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What Is a Good APR for a Credit Card? Here’s What to Look For

When it comes to picking a new credit card, there’s one detail you should not overlook: the card’s annual percentage rate, or APR. This represents the rate lenders charge to borrow, including fees and interest. But credit cards don’t have one single rate, and it may be hard to evaluate what’s a good deal and what isn’t.

In general, a good APR is one that’s below the current average interest rate, which is 21.47%, according to the latest data from the Federal Reserve at the start of 2024. However, what’s a good APR will also depend on the type of credit card, the various rates that could be assessed, and your own creditworthiness. This guide will take you through the details.

What Is an Annual Percentage Rate (APR)?

The APR on a credit card represents the total cost of the loan expressed in annual terms. A credit card’s APR includes the interest rate as well as any fees, including for late payments, foreign transactions, or returned payments.

Taking these fees into account when applying for a credit card helps to provide a fuller picture of what the loan may actually cost over its lifetime.

Keep in mind that APR is distinct from interest rate, which is simply the additional cost of borrowing money. Like APR, interest rate is typically expressed as a percentage of the principal. However, when looking at the average credit card interest rate vs. the average APR, you’re not comparing apples to apples.

For example, if a consumer takes out a $1,000 loan with a 10% simple interest rate and a one-year term, they will pay $1,100 over the lifetime of the loan — the principal $1,000 plus interest of $100.

While this example is extremely simplified, it’s helpful in demonstrating the difference between a simple interest rate and a not-so-simple APR calculation. If the consumer calculates the cost of the same $1,000 loan, considering the various fees that go into the APR, the number will likely be higher than the stated interest rate.

How Is APR Determined?

Knowing how APR is determined is an important part of understanding how credit cards work. A credit card’s APR is largely determined based on an individual’s financial specifics when they open the account.

•  The lender will look at the person’s credit score and credit history, as well as factors like their payment history and debt-to-income (DTI) ratio, which represents how much of an individual’s gross income is already going toward debt payments. In general, someone with a good payment history and credit score and a lower DTI ratio will qualify for a better APR.

•  However, APR isn’t only based on a borrower’s creditworthiness. Lenders will also take into account the current US prime rate, which is used to set rates on consumer loan products. Typically, a lender will take this rate and then bump it up a bit to minimize risk and increase profits.

•  Lastly, APR will vary based on the type of credit card. If you know what a credit card is, you’ll know all credit cards aren’t created equal. For instance, a credit card that offers lucrative rewards (like travel points or cash back) will generally have a higher APR than a more basic card.

When It Matters to Look at APR

If a consumer is comparing two similar loan or credit card offers, they may want to also look at the offer’s APR.

Let’s say a person has two loan offers. Each is a $1,000 loan with an interest rate of 10%. With just that information to compare the two, they seem equal to each other. A little more digging, though, will uncover that Offer A has a $100 origination fee while Offer B only has a $50 origination fee — both of which could be calculated and accounted for in the offer’s APR.

With credit cards, it could be that two cards have the same interest rate, but Card A has no late payment fees, while Card B carries a 20% late payment fee, making its APR potentially higher.

When it comes to APR, the devil really is in the details. And reading the fine print can reveal that the APR could make a difference to your credit card balance and debt management.

Types of Credit Card APR

To further complicate the answer to the question of what’s a good APR for a credit card, it’s important to understand that credit cards have different types of APR. The main one you’re probably going to want to consider when considering your total cost of borrowing is the purchase APR. However, if you’re planning to take out a cash advance or do a balance transfer, you’ll want to look at those APRs as well.

Introductory APR or Promotional APR

Sometimes, cards will offer a lower (or even 0%) APR to new customers for a limited time after they open the account. This APR can apply to purchases or to balance transfers. Introductory or promotional APRs must last at least six months, but they can be longer, too. Once this period is up, the regular APR kicks in.

Purchase APR

The purchase APR is the rate that applies when you use your credit card to make a purchase and then carry a balance into the next billing cycle, perhaps only making the credit card minimum payment. This is the most commonly discussed type of APR, and the main one you’ll want to look out for when comparing credit cards.

Cash Advance APR

A cash advance APR applies if you withdraw money from an ATM or bank using a credit card. Unlike your purchase APR, this APR doesn’t have a grace period, meaning interest starts accruing immediately. Additionally, cash advance APRs tend to be on the higher side.

