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There are two basic types of credit: installment and revolving. An installment loan is a form of installment credit that is closed-ended and is repaid in fixed payments over a regular repayment schedule.

Some common types of installment loans are mortgages, auto loans, student loans, and personal loans. If you’re considering borrowing money, learn more about installment loans and how they work here.

What Is an Installment Loan?

An installment loan is a lump sum of money borrowed and paid back over time. Each payment is referred to as an installment, hence the term installment loan.

In contrast, revolving credit like credit cards can be borrowed, repaid, and borrowed again up to the approved credit limit.

Installment loans can be secured with collateral or they can be unsecured. Some loans may have fees and penalties. The interest rate may fluctuate, depending on whether you choose a fixed or variable rate loan.

Recommended: Personal Loan Calculator

What Is an Example of an Installment Loan?

Installment loans can have multiple uses. These include auto loans, personal loans, mortgages, and student loans.

Auto Loans

Borrowers can take out auto loans for new and used vehicles. Monthly installments average around 72 months, but shorter loans may be available.

Loans with longer terms tend to have higher interest rates. It may seem like you’re paying less because the monthly payments may be lower, but you could end up paying more over the life of the loan.

Mortgages

Mortgages, or home loans, typically have terms ranging from 10 to 30 years with installments paid back monthly. Depending on your mortgage, you’ll either pay a fixed interest rate — it won’t change throughout your loan — or variable, which can fluctuate after a certain period of time.

Personal Loans

Personal loans are more flexible types of loans in that borrowers can use them for most purposes — examples include home repairs or debt consolidation. Many personal loans are unsecured, and interest rates will depend on your credit history and other factors.

Recommended: What Is a Personal Loan?

Student Loans

Student loans help borrowers pay for their post-secondary education such as undergraduate and graduate tuition costs. They’re either federal or private, and terms and rates will depend on a variety of factors. (With private loans, you can’t access the protections of federal student loans, such as deferment and forbearance, for example.)

Some student loans have a grace period, a period after graduation during which you aren’t required to make payments. Depending on how the loan is structured, interest may not accrue. Not all student loans have a grace period, however, so it’s important to verify your repayment schedule before you finalize the loan.

Pros and Cons of Installment Loans

An installment loan may or may not be the best fit for your borrowing needs. Consider the advantages and disadvantages, so you understand what you’re agreeing to.

Pros of Installment Loans

Here are the upsides of installment loans:

Expense

Most installment loans allow borrowers to take out large amounts, helping them to cover large expenses. For instance, many borrowers can’t afford to buy a house with cash, so mortgages can provide a path to homeownership.

Regular Repayments

Installment loans tend to come with predictable payment schedules. If you take out a fixed-rate loan, your payment amount should be the same each month. Having that knowledge of when and how much you need to pay can make it easier to budget.

Plus, installment loans have a payment end date. As long as you keep making on-time payments, your loan will be paid off in a certain amount of time.

Taking a careful look at your budget to make sure you can afford the monthly payments is an important consideration.

Refinancing

You may be able to refinance your loan to a lower rate if you’ve built your credit or if interest rates go down. Refinancing may shorten your loan repayment schedule or lower your monthly payments.

There are typically fees associated with refinancing a loan, which is another thing to consider when thinking about this option.

Cons of Installment Loans

Next, consider the potential downsides of installment loans:

Not Open-Ended

Once you finalize the loan and receive the proceeds, you can’t borrow more money without taking out another loan. Revolving credit like credit cards allow borrowers to use funds continually — borrowing and repaying up to their credit limit.

Commitment

When you take out a loan, being committed to paying it down is essential. Since some installment loans can come with longer terms — think mortgages — it’s important to make sure your budget can handle the regular payment.

Charged Interest

Like other types of loans, you’ll need to pay interest on installment loans. The interest rate you’re approved for is dependent on factors such as your credit history, credit score, and others. Applicants who have a longer credit history and a credit score at the higher end of the range will most likely qualify for the most competitive rates. If you’re stuck with a higher rate because of your poor credit, you could be making larger payments and paying more in interest.

Aside from interest, you may have to pay fees to take out an installment loan. There may also be prepayment penalties if you want to pay off your loan early.

