when to choose one or the other.

What Is a Loan Modification?

A loan modification changes the terms of a loan to make the monthly payments more affordable. It’s a strategy that most commonly comes into play with mortgages. A home loan modification is a change in the way the home mortgage loan is structured, primarily to provide some financial relief for struggling homeowners.

Unlike refinancing a mortgage, which pays off the current home loan and replaces it with a new one, a loan modification changes the terms and conditions of the current home loan. These changes might include:

•   A new repayment timetable. A loan modification may extend the term of the loan, allowing the borrower to have more time to pay off the loan.

•   A lower interest rate. Loan modifications may allow borrowers to lower the interest rates on an existing loan. A lower interest rate can reduce a borrower’s monthly payment.

•   Switching from an adjustable rate to a fixed rate. If you currently have an adjustable-rate loan, a loan modification might allow you to change it to a fixed-rate loan. A fixed-rate loan may be easier to manage, since it offers consistent monthly payments over the life of the loan.

A loan modification can be hard to qualify for, as lenders are under no obligation to change the terms and conditions of a loan, even if the borrower is behind on payments. A lender will typically request documents to show financial hardship, such as hardship letters, bank statements, tax returns, and proof of income.

While loan modifications are most common for secured loans, like home mortgages, it’s also possible to get student loan modifications and even personal loan modifications.


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

What Is Refinancing a Loan?

A loan refinance doesn’t just restructure the terms of an existing loan — it replaces the current loan with a new loan that typically has a different interest rate, a longer or shorter term, or both. You’ll need to apply for a new loan, typically with a new lender. Once approved, you use the new loan to pay off the old loan. Moving forward, you only make payments on the new loan.

Refinancing a loan can make sense if you can:

•   Qualify for a lower interest rate. The classic reason to refi any type of loan is to lower your interest rate. With home loans, however, you’ll want to consider fees and closing costs involved in a mortgage refinance, since they can eat into any savings you might get with the lower rate.

•   Extend the repayment terms. Having a longer period of time to pay off a loan generally lowers the monthly payment and can relieve a borrower’s financial stress. Just keep in mind that extending the term of a loan generally increases the amount of interest you pay, increasing the total cost of the loan.

•   Shorten the loan repayment time. While refinancing a loan to a shorter repayment term may increase the monthly loan payments, it can reduce the overall cost of the loan by allowing you to pay off the debt faster. This can result in a significant cost savings.

Recommended: What Are Personal Loans Used For?

Refinance vs Loan Modification: Pros and Cons

Loan refinance is typically something a borrower chooses to do, whereas loan modification is generally something a borrower needs to do, often as a last resort.

Here’s a look at the pros and cons of each option.

Loan Modification

Refinancing

Pros

Cons

Pros

Cons

Avoid loan default and foreclosure Could negatively impact credit May be able to lower interest rate You’ll need solid credit and income
Lower your monthly payment Cash out is not an option May be able to shorten or lengthen your loan term Closing costs may lower overall savings
Avoid closing costs Lenders not required to grant modification May be able to turn home equity into cash You could reset the clock on your loan

Benefits of Loan Modification

While a loan modification is rarely a borrower’s first choice, it comes with some advantages. Here are a few to consider.

•   Avoid default and foreclosure. Getting a loan modification can help you avoid defaulting on your mortgage and potentially losing your home as a result of missing mortgage payments.

•   Change the loan’s terms. It may be possible to increase the length of your loan, which would lower your monthly payment. Or, if the original interest rate was variable, you might be able to switch to a fixed rate, which could result in savings over the life of the loan.

•   Avoid closing costs. Unlike a loan refinance, a loan modification allows you to keep the same loan. This helps you avoid having to pay closing costs (or other fees) that come with getting a new loan.

Drawbacks of Loan Modification

Since loan modification is generally an effort to prevent foreclosure on the borrower’s home, there are some drawbacks to be aware of.

•   It could have a negative effect on your credit. A loan modification on a credit report is typically a negative entry and could lower your credit score. However, having a foreclosure — or even missed payments — can be more detrimental to a person’s overall creditworthiness.

•   Tapping home equity for cash is not an option. Unlike refinancing, a loan modification cannot be used to tap home equity for an extra lump sum of cash (called a cash-out refi). If your monthly payments are lower after modification, though, you may have more funds to pay other expenses each month.

