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Personal loans can be either secured or unsecured. A secured personal loan has collateral that backs the borrower’s promise to repay the loan. An unsecured personal loan does not require collateral, and the only thing backing the borrower’s promise to repay is their creditworthiness.

The collateral requirement is the main difference between secured and unsecured personal loans, but there are other differences that may inform your decision about which type of loan is best for your financial needs.

What Is a Secured Personal Loan?

A secured personal loan is a loan for which the borrower pledges collateral that the lender can take possession of if the borrower fails to repay the loan. Put in simpler terms: If you default on your car loan, for example, the bank can repossess your car. For the lender, collateral equals a certain level of security.

Collateralized loans are common for mortgage and auto loans. A home is collateral for a mortgage, and a vehicle is collateral for an auto loan. They are somewhat less common for personal loans, though.

A personal loan isn’t tied to a particular asset in most cases, so there’s not an obvious item to pledge as collateral. The asset pledged must be owned by the applicant, and the lender will evaluate its value to be sure it’s equal to the amount of money being loaned. In some cases, a physical asset such as a vehicle is put up as collateral, but the collateral could also be an asset like a savings account or certificate of deposit.

Pros of Secured Personal Loans

While it may seem like the lender benefits more with a secured personal loan, there may also be advantages for the borrower.

•   Lenders typically see secured personal loans as less risky than their unsecured counterparts because there is an asset to back the loan if the borrower defaults.

•   Borrowers may get a lower interest rate on a secured personal loan than they might on an unsecured personal loan.

•   Secured personal loans can be a good way for borrowers to build credit, as long as they make regular, on-time payments.

Cons of Secured Personal Loans

Things that a borrower might see as a drawback to a secured personal loan might be a benefit to the lender. But each party to the loan agreement takes risks.

•   The lender is able to recoup its losses by seizing the collateral if the borrower defaults on their secured personal loan. However, it may take a while to liquidate that asset. If the collateral is a physical asset, such as a vehicle, it may take some time to find a buyer willing to pay the price the lender has set.

•   For the borrower, the main drawback to a secured personal loan is the possible loss of the asset pledged as collateral if they default on their loan.

•   The application and approval process may include more steps for a secured personal loan than an unsecured one because the asset’s worth will need to be valued.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

What Is an Unsecured Personal Loan?

A personal loan that is backed mainly by the creditworthiness of the borrower is an unsecured personal loan. Sometimes called a signature loan, an unsecured loan does not require any collateral to guarantee the loan.

Defaulting on an unsecured personal loan can certainly have a negative effect on the borrower’s credit, but there wouldn’t be an asset to lose in addition.

Pros of Unsecured Personal Loans

Like their secured counterparts, unsecured personal loans can have benefits for both lender and borrower.

•   Lenders may be able to charge a higher interest rate on an unsecured personal loan because there isn’t any collateral to secure the loan. (This is a drawback for the borrower — see below.)

•   The borrower won’t lose an asset if they default on an unsecured personal loan.

•   The application process for an unsecured personal loan is generally much quicker than for one that’s secured because there is no asset to be valued.

•   Funds may be disbursed the same day or within a week, depending on the lender.

Cons of Unsecured Personal Loans

It may be relatively easy to find lenders who offer unsecured personal loans, but there are aspects that may be considered drawbacks.

•   Interest rates on unsecured personal loans may be higher than for secured personal loans because there is no asset backing the loan.

•   Some lenders may have minimum credit score requirements for approval of an unsecured loan, so applicants with poor credit may not qualify.

•   If the borrower defaults, their credit score may be negatively affected.

•   Applicants with lower credit scores may not qualify for loan amounts as high as those with higher credit scores.

Recommended: Personal Loan Calculator

Choosing Between Secured and Unsecured Personal Loan

There are lots of reasons for considering a personal loan in general, but choosing between a secured and an unsecured personal loan means taking some specifics into account.

Do You Have Collateral?

One of the main things to consider when thinking about applying for a secured personal loan vs. an unsecured personal loan is whether you have an asset of value that you’d be willing to risk.

If you do have such an asset, you may want to compare lenders who offer secured personal loans. Some online lenders offer secured loans, but they’re more commonly available through banks or credit unions.

Lenders may offer higher loan amounts for a loan backed by collateral than for one that isn’t, so if you need to borrow a large amount, it might be worth looking into a secured personal loan.

What Are You Planning to Use the Funds For?

Personal loan funds can generally be used for a wide variety of things, like debt consolidation, unexpected medical expenses, home improvement costs, and more.

If you need funds to pay multiple vendors or contractors — common in the case of wedding or home improvement costs — or you plan to consolidate other high-interest debt, an unsecured personal loan might be the right choice for you.

If you plan to purchase a specific item that might be considered an asset, however, the lender may want to attach that asset as collateral on the loan, thus making it a secured loan. Examples of this might be a secured personal loan to purchase land or to buy a boat.

What Type of Lender Is Right for the Loan You Need?