Penalty APR

If you fail to make your payments on time, the penalty APR will kick in, driving up your card’s previous APR to one that’s often much higher. This is why it’s always important to make your credit card payments on-time — even if you’re in the midst of disputing a credit card charge, for instance.

Balance Transfer APR

A balance transfer APR will apply when you transfer any balances from other cards onto your credit card account. Often, this APR is comparable to the purchase APR, though this can vary depending on the credit card company.

How to Evaluate and Compare APRs

To get a sense of a credit card’s APR, follow these steps:

•  First take a look at a card’s purchase APR range, and compare that to other credit cards. For a fair comparison, make sure to look at the same type of credit card. (For example, only compare travel rewards cards to other travel rewards cards, or a credit-building card to another credit-building card.)

•  Then, get into the nitty-gritty and look at the APR for different types of transactions. Even one credit card can have varying APRs on different transactions. For example, a card may have a different APR on late payment penalties than it does for balance transfers or cash advances.

•  Evaluate each APR and compare those to any other offer you may have in front of you to ensure you pick the most competitive option. It’s a good idea to attempt to seek out the lowest rate possible for your financial situation. That way, you can feel confident using your credit card for what you need to use it for — which might include paying taxes with a credit card.

Low vs High APR Credit Cards

As you’re evaluating credit card APRs, it’s important to keep in mind that some credit cards tend to have higher APRs than others. For example, rewards credit cards generally have higher APRs, but provide value through perks, discounts, points, or other benefits.

On the other hand, many low-interest cards come with fewer perks. But again, these cards can save someone money in the long run if they need to carry a balance from, say, covering a large purchase at an establishment that accepts credit card payments.

Low-interest cards also tend to be reserved for those with higher than average credit scores, so they may be harder to qualify for with lower credit.

What Is a Good APR for a Credit Card?

According to the Federal Reserve, the U. national average credit card APR was 21.47% in December 2023. It’s reasonable to assume that an APR at or below the national average is considered “good.”

That said, qualifying for a “good” APR may hinge on a consumer’s credit score. For instance, someone with a below-average credit score may have a different definition of a good APR for a credit card compared to someone whose score is excellent.

APR and interest rates also change alongside federal interest rates changes. Because of this, it’s important for consumers to find the most recent data available on average credit card APR to ensure they aren’t relying on out-of-date information to inform their decision.

How to Avoid Paying APR

The APR a person qualifies for typically depends on their individual credit score. This means that those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they’re totally out of luck, but they might be offered the same card at a higher APR.

However, there are a few ways a person can improve their chances of qualifying for a lower APR, and that starts by doing the work to build one’s credit score.

Tips for Qualifying for a Better APR

The APR a person qualifies for typically depends on their individual credit score. This means that those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they’re totally out of luck, but they might be offered the same card at a higher APR.

However, there are a few ways a person can improve their chances of qualifying for a lower APR, and that starts by doing the work to improve their credit score.

•  One step is to check your credit report regularly for accuracy. US federal law allows consumers to get one free credit report annually from each of the three credit reporting agencies. Look out for any incorrect or suspicious charges. Even if you’d thought you’d resolved an issue related to a credit card skimmer, for instance, you’ll want to make sure those charges aren’t affecting your credit report in any way.

•  You can build your personal credit scores by making debt payments on time and trying to use only 30% of your available credit limit at any given time. Payment history accounts for 35% of the total credit score, and credit utilization — how much of a person’s total credit is being used at a given time — accounts for 30% of the total credit score.

Rebuilding a poor credit score can take some time, but it’s worth the work.

The Takeaway

Currently, the average credit card APR is 21.47%, and anything below that could be considered a good rate. However, when it comes to what is a good APR for a credit card, the answer is that it depends on a variety of factors. It will also depend on your credit scores and history as well as what type of credit cards and rewards you’re looking for. When you do get a credit card, it’s important to use it wisely so that you don’t wind up getting charged higher penalty rates.


Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is a bad APR rate?

A bad APR for a credit card is generally one that’s well above the current national average credit card rate. APR for a credit card can vary widely, with some offering APRs as high as a whopping 36%.

What APR will I get with a 700 credit score?

A credit score of 700 is considered in the good range. It’s likely you could qualify for an APR around the average, though of course this will also depend on other factors, including the type of card and the current prime rate.

Does the interest rate on my credit card change?