•   There is a hardship requirement. It’s typically necessary to prove financial hardship to qualify for loan modification. Lenders may want to see that your extenuating financial circumstances are involuntary and that you’ve made an effort to address them, or have a plan to do so, before considering loan modification.

Recommended: Guide to Mortgage Relief Programs

Benefits of Refinancing a Loan

For borrowers with a strong financial foundation, refinancing a mortgage or other type of loan comes with a number of benefits. Here are some to consider.

•   You may be able to get a lower interest rate. If your credit and income is strong, you may be able to qualify for an interest rate that is lower than your current loan, which could mean a savings over the life of the loan.

•   You may be able to shorten or extend the term of the loan. A shorter loan term can mean higher monthly payments but is likely to result in an overall savings. A longer loan term generally means lower monthly payments, but may increase your costs.

•   You may be able to pull cash out of your home. If you opt for a cash-out refinance, you can turn some of your equity in your home into cash that you can use however you want. With this type of refinance, the new loan is for a greater amount than what is owed, the old loan is paid off, and the excess cash can be used for things like home renovations or credit card consolidation.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Drawbacks of Refinancing a Loan

Refinancing a loan also comes with some disadvantages. Here are some to keep in mind.

•   You’ll need strong credit and income. Lenders who offer refinancing typically want to see that you are in a solid financial position before they issue you a new loan. If your situation has improved since you originally financed, you could qualify for better rates and terms.

•   Closing costs can be steep. When refinancing a mortgage, you typically need to pay closing costs. Before choosing a mortgage refi, you’ll want to look closely at any closing costs a lender charges, and whether those costs are paid in cash or rolled into the new mortgage loan. Consider how quickly you’ll be able to recoup those costs to determine if the refinance is worth it.

•   You could set yourself back on loan payoff. When you refinance a loan, you can choose a new loan term. If you’re already five years into a 30-year mortgage and you refinance for a new 30-year loan, for example, you’ll be in debt five years longer than you originally planned. And if you don’t get a lower interest rate, extending your term can increase your costs.

Is It Better to Refinance or Get a Loan Modification?

It all depends on your situation. If you have solid credit and are current on your loan payments, you’ll likely want to choose refinancing over loan modification. To qualify for a refinance, you’ll need to have a loan in good standing and prove that you make enough money to absorb the new payments.

If you’re behind on your loan payments and trying to avoid negative consequences (like loan default or foreclosure on your home), your best option is likely going to be loan modification. Provided the lender is willing, you may be able to change the rate or terms of your loan to make repayment more manageable. This may be more agreeable to a lender than having to take expensive legal action against you.

Recommended: 11 Types of Personal Loans & Their Differences

Alternatives to Refinancing and Loan Modification

If you’re having trouble making your mortgage payments or just looking for a way to save money on a debt, here are some other options to consider besides refinancing and loan modification.

Mortgage Forbearance

For borrowers facing short-term financial challenges, a mortgage forbearance may be an option to consider.

Lenders may grant a term of forbearance — typically three to six months, with the possibility of extending the term — during which the borrower doesn’t make loan payments or makes reduced payments. During that time, the lender also agrees not to pursue foreclosure.

As with a loan modification, proof of hardship is typically required. A lender’s definition of hardship may include divorce, job loss, natural disasters, costs associated with medical emergencies, and more.

During a period of forbearance, interest will continue to accrue, and the borrower will still be responsible for expenses such as homeowners insurance and property taxes.

At the end of the forbearance period, the borrower may have to repay any missed payments in addition to accrued interest. Some lenders may work with the borrower to set up a repayment plan rather than requiring one lump repayment.

Mortgage Recasting

With a mortgage recast, you make a lump sum payment toward the principal balance of the loan. The lender will then recast, or re-amortize, your remaining loan repayment schedule. Since the principal amount is smaller after the lump-sum payment is made, each monthly payment for the remaining life of the loan will be smaller, even though your interest rate and term remain the same.

Making Extra Principal Payments

With any type of loan, you may be able to lower your borrowing costs by occasionally (or regularly) making extra payments towards principal. This can help you pay back what you borrowed ahead of schedule and reduce your costs.

Before you prepay any type of loan, however, you’ll want to make sure the lender does not charge a prepayment penalty, since that might wipe out any savings. You’ll also want to make sure that the lender applies any extra payments you make directly towards principal (and not towards future monthly payments).

The Takeaway

Loan modification vs loan refinancing…which one wins?

It depends on your financial situation. If you’re dealing with financial challenges and at risk of home foreclosure, you may want to look into a loan modification, which could be easier to qualify for than loan refinancing.