Installment Loans and Credit Scores

How you use an installment loan can affect your credit score. If a lender reports your activity related to the loan, it could affect your score in two ways:

•   Applying for a loan: A lender may want to check your credit report when you apply for a loan, which may trigger a hard credit inquiry. Doing so could temporarily lower your credit score.

•   Paying back a loan: Lenders generally report your activity to the three major credit bureaus. If you make regular, on-time payments, this positive mark on your credit report could raise your credit score. The opposite can happen if you’re behind on or miss payments.

💡 Recommended: Installment Loan vs Revolving Credit

Getting an Installment Loan

Since taking out an installment loan is a big financial commitment, you may want to consider the following best practices:

•   Shopping around: Getting quotes from multiple lenders is a good way to compare personal loans to find one that offers the best rates and terms for your financial profile.

•   Prequalifying for loans: Getting pre-qualified allows you to see what rates and terms you may qualify for without it affecting your credit score.*

•   Enhancing your borrowing profile: Check your credit report for any errors or discrepancies. Making corrections could have a positive effect on your credit score.

•   Adding a cosigner: If you can’t qualify for an installment loan on the merits of your own credit, you may consider asking someone you trust and who has good credit to be a cosigner.

Alternatives to Installment Loans

Here are a few alternatives to consider:

•   Using a credit card: If you don’t need a large sum of money or don’t know how much you’ll need to borrow, a credit card can be a smart choice. Paying the entire balance by the due date means you won’t have to pay interest. Paying at least the minimum amount due each month will keep you from incurring a late fee, but you’ll still pay interest on any outstanding balance.

•   Borrowing from your next paycheck: Some apps let you receive an advance on your next paycheck, if you meet qualifications. You agree to pay the advance back when your next paycheck is deposited into your bank account.

•   Borrowing from friends or family: Asking to borrow money can be an uncomfortable conversation to have. However, it may be an option if you can’t qualify for or would rather not take out a bank loan. Having a written agreement outlining each party’s expectations and responsibilities is a good way to minimize miscommunication and hurt feelings.

Recommended: Family Loans: Guide to Borrowing & Lending Money to Family

The Takeaway

If you’re looking for a loan, an installment loan might fit your needs. This is a loan that disburses a lump sum, which is then paid back over time. Shopping around for an installment loan is a good way to find the best rates and terms for your unique financial situation and needs.

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

FAQ

What is the meaning of installment loan?

An installment loan is a type of loan where borrowers take out a lump sum of money and pay it back in installments. Loan amounts can range from hundreds to thousands of dollars, and terms range from a few months to a few years.

What is an example of an installment loan?

Examples of installment loans include auto loans, personal loans, mortgages, and student loans.

Are installment loans bad for credit?

Making your scheduled monthly payments on time could build your credit score. On the flip side, late or missed payments can hurt your credit score.

What is the difference between a personal loan and an installment loan?

Personal loans are types of installment loans. Other types include student loans, mortgages, and auto loans.

Photo credit: iStock/Ridofranz

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-Q425-025

Both personal loans and credit cards provide access to extra funds and can be used to consolidate debt. However, these two lending products work in very different ways.

A credit card credit is a type of revolving credit. You have access to a line of credit and your balance fluctuates with your spending. A personal loan, by contrast, provides a lump sum of money you pay back in regular installments over time. Generally, personal loans work better for large purchases, while credit cards are better for day-to-day spending, especially if you are able to pay off the balance in full each month.

Here’s a closer look at how credit cards and personal loans compare, their advantages and disadvantages, and when to choose one over the other.

Personal Loans, Defined

Personal loans are loans available through banks, credit unions, and online lenders that can be used for virtually any purpose. Some of the most common uses include debt consolidation, home improvements, and large purchases.

Lenders generally offer loans from $1,000 to $50,000 or $100,000, with repayment terms of two to seven years. You receive the loan proceeds in one lump sum and then repay the loan, plus interest, in regular monthly payments over the loan’s term.