Your credit card company can increase your interest rate. However, they are not permitted to do so within the first year of opening the account. Additionally, they must give you notice at least 45 days in advance.

What other financial products have an APR?

Many different types of lending products have APR. Beyond credit cards, this can include mortgages, car loans, and personal loans.


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.

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

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What Credit Score Do You Need to Buy a Car in 2021?

What Credit Score Do You Need to Buy a Car in 2024?

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.


💡 Quick Tip: Your credit score updates every 30-45 days. Free credit monitoring can help you learn about your score’s normal ups and downs — and when a dip is cause for concern.

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 2023, 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.

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*


Average APR by Credit Score Ranges

Consumers from all credit score categories have obtained auto loans in 2023, 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.

Quarterly financing data on new vehicle purchases in the fourth quarter of 2023 shows the following average APRs by credit score ranges:

•   Deep subprime (300-500): 14.78%

•   Subprime (501-600): 12.28%

•   Near prime (601-660): 9.60%

•   Prime (661-780): 7.01%

•   Super prime (781-850): 5.64%

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 check your credit score, 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 2024

Based on the trends outlined in Experian’s Q4 report for 2023, prime borrowers with good credit in 2024 may continue shifting away from used vehicles in favor of new electric vehicles. Experian’s research also shows that subprime financing remains low, with 14.5% of car loans in 2023 going to consumers in the subprime risk category. These trends could continue through 2024.


💡 Quick Tip: One way to raise your credit score? Pay your bills on time. Setting up autopay can help you keep your account in good standing.

The Takeaway

While it is possible to buy a vehicle with bad credit in 2024, 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 monitor and 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.

See exactly how your money comes and goes at a glance.


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.

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

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

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Guide to Cross-Collateralized Loans

Understanding Cross-Collateralization: What It Is & How It Works

One type of loan that isn’t often discussed is cross-collateralized, also known as cross-collateral loans, which is a type of secured loan. If someone is looking to take out multiple loans through the same financial institution, it’s important that they understand what cross-collateralization is and when it can happen.

So, what is a cross-collateralized loan? Keep reading to find out.

What Is Cross-Collateralization?

Cross-collateralization is when a lender uses the collateral you put up for one loan, such as a car, to secure another loan you take out with that same lender. Collateral is an asset that acts as a loan guarantee. If the borrower fails to make their loan payments, the lender has the option to seize the collateral or to force the sale of the collateral to recoup its losses.

How Does Cross-Collateralization Work?

The way that cross-collateralization works is that the same form of collateral is used to back more than one loan. The collateral used needs to guarantee the loan value. For example, if someone takes out an auto loan, the car (which equates to the value of the loan) is used as collateral. Once that loan is partially paid off, the lender may be willing to use the car as collateral for a second loan. Generally, for cross-collateralization to work, that car also needs to be worth the same or more than the value of the both loans.

A common example of cross-collateralization is a second mortgage. If someone takes out a second mortgage on their home, the home is going to be used as collateral for both the primary mortgage used to purchase the home and the new second mortgage.

While cross-collateralization can involve using the same asset for similar loan types, it doesn’t have to happen this way. For example, a lender can use a borrower’s car as collateral for a new loan that isn’t an auto loan (such as a personal loan), even though the car is already being used as collateral for the auto loan.


💡 Quick Tip: Need help covering the cost of a wedding, honeymoon, or new baby? A SoFi personal loan can help you fund major life events — without the high interest rates of credit cards.

When Is Cross-Collateralization Used?

It’s more common to come across cross-collateralization in practice at credit unions and auto lenders. Unlike banks, credit unions are owned by the members of the credit union. To help protect this group against various losses, credit unions often use cross-collateralization to gain some extra security. Credit unions tend to have more favorable loan terms than larger financial institutions and banks, and members may secure those better terms by agreeing to cross-collateralization.

An example of this would be if a credit union member wants to finance their car through their credit union. Fast forward six months, and they want to take out an unsecured loan with a low-interest rate. The reason the credit union can offer an unsecured loan to the member at such a great rate is because they are actually securing the loan with the existing collateral from the member’s car loan.

The lender is legally obligated to disclose cross-collateralization, and the borrower must consent. It’s important to ask about cross-collateralization practices when taking out a new loan, however. Rather than verbally explaining the cross-collateralization to you, a lender could simply include a clause in the loan agreement allowing it to cross-collateralize any collateral you used on any loan with that lender. The wording in such a clause can vary by lender.