If you’re interested in getting a lower interest rate or lowering your monthly debt payment, refinancing likely makes more sense. A refinance may also make sense if you’re looking to tap your home equity to access extra cash. With a cash-out refi, you replace your current mortgage with a new, larger loan and receive the excess amount in cash.

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 NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What are the disadvantages of loan modification?

A loan modification typically comes with a hardship requirement. A lender may ask to see proof that your financial circumstances are involuntary and that you’ve made an effort to address them before considering loan modification.

A loan modification can also have a temporary negative effect on your credit.

Is a loan modification bad for your credit?

A lender may report a loan modification to the credit bureaus as a type of settlement or adjustment to the loan’s terms, which could negatively impact on your credit. However, the effect will likely be less (and shorter in duration) than the impact a series of late or missed payments or a foreclosure on your home would have.


Photo credit: iStock/AlexSecret

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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.


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

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

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

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

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Should Married Couples Have Joint Bank Accounts?

Whether to have a joint bank account when married is a personal decision, but most couples do merge finances, according to research at the Kellogg School of Management at Northwestern University. Between 52% and 65% of couples surveyed do so, while 10% to 15% maintain completely separate bank accounts. The remainder have a hybrid approach, sharing some accounts and keeping others separate.

If you’re wondering whether to merge bank accounts when married, it can be a wise move to consider the pros and cons of joint and separate scenarios and then make your decision. In this article, you’ll delve into the upsides and downsides, so you’re ready to make an informed decision about what suits your finances and your relationship best.

What Is a Joint Bank Account?

First, consider this definition of a joint bank account: It’s similar to a standard account, but it has more than one owner. With a joint account, the account holders each fully share access to the account. Each of you will get a debit card, checkbook, and the other typical benefits that come with a checking account.

In this way, a joint bank account brings transparency to a marriage, which may make some people cheer and others cringe. Everything’s out in the open, including debits (those pricey clothes sneaking into your closet? Check), deposits, and your in-real-time account balance.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.

Why Have a Joint Bank Account in Marriage?

A joint account in marriage can offer a simplified approach to your personal finances, and it can symbolize trust. But, as with most things in life, there are pros and cons to this kind of banking relationship. Take a closer look.

Pros and Cons of a Joint Bank Account in Marriage

Whether a joint bank account in marriage is right for you can depend on a variety of factors. Are you starting out on equal financial footing? Are you comfortable revealing your spending habits? Would a shared account come in handy when setting financial goals? Consider the following points:

Pros

Cons

Clarity: An easy, instant read on how much, as a couple, you’ve spent and how much you’ve saved. Less time needed to communicate about finances. Total transparency: Spending habits become completely visible, which can become ammo in money arguments.
Teamwork: Two sets of eyes on the account. You’re both contributing to your shared financial life and health. Loss of autonomy: You may feel as if you’ve lost your sense of independence, both financially and personally. Also, potential resentment if partners enter with unequal assets.
Convenience: Easier management of monthly payments such as mortgage and insurance. You may save on fees, too. Vulnerability: Generally, each of you has the right to withdraw the funds and even close the account.
Legal streamlining: Shared access in case of emergency or death; avoidance of court proceedings. Legal complications: More challenging division of assets if you divorce.

As you can see, a joint account in marriage offers convenience and a sense of more complete coupledom. You are truly partners in finance. It can make managing your money and shared goals easier.

However, along with this, your finances become an open book. Some expenses that you might have kept private — from pricey personal-training sessions to a surprise gift for your spouse — become totally visible to your partner.

There are also legal implications: If your sweetie brings significant debt to the marriage, your money is now mixed in as an asset should a collector come calling. Also (and we hate to mention the d-word), if you were to split, untangling whose money is whose may be a major endeavor.

Consider these factors and your comfort level. Depending on your and your spouse’s personalities, comfort levels, and financial situations, a joint account might be the right move for you.

Why Have Separate Bank Accounts in Marriage?

Some couples choose not to merge their bank accounts, or not do so completely. Maybe you check your bank-account balance obsessively, while your partner is more of an “Oops, am I overdrawn?” kind of person. If you have different money styles, separate accounts could be a great peace-keeper, so you don’t argue over money. Take a closer look at the upsides and downsides here.

Pros and Cons of Separate Bank Accounts in Marriage

Here’s a closer look at the pros and cons of separate bank accounts in marriage.