Another factor to consider when choosing between a secured or unsecured personal loan is the type of lender you’d rather work with.

Unsecured loans may be available through banks, credit unions, or online lenders. Not every financial institution offers unsecured loans, however.

Secured loans are more commonly offered by banks and credit unions — it’s less common to find one through an online lender.

If you have a savings account or certificate of deposit at your bank that you’d be willing to put up as collateral, it might be worth looking into a secured loan with your current bank.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

Qualifying For a Personal Loan

There are different factors that go into qualification for a personal loan.

Each lender may have its own credit score, income, or debt-to-income ratio requirements, in addition to other factors. If you’re applying for a secured personal loan, each lender may have its own requirements for valuation of collateral.

It’s a good idea to compare lenders so you’ll have an idea of what they commonly require for an applicant to qualify for a personal loan. With that knowledge, you can better evaluate your own credit for the likelihood of being approved — or not.

Reviewing Your Credit Report

You can get a free copy of your credit report annually from each of the three major credit bureaus: Equifax™, Experian™, and TransUnion™. It’s a good idea to check all three because not all lenders report payment history to all three bureaus. The credit bureaus don’t share information with each other, so getting a complete picture of your credit may mean looking at all three reports.

Your credit report contains personal information about you and information about past and current credit accounts in your name.

Personal information includes:

•   Name, current as well as any other names you may have gone by in the past

•   Addresses, current and previous

•   Birthdate

•   Social Security number

•   Employer

Lenders typically report:

•   The total amount of the installment loan or line of credit

•   Your record of on-time payments

•   Any missed payments

If you’ve had any bankruptcies, foreclosures, or repossessions, they will likely be included on your credit report as well.

If there is missing, incomplete, or incorrect information on your credit report, you can file a dispute with the credit bureau. It’s a good idea to clear up any errors before you start applying for a loan so you don’t have any unexpected roadblocks on the way to qualification.

If, in the process of reviewing your credit report, you find that you don’t have much of a credit history or your credit isn’t up to qualification standards, you may decide to take some time to work on improving your credit situation. That could mean increasing your income, lowering your expenses, paying down or consolidating existing debt, or just learning how to better manage your overall finances.

Recommended: How to Get Approved for a Personal Loan


The Takeaway

There are situations where an unsecured personal loan might be the right financial tool for you, and there may be others that would be better suited to a secured personal loan. The main difference between the two types of loans is that one requires collateral — a secured personal loan — and the other doesn’t — an unsecured personal loan. Deciding between the two depends on the borrower’s willingness to risk the loss of collateral, as well as their overall creditworthiness.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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.

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.

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

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

Why Have Online Lenders Grown in Popularity?

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

Familiarity, for Some Customers

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

•   Online applications.

•   Streamlined underwriting processes.

•   Automated funds transfers.

A Different Kind of Personal Service

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

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

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

Time Saving

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


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

Where to Borrow Money Online

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

Banks

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

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

Recommended: How to Get Approved for a Personal Loan

Credit Unions

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

Peer-to-Peer Lending

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

Recommended: What Are Personal Loans Used For?

Online Lenders

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

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

Options to Think Twice About

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

Credit Cards

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

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

Recommended: Personal Loan Calculator

Predatory Lenders

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

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

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

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

The Takeaway

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

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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

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

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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, you may be wondering what an installment loan is and how it works. We’ll provide some insight that may help.

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: 11 Types of Personal Loans & Their Differences

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.


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

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.

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

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 improved 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

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 deep 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 less-than-stellar 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.

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.

•   Pre-qualifying 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.

💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.

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. 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. Checking your rate takes just a minute.

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 improve 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.

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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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, 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.

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 is 11.31% percent, while the average credit card interest rate is now 24.37%. 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.

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. Checking your rate takes just a minute.

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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Creating a beautifully landscaped home can improve your day-to-day life and also increase the resale value of your home, making it well worth the investment. The question is, how much will it cost?

Landscaping costs range widely depending on the size, design, and scope of the project, and whether you plan to do it yourself or hire a professional. On average, however, a landscaping project can run between $1,268 and $6,003, according to Angi (formerly Angi’s List).

Whether you’re thinking about sprucing up your front yard, back yard, or both, here’s a look at what’s involved, how much it can cost, plus tips for how to budget for and finance a landscaping project.

What Are Some Benefits of Landscaping?

If you’re like many homeowners, you may prioritize interior upgrades over outdoor improvements. But improving your landscaping can actually be the gift that keeps on giving — it can beautify your space, increase your home value, and even decrease your heating and cooling expenses.

According to a recent report from the National Association of REALTORS®, an overall landscape upgrade (and even smaller projects like keeping up with yard maintenance), can pay for itself when you sell your home.

Investing in landscaping can also make your home more efficient. Planting leafy trees strategically around your property, for example, can keep your home cooler during the summer and warmer during the winter, reducing your energy bills.