Personal loans are typically unsecured, meaning you don’t have to provide collateral (an asset of value) to guarantee the loan. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

Unsecured personal loans typically come with fixed interest rates, which means your payments will be the same over the life of the loan. Some lenders offer variable rate personal loans, which means the rate, and your payments, can fluctuate depending on market conditions.

Personal loans generally work best when they are used to reach a specific, longer-term financial goal. For example, you might use a personal loan to finance a home improvement project that increases the value of your home. Or, you might consider a debt consolidation loan to help you pay down high-interest credit card debt at a lower interest rate.

Recommended: Personal Loan Calculator

Key Differences: Credit Card vs Personal Loan

Both credit cards and personal loans offer a borrower access to funds that they promise to pay back later, and are both typically unsecured. However, there are some key differences that may have major financial ramifications for borrowers down the line.

•   Unlike a personal loan, a credit card is a form of revolving debt. Instead of getting a lump sum of money that you pay back over time, you get access to a credit line that you tap as needed. You can borrow what you need (up to your credit limit), and only pay interest on what you actually borrow.

•   Interest rates for personal loans are typically fixed for the life of the loan, whereas credit cards generally have variable interest rates. Credit cards also generally charge higher interest rates than personal loans, making it an expensive form of debt. However, you won’t owe any interest if you pay the balance in full each month.

•   Credit cards are also unique in that they can offer rewards and, in some cases, may come with a 0% introductory offer on purchases and/or balance transfers (though there is often a fee for a balance transfer).

Line of Credit vs Loan

A line of credit, such as a personal line of credit or home equity line of credit (HELOC), is a type of revolving credit. Similar to a credit card, you can draw from a line of credit and repay the funds during what’s referred to as the draw period. When the draw period ends, you’re no longer allowed to make withdrawals and would need to reapply to keep the line of credit open.

Loans, such as personal loans and home equity loans, have what’s called a non-revolving credit limit. This means the borrower has access to the funds only once, and then they make principal and interest payments until the debt is paid off.

Consolidating Debt? Personal Loan vs Credit Card

Using a new loan or credit credit card to pay off existing debt is known as debt consolidation, and it can potentially save you money in interest.

Two popular ways to consolidate debt are taking out an unsecured personal loan (often referred to as a debt or credit card consolidation loan) or opening a 0% interest balance transfer credit card. These two approaches have some similarities as well as key differences that can impact your financial wellness over time.

Using a Credit Card to Consolidate Debt

Credit card refinancing generally works by opening a new credit card with a high enough limit to cover whatever balance you already have. Some credit cards offer a 0% interest rate on a temporary, promotional basis — sometimes for 18 months or longer.

If you are able to transfer your credit card balance to a 0% balance transfer card and pay it off before the promotional period ends, it can be a great opportunity to save money on interest. However, if you don’t pay off the balance in that time frame, you’ll be charged the card’s regular interest rate, which could be as high (or possibly higher) than what you were paying before.

Another potential hitch is that credit cards with promotional 0% rate typically charge balance transfer fees, which can range from 3% to 5% of the amount being transferred. Before pulling the trigger on a transfer, consider whether the amount you’ll save on interest will be enough to make up for any transfer fee.

Using a Personal Loan to Consolidate Debt

Debt consolidation is a common reason why people take out personal loans. Credit card consolidation loans offer a fixed interest rate and provide a lump sum of money, which you would use to pay off your existing debt.

If you have solid credit, a personal loan for debt consolidation may come with a lower annual percentage rate (APR) than what you have on your current credit cards. For example, the average personal loan interest rate as of late 2025 is 12.25% percent, while the average credit card interest rate is now 20.03%. That difference should allow you to pay the balance down faster and pay less interest in total.

Rolling multiple debts into one loan can also simplify your finances. Instead of keeping track of several payment due dates and minimum amounts due, you end up with one loan and one payment each month. This can make it less likely that you’ll miss a payment and have to pay a late fee or penalty.

Both 0% balance transfer cards and debt consolidation loans have benefits and drawbacks, though credit cards can be riskier than personal loans over the long term — even when they have a 0% promotional interest rate.

Is a Credit Card Ever a Good Option?