Pros

Cons

Autonomy: Ability to individually manage your money, which may suit your personalities and accommodate different financial styles. Isolation: You may not feel as connected as a couple when your accounts aren’t merged.
Privacy: No one else sees your spending habits and bank balance. Communication: More conversation about your financial habits and goals will be required.
Protection: Your assets may be safe if your spouse confronts debt collection and available in the event of a death. Complexity: Potentially more time and energy needed to pay monthly expenses like rent, groceries, and utilities.
Ease: Depending on the state you live in, simplified division of assets if you divorce. Separation: Contributing toward shared money goals could be harder.

Marriage is a major life transition, often with lots of adjustments and, yes, compromises required. Having separate bank accounts when you are wed can give you a sense of independence, control, and privacy over your finances.

Keeping your accounts apart can also make sense if one of you entered marriage with, say, child support or with debt to clear up. That spouse can be solely responsible for paying that. And if one person significantly out-earns the other, they can do what they want with some of their moolah rather than pooling it. The fact that separate accounts may protect you in the event of a split is also worth noting.

That said, if you do choose to keep your dollars and cents in separate bank accounts once you’re hitched, know that communication will be key. Having regular check-ins will help you stay aware of how well each of you is managing your spending and progress toward financial goals.

Recommended: How to Make a Budget in 5 Steps

Recap: Joint Bank Account vs Separate Bank Accounts

Should married couples have joint bank accounts? Figuring out your financial life is a big decision, but remember, there’s no right or wrong answer.

When it comes to whether to have a joint bank account or keep your cash separated, it’s all about what works for the two of you. Here’s a recap of the key features of each.

Joint Bank Account

Separate Bank Account

Equal access for both partners Division of accounts, which can be beneficial if one partner has debt or out-earns the other
Transparency of all transactions for both of you Privacy in terms of how each of you spends and saves
Ability to retrieve funds in emergencies Protection of your assets in case of divorce
Connectedness since your assets are pooled Autonomy because you still control your money

Still not sure whether a joint or separate account is best for you and your spouse? Consider a hybrid approach.

Both of you can keep your separate accounts while contributing to a joint account to handle common expenses such as monthly bills and future financial goals. It’s not uncommon for a single person to have multiple bank accounts, so why not try it as a couple?

If you decide to go down this route, you may want to make sure you’re clear about what the account is used for. Since you and your partner will be juggling multiple accounts and financial priorities, you may have to figure out a system for keeping in touch and on top of your money. Regular check-ins that are scheduled on both your calendars (with reminders switched on) can be a good tactic.

Recommended: How to Automate Your Finances

The Takeaway

There are good reasons for joining together your finances — and there are good reasons for keeping them apart. What’s right for you depends on a number of factors, including how much transparency you want, whether one of you has more payments or debt than the other, and whether one of you comes to the union with a lot more money than the other.

Whether you decide to keep your accounts separate, combine them, or take a hybrid approach, finding the right banking partner is an important step. Investigate your options for joint accounts, including those offered by SoFi.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Is it normal for married couples to have joint bank accounts?

The majority of couples do have joint bank accounts, but a significant number also have a hybrid approach (a shared account as well separate ones). About 10% to 15% keep their money completely separate.

Are joint bank accounts the secret to a happy marriage?

While finances are a significant player in how couples get along, there is no one secret to a happy marriage. For some couples, the simplicity and transparency of a joint account work really well. For others, the relationship is happier with separate finances.

What percentage of married couples have joint bank accounts?

Research indicates that 52% to 65% of married couples choose to have joint bank accounts. Another segment will have both a joint bank account as well as separate bank accounts.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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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Benefits of Using a Health Savings Account (HSA)

A health savings account, or HSA, is a tax-advantaged account that can be used to pay for qualified medical expenses including copays and deductibles, provided you have a high-deductible health care plan (HDHP).

By using pretax money to save for these expenses, an HSA may be used to help lower overall medical costs. What’s more, HSAs can also be a savings vehicle for retirement that allows you to put away money for later while lowering your taxable income in the near term. Here’s the full story on these accounts and their pros and cons.

Reasons to Use a Health Savings Account (HSA)

Here are some of the key advantages of contributing to and using an HSA.

HSAs Can Make Health Care More Affordable

An HSA is a tool designed to reduce health care costs for people who have a high-deductible health plan (HDHP). In fact, you must have an HDHP to open an HSA.