Once a form of collateral is being used to secure multiple loans, the borrower can’t sell that collateral. If the borrower isn’t aware that the collateral they put up for their original loan is also being used to secure the second loan, this could come as an unpleasant surprise. For example, a borrower might try to sell their car after paying off their car loan, believing they own it free and clear, only to discover that they can’t sell it until they pay off a second “unsecured” loan they have with that lender.

How Can You Get Out of Cross-Collateral Loans?

Getting out of a cross-collateralized loan without paying it off in full can be difficult. Plus, it can be challenging and expensive to move a cross-collateral loan to another lender, which can leave a borrower stuck with whatever rates and terms were offered to them when they took out the loan. That’s why it’s a good idea to read the fine print of any loan agreements before signing and confirming whether a bank or credit union plans to start a cross-collateral loan.

Pros and Cons of Cross-Collateral Loan

Pros

Cons

Typically easy to qualify for Larger risk of losing collateral
Potentially low cost Tied to just one lender
Allows borrowers to leverage existing assets May get stuck with unfavorable terms

There are some major advantages and disadvantages associated with cross-collateral loans that are worth taking into consideration before signing any loan documents.

Benefits

Here’s a look at some of the benefits of a cross-collateral loan.

•   Ease of qualification: Because cross-collateral loans are secured, they can be easier to qualify for than unsecured loans, for which the lender takes on more risk. Applicants with low credit scores may find it easier to qualify for this type of loan than some others.

•   Lower cost: Cross-collateral loans tend to be less expensive than unsecured loans. This type of loan tends to come with lower interest rates, which could lead to savings over the life of the loan. (However, they may come with longer repayment terms, which could increase total interest cost.)

•   Allows borrowers to leverage existing assets. Cross-collateral loans use an asset that is already trapped in an existing loan, and allows the borrower to get more value out of it by using it to ensure more loans.

Drawbacks

There are also some serious downsides associated with cross-collateral loans that are worth thinking carefully about.

•   Larger risk: If the borrower isn’t able to repay their debts, the lender can seize the asset acting as collateral.

•   Tied to just one lender: With a cross-collateral loan, more than one loan is being secured by the same asset all through one lender. This can make it hard and expensive to ever switch to a lender offering more favorable terms.

•   Unfavorable terms: Cross-collateral loans can have stricter terms to meet in order to protect the lenders on subsequent loans.



💡 Quick Tip: With lower fixed interest rates on loans of $5K to $100K, a SoFi personal loan for credit card debt can substantially decrease your monthly bills.

Cross-Collateralization and Bankruptcy

Cross-collateralization can become particularly complex during bankruptcy. For example, a borrower of a cross-collateral loan (using their car as collateral) who files for Chapter 7 bankruptcy will be required to either reaffirm the debt or surrender their car.

If they choose to reaffirm the debt and that loan is with a financial institution that has secured other sources of debt to the car, then they will need to pay off all of those debts in order to keep their car. Don’t forget, that borrower may not even be aware that some of their loans were cross-collateralized.

How cross-collateralization affects bankruptcy depends on the type of bankruptcy filed. Anyone dealing with cross-collateralization complications during bankruptcy may find that consulting a bankruptcy attorney will help them determine what their next steps should be.

Recommended: Getting Approved for a Personal Loan After Bankruptcy

Applying for SoFi’s Personal Loans

If you’re looking for an alternative to a cross-collateralized loan with your existing bank or credit union, you may want to investigate taking out an unsecured personal loan through a different financial institution. Personal loans can be used to finance a variety of expenses, including large purchases, home repairs/renovations, medical expenses, car repairs, weddings, vacations, and more.

SoFi personal loans offer competitive fixed rates and same-day funding. Checking your rate takes just a minute

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is cross-collateralization legal?

Yes, cross-collateralization is legal. Many banks and credit unions practice cross-collateralization.

Who can and can’t cross-collateralize?

Borrowers who already have a secured loan at a financial institution may qualify for cross-collateralization. Lenders don’t always inform borrowers verbally that they are participating in cross-collateralization, so it’s worth confirming whether or not this is happening before taking on a second loan through the same lender.

Can you get out of cross-collateralization?