Credit cards can work well for smaller, day-to-day expenses that you can pay off, ideally, in full when you get your bill. Credit card companies only charge you interest if you carry a balance from month to month. Thus, if you pay your balance in full each month, you’re essentially getting an interest-free, short-term loan. If you have a rewards credit card, you can also rack up cash back or rewards points at the same time, for a win-win.

If you can qualify for a 0% balance transfer card, credit cards can also be a good way to consolidate high interest credit card debt, provided you don’t have to pay a high balance transfer fee and you can pay the card off before the higher interest rate kicks in.

With credit cards, however, discipline is key. It’s all too easy to charge more than you can pay off. If you do, credit cards can be an expensive way to borrow money. Generally, any rewards you can earn won’t make up for the interest you’ll owe. If all you pay is the minimum balance each month, you could be paying off that same balance for years — and that’s assuming you don’t put any more charges on the card.

When Is a Personal Loan a Good Option?

Personal loans can be a good option for covering a large, one-off expense, such as a car repair, home improvement project, large purchase, or wedding. They can also be useful for consolidating high-interest debt into a single loan with a lower interest rate.

Personal loans usually offer a lower interest rate than credit cards. In addition, they offer steady, predictable payments until you pay the debt off. This predictability makes it easier to budget for your payments. Plus, you know exactly when you’ll be out of debt.

Because personal loans are usually not secured by collateral, however, the lender is taking a greater risk and will most likely charge a higher interest rate compared to a secured loan. Just how high your rate will be can depend on a number of factors, including your credit score and debt-to-income ratio.

Recommended: Using a Personal Loan to Pay Off Credit Card Debt

The Takeaway

When comparing personal loans vs. credit cards, keep in mind that personal loans usually have lower interest rates (unless you have poor credit) than credit cards, making it a better choice if you need a few years to pay off the debt. Credit cards, on the other hand, can be a better option for day-to-day purchases that you can pay off relatively quickly.

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 better to have a personal loan than a credit card?

Typically, credit cards carry a higher interest rate than personal loans, but each financial product has its pros and cons. Consider your situation and the particular use you have in mind for the funds to make the right decision or your needs.

Is it better to apply for a personal loan or a credit card?

Whether a personal loan or a credit card is best for you depends on your needs and your financial situation. Typically, personal loans have lower interest rates and can be appropriate for large expenditures. Credit cards can be convenient for daily spending, but it’s best to pay your balance in full every month to avoid high interest charges.

What are the cons of personal loans?

The downsides of personal loans can include possible high fees and interest rates (which usually depend on your credit score). In addition, if not managed responsibly, a personal loan could damage your credit score.

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-Q425-019

Because a credit score is an important indicator for determining a consumer’s creditworthiness when buying a car, those with excellent credit histories tend to have an easier time borrowing money on favorable terms compared to those with lower credit scores. However, industry data shows that high-risk borrowers remain viable candidates for auto loans. In other words, there is no universally defined credit score needed to buy a car.

Read on to learn how your credit score can affect buying a car, plus some tips for purchasing a car with a lower credit score.

What FICO Score Do Car Dealers Use?

There are a few different scoring models that car dealers may use for determining a customer’s credit score. They may use the FICO® Auto Score, an industry-specific model featuring a score range from 250 to 900. The auto industry also may use VantageScore® 3.0 or 4.0, which has a score range from 300 to 850.

No matter which scoring model is used, a bad credit score falls on the lower end of the range and a good credit score sits on the higher end of the range.

What Is the Minimum Credit Score to Buy A Car?

There may not necessarily be a minimum credit score required to buy a car. Consumers with deep subprime credit scores (300–500) have obtained financing for new and used vehicles in 2025, according to the credit bureau Experian. Although the percentage of borrowers in this category is very low, this indicates that even those with the lowest credit scores still may have access to auto financing.

Average APR by Credit Score Ranges

Consumers from all credit score categories have obtained auto loans in 2025, but car buyers with excellent credit histories tended to secure the lowest annual percentage rate (APR) financing, according to Experian. When assessing what is a good credit score to buy a car, Experian’s data confirms that consumers in the super prime and prime categories obtain the lowest interest rates on average for financing.