If you’re enrolled in an HDHP, it means you likely pay a lower monthly premium but have a high deductible. As a result, you typically end up paying for more of your own health care costs before your insurance plan kicks in to pick up the bill. Combining an HDHP with an HSA may help reduce the higher costs of health care that can come with this type of health insurance plan.

Some numbers to note about qualifying for and using an HSA:

For 2024, the IRS defines an HDHP as having an annual deductible of at least $1,600 for single people and $3,200 for family plans. Annual out-of-pocket expenses cannot exceed $8,050 for single coverage and $16,100 for family coverage.

For 2025, an HDHP is defined as having an annual deductible of at least $1,650 for single people and $3,300 for family plans. Annual out-of-pocket expenses cannot exceed $8,300 for single coverage and $16,600 for family coverage.

For 2024, yearly HSA contributions have a limit of $4,150 for individuals and $8,300 for families. For 2025, the limit is $4,300 for individuals and $8,550 for families. For either year, people 55 or older can make an additional contribution of $1,000 per year, which is known as a catch-up contribution.

HSA contributions can be made by the qualified individual, their employer, or anyone else who wants to contribute to the account, including friends and relatives.

HSA Contributions Stretch Your Health Care Dollars

Contributions are made with pretax money and can grow tax-free inside the HSA account. Because money in the account is pretax — Uncle Sam never took a bite out of it — qualified medical expenses can essentially be paid for at a slight discount.

HSA Funds Can Be Used for Many Health Care Expenses

The money you contribute to your HSA can be used on an array of health care expenses that aren’t paid by your insurance. Rather than dipping into your checking or savings account, you can use an HSA to pay for qualified medical costs. The IRS list of these expenses includes:

•   Copays, deductibles, and coinsurance

•   Dental care

•   Eye exams, contacts, and eyeglasses

•   Lab fees

•   X-rays

•   Psychiatric care

•   Prescription drugs

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

HSAs Offer Triple Tax Advantages

Another reason to start a health savings account is that putting money into an HSA lowers taxable income. The money contributed by a qualified individual to the account is pretax money, so it will be excluded from gross income, which is the money on which income taxes are paid.

This is the case even if an employer contributes to an employee’s account on their behalf. So if you earn $80,000 a year and max out your HSA contribution, you will only be taxed on $75,850. If you make any contributions with after-tax funds, they are tax-deductible on the current year’s tax return.

There are other considerable tax advantages that come with HSAs. Contributions can earn interest, or returns on investments, and grow tax-free. This tax-free growth is comparable to a traditional or Roth IRA.

Here’s another HSA benefit: Not only are contributions made with pretax money, but withdrawals that are made to pay for qualified medical expenses aren’t subject to tax at all. Compare that to say, Roth accounts where contributions are taxed on their way into the account, or traditional IRAs where withdrawals are taxed.

Recommended: HSA vs HRA: What’s the Difference?

HSA Funds Are Investable

The funds in an HSA can be invested in ways that are similar to other workplace retirement accounts. They can be put into bonds, fixed income securities, active and passive equity, and other options. You could potentially be investing money in this way for decades prior to retirement.

Using an HSA for retirement might also be a good way to prepare for health care expenses as you age, which can be one of the biggest retirement expenses. According to some estimates, a 65-year-old couple may need $315,000 or more to cover health care costs over the rest of their lives. An HSA could be a good way to stash some cash to put towards those charges.

If you were to become chronically ill or need help with the tasks of daily living as you age, you might need long-term care at home or in a nursing facility. Medicare does not cover long-term care, but long-term care insurance premiums are qualified expenses and can be paid with HSA funds. Saving in an HSA before these potential costs arise may offset overall spending on health care expenses later in life.

The Money in an HSA Is Yours and Stays That Way

Another advantage of HSAs is that contributions roll over from year to year. In comparison, flexible spending account (FSA) funds, which also allow pretax contributions to save for qualified health care expenses, must be spent in the same calendar year they were contributed, or you risk losing the funds. HSAs don’t follow this same use-it-or-lose-it rule. There is no time limit or expiration date saying you must spend the money you contributed by a certain date.

What’s more, your HSA funds follow you even if you change jobs and insurance providers. It can be very reassuring to know those funds won’t vanish.

Disadvantages of Using a Health Savings Account

Here are some potential downsides of HSAs to note.