A major downside of cross-collateralized loans is that once a borrower has multiple sources of debt through the same lender that are cross-collateral loans, it can be difficult to move them to another lender. Paying off the loan is usually the best option for getting out of this type of loan.


Photo credit: iStock/mapodile

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


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

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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Selling a House With a Mortgage: Can You Do It?

Selling a House With a Mortgage: Can You Do It?

It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.

With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging.

Here’s everything you need to know about selling a home with a mortgage.

What Happens to Your Mortgage When You Sell Your Home?

When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.

A Typical Sale

In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.

A Short Sale

A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).

In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.

When You Buy Another House

There are several roads you can take when you buy another house before selling your own. You may have the option of:

•   Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.

•   Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.

•   Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.



💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Selling a House With a Mortgage: Step by Step

Here are the steps to take to sell a home that still has a mortgage.

Get a Payoff Quote

To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.

The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.

Determine Your Home Equity

Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.

When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.

Secure a Real Estate Agent

A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.

Set a Price

With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.

Accept a Bid and Open Escrow

After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?

You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.

Review Your Settlement Statement

You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.

Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home.


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

Selling a House With a Negative Equity

Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.

If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.

In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.

The Takeaway

Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit.

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


SoFi Mortgages: simple, smart, and so affordable.

FAQ

Who is responsible for the mortgage on the house during the sale?

The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.

What happens if you sell a house with a HELOC?

When you sell a home that has a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.

What happens to escrow money when you sell your house?

Your mortgage escrow account will be closed, and any money left will be refunded to you.

Can I make a profit on a house I still owe on?

Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.

Can I have two mortgages at once?

Yes, you can have two mortgages at once if the lender approves it.


Photo credit: iStock/Beton studio

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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


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


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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Business Cash Management Explained

Business Cash Management: Tips for Managing Cash

If you’re running a business, you probably know that managing cash is critical to your success — so let’s share some tips on doing that even better. Solid cash flow is vital to keep a business thriving, whether you’re a sole proprietor or the head of a larger enterprise. Even businesses with strong earnings can struggle with cash flow. That’s why cash flow can be a sure sign of how healthy a business is — or is not.

So let us help you optimize that cash flow. We’ll share some smart insights and helpful tips on:

•  What cash management for business is

•  Why it’s so important

•  Ways you can improve your business cash management

Let’s get started.

What Is Business Cash Management?

Simply put, business cash management is basically the way you track and manage the money coming into and going out of your business – usually on a cash flow statement. Positive cash flow means more money is coming in through revenues or borrowing than is being used to pay expenses, such as payroll and rent.

That said, good cash management also means not having too much cash on hand. In that scenario, business owners, while cautious, may be missing out on future earnings growth when they neglect to invest cash back into the business.

Here’s another way to frame this principle: Take a look at your business’s balance sheet and check the ratio of current liquid assets to liabilities. A ratio that’s greater than one indicates good health (you’re not losing money), but if that ratio gets too high, you could be holding onto too much cash or other assets that could better be invested elsewhere.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

The Importance of Cash Management for Businesses

Cash flow is the essence of all businesses. Without cash, a business will struggle to meet expenses, pay suppliers, repay any investors, and, often most importantly, grow the business through marketing and/or new opportunities.

Strong cash management strategies can help business owners avoid taking on debt. It also gives them more control over everyday activities, decisions, and growth opportunities. What’s more, smart cash management is the best way for owners to fulfill their vision for their enterprise while meeting both their short, intermediate and long-term needs. There’s certainly a lot riding on cash management, so let’s dive into ways to optimize it.

6 Tips for Managing Cash Flow

Cash management can be especially challenging for entrepreneurs and small business owners. Yet it is one of the most important financial strategies business owners must master. These six tips can help.

1. Learning Your Cash Flow Cycle

A cash flow cycle is the time it takes to purchase your supplies and materials (or prepare the work that goes into providing a service), transform them into a product, sell your offering, and collect payment that can go into your business bank account. Sounds simple but a lot can go haywire during that process.

That’s why it’s important for business owners to constantly update and monitor their balance sheets and profit and loss statements. Ideally, you want to know at any given time what happened in the cash-flow cycle last month. Also important: Knowing your projections for what’s going to happen next month.

Understanding your cash flow cycle can help identify and address inconsistencies such as a late-paying customer or a build-up of inventory. If your business is seasonal or cyclical, you want to be well-prepared for both the intensely busy times…and the lulls.