Based on June 2025 financing data for new vehicle purchases, here are the average APRs you can expect by credit score range:

•   Deep subprime (300-500): 15.97%

•   Subprime (501-600): 13.38%

•   Near prime (601-660): 9.97%

•   Prime (661-780): 6.78%

•   Super prime (781-850): 5.27%

How to Buy a Car With a Lower Credit Score

Obtaining a loan to purchase a new or used vehicle when you don’t have great credit can be cumbersome, but it’s not impossible. Here are some ways a consumer with poor credit may be able to obtain auto financing:

Make a Large Down Payment

Offering a large down payment on a vehicle purchase may allow car buyers to obtain more reasonable rates and better terms for financing, resulting in more affordable monthly loan payments. By putting more money down at the time of purchase, lenders also may view the loan as less risky, thus increasing your odds of approval.

Get Cosigner Assistance

Buying a car with the assistance of a cosigner is another way to potentially bolster your chance of securing favorable financing. A cosigner agrees to share the responsibility of repaying the loan, effectively promising the lender that if you don’t make the payments they will. If the cosigner is creditworthy, it puts the buyer in a much better position to obtain financing than going it solo.

Consider a Less Expensive Car

Especially if you are buying a car with bad credit, it is important to know how much you can realistically afford to spend — and then stick to that budget, even if the dealer tries to upsell you. Additionally, finding a less costly car will reduce the amount you need to borrow, and it may be easier to get approved for a smaller loan amount than a larger one.

Benefits of Good Credit When Buying a Car

The benefit of a good credit score when buying a vehicle is that you may secure lower interest rates compared to consumers with poor credit. Unless a consumer buys a vehicle outright with cash or receives 0% APR financing, the consumer will eventually face monthly principal and interest payments until they’ve paid off the loan balance in full. Auto financing terms may vary in length, with some maturing at 60 months, 72 months or 84 months.

Car loans with a high APR may cause consumers to pay a long-term premium above and beyond the actual sales price of the vehicle.

How to Monitor Your Credit Score

There are a number of ways you can monitor your credit score for free, including through your credit company or another financial institution where you have an account, as well as through a credit service or credit scoring website.

Contrary to what you may expect, your credit report does not include your credit score, though it does provide valuable information about your credit history and debts, which is why it can still be helpful to read over your credit report before making a major purchase like a car.

Credit scores can fluctuate over time depending upon financial circumstances, and credit score updates occur at least every 45 days. That’s why it’s important to take a look at where your score stands right before you begin the process of car shopping.

Also keep in mind that it’s common for credit inquiries to occur when you’re shopping around to see what auto loan terms you qualify for. While soft inquiries don’t affect your credit score, hard inquiries, such as those that happen when you’re comparing rates for an auto loan, can ding your score. However, most major credit scores will count multiple car loan inquiries made within a certain period of time — typically 14 days — as one inquiry.

What to Expect in 2025

Based on the trends outlined in Experian’s Q2 report for 2025, prime borrowers with good credit in 2025 may continue shifting away from gas-powered vehicles in favor of new electric and hybrid vehicles.

Experian’s research also shows that subprime financing remains low, with less than 6% of new car loans and less than 25% of used car loans in 2025 going to consumers in the subprime risk category. These trends could continue through 2026.

The Takeaway

While it is possible to buy a vehicle with bad credit in 2025, consumers in the subprime or deep subprime risk categories may want to explore ways of improving their credit scores to help secure financing with more favorable terms. As far as what credit score you need to buy a car, any score is potentially sufficient for obtaining financing.

If you want to check your credit or work to improve your score before buying a car, a money tracker app allows you to easily keep track of your credit score.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

Photo credit: iStock/tolgart

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

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

SORL-Q425-028

When it comes to your money, the more you know, the better equipped you are to make informed financial decisions. One piece of your overall financial picture that you may want to understand is how much you’re “worth.” This information can help you understand where you are with your finances now and what you need to do to reach your goals for the future.

Before we look at a net worth growth calculator table that shows you how you compare against other people your age, let’s dive a bit deeper into what net worth is and why it’s important.

What Is Net Worth?

Net worth is simply a total of all your assets minus any debts you have.