You May Not Be Qualified to Open and Contribute to an HSA

You may only open and contribute to an HSA if you are enrolled in a high-deductible health plan, or HDHP. The IRS defines this as having a deductible of at least $1,400 for an individual and $2,800 for a family for 2024; for 2025, the limits are $4,300 and $8,550, respectively.

If You Have Medicare, You Cannot Have an HSA

Once you enroll in Medicare, you can no longer contribute to an HSA, since Medicare is not an HDHP. If you previously opened an HSA, those funds are still yours, but you can’t continue adding to the account.

Not All Expenses Will Be Covered

There are a number of health care expenses that do not qualify for HSA coverage. These include:

•   Cosmetic surgery

•   Teeth whitening

•   Gym memberships

•   OTC drugs

•   Nutritional supplements

HSAs May Charge Fees

If you decide that a health care savings account is right for you, don’t be surprised if you are hit with fees when you open one. Some of these accounts may charge you every month to maintain the account, especially if a professional is advising you on investments. These fees may be as low as $3 or $5 a month or considerably higher.

You may also be assessed a percentage of the account’s value, with that fee rising as your account’s value increases. It’s important to read the fine print on any account agreement to make sure you know the ground rules.

You May Be Penalized for Early Withdrawal

Also note that if you withdraw funds from your account for something other than a covered medical expense before you turn 65, you could be hit with fees. These withdrawals will typically be subject to income taxes and a 20% penalty.

How HSAs and FSAs Differ

HSAs, as described above, are health care savings accounts for individuals who have a high-deductible health plan. Another financial vehicle with a similar-sounding name are FSAs, or flexible spending accounts. An FSA is a fund you can put money into and then use for certain out-of-pocket health care expenses. You don’t pay taxes on these funds. Two big differences versus HSAs to be aware of:

•   To open an FSA, you don’t need to be enrolled in an HDHP. This is only a qualification for HSAs.

•   The money put in an FSA account, if not used up by the end of the year, is typically forfeited. However, there may be a brief grace period during which you can use it or your employer might let you carry over several hundred dollars. With an HSA, however, once you put money in the account, it’s yours, period.

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No account or overdraft fees. No minimum balance.

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The Takeaway

Health savings accounts, or HSAs, offer a way for people with high-deductible health plans to set funds aside to help with health care expenses. The money contributed is in pretax dollars, and it brings other tax advantages. What’s more, funds in these HSAs can roll over, year after year, and can be used as a retirement vehicle. For those who qualify, it can be a valuable tool for paying medical expenses and enhancing financial health, today and tomorrow.

Looking for a bank that can help you boost your financial life?

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.


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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.


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.


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.


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

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When Should You Make Big Purchases?

If you’re making a big purchase, it can pay (literally) to know when prices are lowest, such as Black Friday, Cyber Monday, and other sale dates.

After all, if you are plunking down hundreds or thousands on a purchase, you likely want to get the best bargain possible. Here, you’ll learn about the best times to buy some of the most common big investment items. Happy shopping!

Televisions

If you’re interested in upgrading your home viewing experience, waiting for a sale could mean you score serious savings on the model you’ve had your eye on. There are a few times of year that TVs commonly go on sale. One way to score a deal on a new TV is to follow the release cycle.

Most television manufacturers release new models sometime between February and April every year, and while you could pick up the latest model, you could also find dramatic price cuts on last year’s models since retailers are looking to make room for newer inventory.

You can also find discounts on televisions in advance of events like the big football game in February, during Black Friday, and Cyber Monday.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Laptops

Buying a laptop can be a very personal choice. The demands you place on your computer may require more processing power than others, so it’s important to determine what you need out of a laptop before you begin browsing different brands and models. Deals may vary depending on the model that you need.

Macbooks and other Apple products usually get an upgrade once a year, though they don’t always follow a consistent release schedule or release all new products at the same time. If you see ads announcing new models, it may well mean that last year’s models are seeing price cuts.

Major PC manufacturers generally release new laptops three times a year — back-to-school season from June to September, holiday season from September to December, and spring from February to April. However, the best deals on laptops tend to appear at the heart of the back-to-school shopping season from July to August and from November to December, the peak of the holiday shopping season.

Outdoor Furniture

A great time to shop for outdoor furniture is generally when you won’t actually be able to use it. Typically, patio furniture goes on sale from Fourth of July to Labor Day, as retailers are trying to clear their inventory to make room for fall inventory. Usually the further you are from summer, the bigger the savings.