Recommended: How to Track Your Monthly Expenses: Step-by-Step Guide

2. Getting Payments on Time

Reminding customers to pay on time is one of the easiest but most necessary ways to manage cash flow. Late payments are a fact of life; common, even. Having receivables come in even a day or two past the due date can wreak havoc with your cash flow cycle and your bank account.

Consider setting up email reminders to all customers ten days, seven days, and two days before payment is due. Technology today makes it a snap to pre-schedule email blasts. If the payment is still late or only a partial payment was made, don’t hesitate to follow up with a personal note or phone call.

This simple solution can really work. Customers will pay more attention to timely payments when they know you are paying close attention.

3. Turning Over Inventory Quickly

Having an abundance of inventory on hand at a given time means that a bundle of cash is tied up in that unsold stock. That could be an issue, because those funds might otherwise be working to pay for operations and expenses. What’s more, if all of that inventory bought upfront doesn’t sell as expected, it could mean losses on top of that lack of cash. That could hurt your growth and business valuation.

Many small business owners have learned that, in terms of cash, it’s better to turn inventory more quickly. Of course, this will vary widely depending on your business – perhaps your product is handmade jewelry, perhaps its reconditioned air conditioners. As an example, you might want to boost inventory turn-over from twice a year to five times. More targeted marketing could contribute to this acceleration.

That said, finding the right inventory management to fit with your cash flow cycles takes some time and experience. Recent supply chain issues have shown how challenging inventory management can be. Again, constant monitoring of the cash flow cycle can help guide how you tweak things.

Recommended: How Much Does It Cost to Start a Business?

4. Understand Invoice Financing

Let’s say you hit a cash management hitch. If you do find yourself in a position where you have too much inventory on hand and you need cash to cover expenses, there is a path forward. Invoice financing companies will advance a full or partial amount of your outstanding invoices. You repay that amount plus interest after the invoice is paid.

This generally should only be considered as a stop-gap measure. Like credit cards, interest payments on invoice financing can add up fast and quickly get out of control. Consider the fact that annual percentage rates for invoice financing products can reach as high as a jaw-dropping 64%.

5. Cutting Costs

Monitoring and cutting costs on expenses is another tool for managing cash flow. After all, if less cash goes to pay overhead, more can be invested in the business. A few suggestions: Relying on online marketing efforts that can be less costly than traditional methods, outsourcing tasks that take too much time and money in-house, and reducing energy costs. You might also want to renegotiate outdated contracts and prices with suppliers. These are all areas business owners can consistently monitor to keep costs low.

💡 Quick Tip: Are you paying pointless bank fees? Open a checking account with no account fees and avoid monthly charges (and likely earn a higher rate, too).

6. Comparing Loans

Sometimes, a business could use a helping hand to smooth out its cash flow. Let’s say you have outstanding accounts receivable — in other words, you know money is due but you don’t have it yet — and you need the cash now. In this situation, taking a business loan can be an option to help bridge the gap.

Cash flow loans (like invoice financing explained above) are short-term loans or lines of credit. These are often used to cover expenses or to take advantage of opportunities that can increase revenue.

A working capital loan is another option that can be used to finance everyday business operations such as rent, payroll, or restocking inventory. These loans are not designed to finance long-term assets or investment. Companies with seasonal or cyclical sales often rely on working capital loans to provide relief during slow periods.

One caveat: Working capital loans are often tied to your personal credit, so missed payments or defaults will affect your credit score. Consider that carefully before you sign on.

In addition, there are a variety of small business loans available that are used to finance long-term expenses such as real estate, equipment purchases, or business expansion. These include SBA loans, business lines of credit, and term loans.

Whatever type of loan you choose, be sure to compare your options carefully. Look at terms, APR, and how much lending you qualify for among several lenders before taking on any short or long-term debt. Spending some time and energy on research will help ensure you get the right form of financing.

The Takeaway

Cash flow management is an essential part of running a successful business of any size. Carefully monitoring cash flow, and learning some simple strategies to maximize it can take your small business to the next level.

Whether your business is a full-time job or just a side gig, it’s important to keep your business cash flow separate from your personal cash flow. In both cases, you’ll want to find a bank account that pays a competitive rate, charges no or low fees, and makes it easy to access your money.

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 4.00% APY on SoFi Checking and Savings.


Photo credit: iStock/AlexSecret

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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 Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
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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