Those assets can include cash, real estate, intellectual property, and other items like jewelry, stocks, insurance policies, and bonds. The cash may come from a job you have or from unearned income, such as your Social Security payment

Having multiple assets does not necessarily mean you have a high net worth, particularly if you also carry significant debt. For example, you may have a million-dollar mansion, but if you have debts of $500,000, your net worth dwindles rapidly.

💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

How Does a Net Worth Calculator Work?

There are many personal net worth calculators available online, though you don’t need one to calculate your net worth. Just take the total amount of all your assets and subtract the total amount of your liabilities:

Some calculators will also factor in future growth so you can understand what your net worth will be in the future, as the value of your assets grows.

Recommended: What Is Disposable Income?

How to Calculate for Net Worth

As you can see, it’s fairly easy to calculate your net worth, though it may take time to gather the values of all your assets, such as the current value of a piece of high-end jewelry. But once you do, you can add up all your assets and then subtract your liabilities to calculate your net worth.

What Is the Average American Net Worth?

Knowing your own net worth is one thing, but where does it stand against other people in your age bracket? Generally, people see an increase in their net worth the older they get, and it can be helpful to use a net worth percentile calculator by age to see where you stand.

Here’s the average net worth by different age groups, according to the most recent data available from the Federal Reserve.

Why Is Net Worth Important?

Calculating your net worth is smart because it can help you understand where you’re strong financially (maybe you have little debt) and where you’re weak (maybe you’ve overextended your credit to buy your home).

It may also help you make plans for the future. For example, if your net worth is high, you might explore strategies for reducing taxable income, such as contributing more to a tax-deductible retirement account. And if your net worth isn’t where you’d like it, you can take steps to improve it.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

How to Increase Your Net Worth

If you’ve used a liquid net worth calculator, or compared your net worth to the table above and don’t feel like your numbers are as high as you’d like them to be, you can do a few things to increase your net worth.

If your debt levels are high, you can increase your net worth by decreasing that debt. Get a plan for paying off credit cards, student loans, car loans, and home mortgages. Consider increasing the amount you pay on each slightly to shorten your repayment period and decrease the amount of interest you pay on these loans and credit cards.

Creating a budget is one way to keep tabs on your finances as you’re paying off debt. A money tracker app can help make the job easier.

If you don’t have an abnormally high amount of debt but want to increase your assets, you might explore making more money. If you’re still in the workforce and have the ability to make a career change, you might consider cultivating potential high-income skills that could help you command a higher salary.

If you’re retired, you could take on part-time flexible work.

Recommended: Smart Financial Strategies to Reach Your Goals

The Takeaway

You may not be able to match the likes of Jay-Z and Beyoncé when it comes to net worth, but knowing yours can help you make smart financial decisions for the future. To figure out your net worth, you can subtract the total amount of your liabilities from the total amount of your assets. You can also use a personal net worth calculator; some will even factor in future growth.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How do I calculate your net worth?

Net worth can be calculated by subtracting all your liabilities from your assets. In other words, subtract everything you owe (debts, loans, credit card debts) from everything you have (cash, property, real estate, jewelry, stocks).

What is a good net worth by age?

A “good” net worth depends on your financial goals and age. For example, the average net worth for 35-44 year-olds is $548,070. Yours may be higher or lower than this.

What net worth is considered rich?

According to a 2025 survey conducted by Charles Schwab, Americans need an average net worth of at least $2.3 million to feel wealthy. However, that amount varies based on where you live.

Photo credit: iStock/Kanatip Chulsomlee

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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.

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

SORL-Q425-008

Putting in a pool can turn your backyard into an oasis for parties, playtime for kids, and weekend relaxation. However, installing an in-ground swimming pool costs $65,909 on average in 2025. This expense can leave many homeowners wondering how to cover the cost of installing a swimming pool.

Fortunately, there are several options for financing a pool, including a cash-out refinance, a home equity loan or credit line, and a personal loan. Read on for a closer look at different types of pool financing and their pros and cons.

Key Points

How to Finance a Swimming Pool

If you don’t have enough money saved to pay upfront for a pool — or even if you do — you might be wondering what types of loans or other options are appropriate for this type of backyard remodel.