Recommended: $5,000 Personal Loan: How to Get One

Mattresses

Finding the perfect mattress can mean comfort, relaxation, and most importantly a restful sleep. So finding a supremely comfortable mattress and at a low price would be a huge win.

When buying a mattress there are a few times of year you can target to find reliably low prices. May is one of the best months to buy a new mattress. That’s because most sellers launch new models in June, and are eager to make space for the newer inventory.

It’s also worth looking for deals over popular shopping holidays, including but not limited to Memorial Day, Labor Day, and President’s Day. And don’t overlook Black Friday and Cyber Monday, where you can often find reasonable prices and good deals on mattresses. Amazon Prime Day can be another good time to swoop in and get a good deal.

Furniture

If you’re ready to spruce up your interior design with some new furniture there are two times you can look to find some major sales. The best time to buy furniture is typically either in winter or summer (usually January or July, to be specific). Usually, new styles are released twice a year, in February and August.

In January and July, retailers are eager to clear space for those new arrivals, so prices will generally be discounted. Floor models may be included as well, so you could ask about discounts on sample pieces to help you afford your purchase, whether you are thinking of using your credit card or a personal loan to pay for your new furniture.

And for an even better deal? Don’t be afraid to haggle! Furniture stores may be willing to negotiate, so consider asking them to sweeten the deal with a discount or freebie.

You may also find furniture deals around shopping holidays like President’s Day and Memorial Day.

Recommended: Can I Increase My Personal Loan Amount?

Engagement Rings

The thrill of falling in love and finally finding your match is invigorating. The cost of an engagement ring to make it official? Not as exciting. In 2023, Americans spent an average of $6,000 to buy an engagement ring. If the thought of dropping a few thousand dollars on a ring is less than thrilling, it could be worth planning your purchase so you can wait for the optimal time to buy.

If you’re wondering how to finance an engagement ring, know that there are a couple of times when you may be able to find a discount. Jewelry sales can be slow in the summer, so there may be sales to entice customers. There may also be seasonal sales after Christmas or after Valentine’s Day. Some jewelers may even be willing to negotiate on price to make the sale.

Household Appliances

Major household appliances like dishwashers, washing machines, stoves, and refrigerators can be expensive, so it makes sense to look out for discounts before you commit to a new model. Some great discounts on appliances can be found from September to October when manufacturers are releasing their latest product. This can make financing an appliance purchase easier.

Retailers will be trying to make room for newer models so you can often find considerable discounts during these months on new, but last year’s models. When it comes to refrigerators, the best time to purchase is usually in that spring, as that is when manufacturers release new models.

Black Friday and the Fourth of July are other great times to look for sales on household appliances. And if you plan on buying a new appliance from a brick and mortar store, it could be worth going toward the end of the month when salesmen are trying to meet their monthly quotas.

Tip: When you’re looking to upgrade or replace an appliance, always check for floor models and returned (but still fully functional) models when bargain hunting.

Fitness Equipment

Have your eye on a new treadmill or elliptical? January could be the right time to buy new exercise equipment as stores are eager to take advantage of New Year’s resolutions to get fit or lose weight.

Also look for Black Friday, Cyber Monday, and Amazon Prime Day discounts.

Cars

Dealerships generally offer great deals during year-end sales events. Some dealers anticipate cars as gifts for the holidays. Car dealerships are also looking toward the new year, which means they’ll need to make space for newer models on the lot. For some dealers, December is one of their biggest sales months.

You may also secure a good deal on a new car during holiday weekends when dealerships run promotions. Dealerships are also more likely to offer a deal on older models, anticipating a new release. Typically, new models are released in September and October, so you might also look for deals in late August. This intel can help you get your financing for a car purchase ready in time to go shopping.

The Takeaway

The best time to make a large purchase will depend on the item. There are a few shopping holidays, like Memorial Day, Labor Day, and Black Friday, when retailers are known to offer deep discounts on some items. When shopping for a big-ticket item it can be helpful to do your research, shop around, and in some cases, negotiate to secure the best deal.

Even timing your purchase to secure a deal at peak savings can mean a hefty bill. Instead of charging the expense to your credit card, consider applying for an unsecured personal loan, which likely offers a lower interest rate.

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 NerdWallet’s 2024 winner for Best Personal Loan overall.



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


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

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

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


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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What to Know Before You Borrow Money Online

What to Know Before You Borrow Money Online

There are a variety of ways to borrow money when cash is needed. A few common places to start might be traditional banks or credit unions, or maybe a friend or family member who’s willing and able to consider lending.

If none of those options sound appealing, another option might be to borrow money online. Online lenders are becoming a more mainstream, acceptable alternative to traditional banks. What’s behind this increase in online lending, and what are some ways to borrow money online?

Why Have Online Lenders Grown in Popularity?

When lockdowns started in response to Covid-19 in 2020, people had to find different ways to do things they might have been accustomed to doing in person. Banking and other financial transactions were among those things. Brick-and-mortar banks limited access to branches or hours they were open, and retailers were hesitant to accept physical money. But transactions needed to keep happening, so consumers began moving online to complete them.

Familiarity, for Some Customers

A growing proportion of consumers is accustomed to using computers for many aspects of daily life, and making online financial transactions is no different. More people may be looking for things like:

•   Online applications.

•   Streamlined underwriting processes.

•   Automated funds transfers.

A Different Kind of Personal Service

Whereas in the past, personalization meant having a face-to-face relationship with a banker, personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like things that can be more quickly accessed online, such as:

•   Personalized financial trends in a portfolio so they can make informed decisions about their financial goals.

•   Insights about their spending and saving so they can budget monthly income and expenses to meet their needs.

Time Saving

Customers may also want an experience that saves time. Automating tasks is a timesaver that can easily be done with online financial tools. In the case of online lending, the option to set up automatic bill payments and automate other tasks are likely to be considerations when a customer is choosing an online financial company.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Where to Borrow Money Online

When looking for an online lender, you may want to consider the reputation of the lender, safety precautions the lender has in place, or types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction.

Banks

A traditional bank may be a good option for someone who is more comfortable sharing private financial information at an in-person meeting or who doesn’t know how to borrow money online.

Applying for a loan through a traditional bank might include a visit to a brick-and-mortar branch of the bank along with online components, making this a hybrid approach. Since traditional banks have upkeep costs related to physical locations, their fees or interest rates might be higher than other lending options.

Recommended: How to Get Approved for a Personal Loan

Credit Unions

Similar to banks, credit unions generally have physical locations, but may also have online services. Financial services offered by credit unions are similar to banks and other financial institutions. There are usually specific requirements to be a member of a credit union, such as employment-related or residence in a particular region, or membership in a particular group. Credit unions may offer member benefits such as low fees, high savings rates, and low loan rates.

Peer-to-Peer Lending

Peer-to-Peer (P2P) lending is akin to matchmaking. A prospective borrower submits an application with an online marketplace, which matches the applicant with investors. Some online marketplaces for P2P lending are Prosper, Upstart, and Peerform. P2P lending may be a good place to look for an online loan for someone who isn’t able to qualify for a loan from a conventional lender, or if an alternative funding source is preferred.

Recommended: What Are Personal Loans Used For?

Online Lenders

The lack of brick-and-mortar branches might deter some customers but attract others. The deciding factor for some customers might be how well the process works for them, with less emphasis on having a face-to-face interaction.

Another factor in choosing online lending over in-person may be the speed of the process. Online loans and other financial transactions can sometimes be completed faster than going into the physical location of a traditional lender. This may be important for people looking to borrow money online instantly.

Options to Think Twice About

Along with favorable options for lending that are available, there are some that may not bring about the best financial outcomes.

Credit Cards

At its core, a credit card is a short-term loan — specifically, a line of credit. If the account balance is paid in full before each month’s due date, it’s a no-interest loan. Financial drawbacks arise, however, when that balance is not paid in full each month, carrying over a balance due.

Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.45% for new credit card offers. Even for existing customers, the APR is high, at an average of 20.68% currently. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.

Recommended: Personal Loan Calculator

Predatory Lenders

When people look for fast cash, there is probably someone out there who is willing to lend it to them — at a cost. If it seems like there is no other choice available, some people may take on a loan that can be difficult to pay off. Repeat borrowing is common with these types of loans.

•   Payday loans are short-term loans, typically to be paid off in the borrower’s next payday. Interest rates are extremely high, often 400% or more.

•   Title loans or pawn loans use a borrower’s vehicle or other item of value as collateral. The APR on a title loan can be as much as 300%, and lenders often charge additional fees.



💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

Choosing a lender depends on different factors for different people. Traditional lenders, online lenders, alternative lenders — each can be a valid choice for different financial needs. With online lenders becoming more commonplace, with established reputations in the financial marketplace, looking at options among them might be a good choice.

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 NerdWallet’s 2024 winner for Best Personal Loan overall.


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.


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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