There are several pool financing choices available to homeowners — including credit cards, pool company financing, cash-out refinancing, home equity loans, home equity lines of credit, and home improvement loans.

Before you take the plunge into financing a pool, it’s a good idea to consider the pros and cons of each type, including the overall costs of borrowing and whether you might qualify for a particular type of loan. What follows is a guide to four of the most popular pool financing options.

Using a Cash-Out Refinance to Pay for a Pool

If you have significant equity built up in your home, you may want to consider a cash-out refinance. Equity refers to the amount of your home’s value that you’ve actually paid off. Put another way, it’s the difference between your mortgage balance and your home’s current value.

With a cash-out refinance, you replace your existing mortgage with a new mortgage for a larger amount. You receive the overage as cash back, which you can then use to cover virtually any expense, including the installation of a swimming pool.

Pros of a Cash-Out Refinance

A cash-out refinance comes with a number of potential benefits:

•   Access to large loans You may be able to borrow up to 80% of your home’s equity, which could be enough to cover the cost of putting in a pool — and maybe even some extras, like a new barbecue or lounge chairs.

•   A lower rate Borrowers with good or improved credit, or those who bought their home when interest rates were higher, may be able to refinance to a lower interest rate.

•   Potential tax deductions A mortgage interest tax deduction may be available on a cash-out refinance if the money is used for capital improvements on your property. (Consult with a tax professional for more details on how this applies to your situation.)

Cons of a Cash-Out Refinance

There are also some downsides to going the cash refi route, including:

•   Involved application process Borrowers must go through the mortgage application process all over again to get a new loan, which usually means submitting updated information, getting an appraisal, and waiting for approval.

•   Closing costs You may have to pay closing costs, generally from 2% to 6% of the total loan amount. (That’s the old loan plus the lump sum that’s being added.)

•   Foreclosure risk Your mortgage is a secured loan, which means if you can’t make your payments, you could risk foreclosure.

Using a Home Equity Line of Credit to Finance a Pool

Another way you can use your home’s equity to finance a pool is to take out a home equity line of credit (HELOC).

A HELOC is a revolving line of credit that uses your home as collateral. It works much like a credit card in that:

•   The lender gives you a credit limit to draw from, and you only repay what you borrow, plus interest.

•   As you pay back the money you owe, those funds become available to you again for a predetermined “draw” period (usually five to 10 years).

Pros of a HELOC

Here’s why a HELOC can be a popular way to pay for home improvements like adding a pool:

•   Flexibility Instead of borrowing money in one lump sum, a HELOC allows you to tap into the line only as needed. Plus, you only pay interest based on the amount you actually borrow, not the entire amount for which you were approved, as you would with a regular loan.

•   Low rates The interest rates are generally lower than credit cards and unsecured personal loans.

•   Potential tax deductions The interest on HELOC payments might be tax deductible if the funds were used to buy, build, or substantially improve your home, and you itemize your deductions.

Cons of a HELOC

HELOCs also have a few potential drawbacks, which include:

•   Variable interest rates HELOCs generally come with a variable interest rate, which means when interest rates increase, the monthly payments could go up. Although there may be a cap on how much the rate can increase, some borrowers might find it difficult to plan around those fluctuating payments.

•   HELOCs are easy to use — and overuse Some of the same things that can make a HELOC appealing (easy access to cash, lower interest rates, and tax-deductible interest) could lead to overspending if borrowers aren’t disciplined.

•   Foreclosure risk A HELOC is secured by an asset (your house). If you stop making the payments on the HELOC, you could lose your home.

Recommended: Guide to Unsecured Personal Loans

Using a Home Equity Loan for Pool Financing

A home equity loan is yet another way to tap into the money you’ve already put into your home. But unlike a HELOC, borrowers receive a lump sum of money.

Pros of a Home Equity Loan

There are different types of home equity loans which all offer a way to tap into the money you’ve already put into your home. But unlike the case with a HELOC, borrowers receive a lump sum of money.

•   Predictable payments Unlike HELOCs, which typically come with a variable interest rate, home equity loans usually have a fixed interest rate. The borrower can expect a reliable repayment schedule for the duration of the loan.

•   Low rates Because it’s a secured vs. unsecured loan, lenders usually consider a home equity loan lower risk and, therefore, offer lower rates. Secured loans also tend to be easier to qualify for than unsecured loans.

•   Potential tax deductions And, once again, there is a potential tax break. If the loan is used for capital improvements to the home, and you itemize your deductions, the interest may be deductible.

Cons of a Home Equity Loan

There are also some downsides to a home equity loan:

•   Rates may be higher than HELOCs Because a home equity loan’s interest rate won’t fluctuate with the market, the rate for a home equity loan is typically higher.

•   Closing costs As with most loans involving real estate, you’ll likely have to pay closing costs. These costs can range from 2% to 5% of the loan amount.

•   Foreclosure risk You may put your home at risk for foreclosure if you can’t make your loan payments.

Using a Personal Loan

You don’t necessarily have to tap into your home’s equity to finance a swimming pool. Many banks, credit unions, and online lenders offer unsecured personal loans that can be used for home improvements, including the installation of a swimming pool.

If you haven’t owned your home for long, or if your home hasn’t gone up much in value while you’ve owned it, a personal loan may be worth considering.

Pros of a Personal Loan for Pool Financing

Here’s a look at some of the advantages of using a personal loan for a home renovation like a pool:

•   Simple application process Applying for an unsecured personal loan is typically quicker and simpler than applying for a secured loan. With a personal loan, you don’t have to wait for a home appraisal or wade through the other paperwork necessary for a loan that’s tied to your home’s equity.

•   Fast access to funds Personal loan application processing and funding speeds vary, but many lenders offer same- or next-day funding.

•   Lower risk Because your home isn’t being used as collateral, the lender can’t foreclose if you don’t make payments. (That doesn’t mean the lender won’t look for other ways to collect, however.)

Cons of a Personal Loan for Pool Financing

Personal loans also come with some disadvantages. Here are some to keep in mind:

•   Higher interest rates Personal loans are unsecured, which means they generally come with a higher interest rate than secured loans that use your property as collateral. (However, borrowers who have good credit and don’t appear to be a risk to lenders still may be able to obtain loan terms that work for their needs.)

•   Origination fees Many (though not all) personal loan lenders charge an origination fee of between 0.5% and 8%, adding costs you might not have anticipated.

•   Less borrowing power Personal loan amounts range from $1,000 to $100,000 but how much you can borrow will depend on the lender and your qualifications as a borrower. With a home equity loan or credit line, you may be able to access more — up to 80% of your home’s value, minus your outstanding mortgage.

Should You Finance a Pool?

Installing a pool is an expensive home improvement, so you may need to borrow some money to pay for all or part of the project. Even if you have enough cash saved to pay upfront for a pool, you may still want to consider financing some or most of the project if you want to keep cash accessible for emergencies and other needs.

Financing with a low-interest loan (provided you can afford the payments) can make paying for a pool manageable. But before you borrow a large sum, you may want to consider how long you plan to live in your current home, how much pool maintenance might cost each month, if you’ll actually use the pool enough to make it a worthwhile purchase, and if the value added to your home is worth the investment.

The Takeaway

With an average cost of $65,909 in 2025, installing an in-ground pool is a costly proposition, but one that can be a wonderful addition to a home in terms of enjoyment and value. If you have significant home equity, you might consider using a cash-out refinance, home equity loan, or HELOC to finance your pool. Or it may be worth looking at a personal loan for pool financing.

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 is it to install an in-ground pool?

As of 2025, the cost to install an in-ground pool is approximately $65,909, according to the home improvement website Angi. Costs may vary based on size, location, materials, design, and other factors.

How can I finance a swimming pool?

There are several ways to finance a swimming pool for your home. You might leverage your home equity with a home equity loan or home equity line of credit (HELOC). Or you might consider a home improvement personal loan.

Can I get an in-ground swimming pool for $20,000?

Whether $20,000 is a sufficient budget for an in-ground pool depends on several factors. Given that the average cost is currently about $66,000, you would likely have to get a very small pool (say, a plunge pool) and live in an area with a very low cost of living in order to keep costs in the $20,000 range.

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