Landscaping can also have environmental benefits beyond your property. The trees, bushes and flowers that make up your landscaping are natural air purifiers — they remove air pollutants from the atmosphere and store carbon dioxide, improving air quality, according to the U.S. Environmental Protection Agency (EPA). Landscaping can also improve local water quality by absorbing and filtering rainwater.

💡 Quick Tip: Home improvement loans typically offer lower interest rates than credit cards. Consider a loan to fund your next renovation.

What Are Some Current Landscaping Trends?

Some of the top landscaping trends for 2023 and 2024 include:

•  Climate-conscious landscaping Many homeowners are seeking out sustainable landscaping revamps, such as replacing lawns with alternative species (like clover) or re-wilding their yards with native species that require far less maintenance, water, and fertilizer.

•  Colorful gardens After years of soft greens, pastels, and neutrals, landscape designers are favoring brighter, more joyful designs. Plants that provide color and as support local pollinators (like birds, butterflies, and bees) are particularly popular. Examples include native sunflowers, coneflowers, garden phylox, and asters.

•  Organic layouts Lanscape design is getting less fussy. Many homeowners are mixing and matching different kinds of plants, including wildflowers, and adding romantic touches like arbors and winding garden paths.

•  Incorporating metals From wrought iron gates to metal planter boxes and sculptures, many homeowners are adding metal accents to their outdoor spaces.

Recommended: The Top Home Improvements to Increase Your Home’s Value

How to Budget for Landscaping

A good first step for coming up with your landscaping budget is to actually ignore numbers and give yourself permission to dream — what does your ideal landscaping look like? What does it feel like?

Next, walk around your property and create a list of both needs and wants. In your “needs” column, list repairs that must be done for safety’s sake, ranging from drainage challenges, broken fences, toxic plants that need to be removed, tree removal, and so forth.

Also imagine what the property could look like with the stunning new landscaping you’re envisioning. Perhaps some of the ideas listed above have inspired you in an unexpected direction. Have fun and add these ideas to your “wants” column.

Now, prioritize your list and be clear about which items are optional (perhaps a special trellis for climbing roses) and which are not (trip hazards where you plan to add outdoor seating).

Next, determine how much you can realistically spend on landscaping, keeping in mind how quality landscaping can add significant value to your home. Then, it might make sense to talk to several professional landscapers to get estimates.

Professionals will also be able to let you know if your plans are realistic for your property. Even if you intend to do some of the work yourself, these professionals will likely share information you have not yet considered. (Hiring them in the off-season might save you money, too.)

Once you determine the scope and cost of your project, it’s a good idea to add a cushion of 10% to 20% for the unexpected. When you have a final number to work with, you’ll need to determine if you can fund the project out of savings, or if you’ll need to finance any part of your landscaping plan (more on that below).

Recommended: Four Ways to Upgrade Your Home

How Much Does Landscaping Cost?

The average landscaping project in the U.S. costs $3,494, but ranges between $1,268 and $6,003. Of course, you can spend a lot less than the average if you’re just sprucing up your front garden beds. You can also spend considerably more if your plan is to build a backyard oasis with a pool and outdoor kitchen.

How much your landscaping revamp will ultimately cost will depend on your yard size, the type of landscaping you want to do, and the landscaper’s labor costs.

Generally speaking, backyard landscaping projects cost more than front yard projects. The cost of the average front-yard spruce-up runs between $1,500 to $5,000, whereas a full backyard renovation can range between $15,000 to $50,000.

If you plan to use a designer for your project, it can run $50 to $150 per hour for a professional landscape designer to come up with an artistic direction for your space, choose the plants, and manage the project. The average cost to hire a landscape designer is $4,600. If you’re planning to do a major structural renovation, you may want to hire a landscape architect, which can run $70 to $150 per hour.

Recommended: Home Renovation Cost Calculator

What Is Landscaping Cost Per Square Foot?

Landscaping costs are influenced by a variety of factors, including geography, type of project, and the materials used. Figuring out the dimensions of the project area, however, can help you come up with ballpark cost estimates.

According to Angi, the cost of landscaping runs between $4.50 and $12 per square foot for basic services and intermediate projects, such as aerating, flower planting, and installing garden beds. However, if you’re planning a major tear-out and remodel, you can expect to spend as much as $40 per square foot.

How Much Does New Landscaping Installation Cost?

Starting from scratch can be challenging, but having a blank slate also opens up possibilities for curating your outdoor spaces.

To fully landscape a new home, you’ll want to budget around 10% of your property value. So if you purchased the home for $350,000, you can anticipate spending around $35,000 to both hardscape (add hard surfaces like brick, concrete, and stone) and softscape (add living things) across your front and backyards.

Recommended: 5 Driveway Improvement Ideas

What Will It Cost to Maintain Landscaping?

In addition to the initial outlay, you’ll also need to set aside an annual budget to help with upkeep. The amount of maintenance you’ll need will depend on landscape design, local climate, and how much of a DIY approach you’re comfortable with.

Lawn-mowing can run anywhere from $50 to $250 per service, while getting your trees trimmed averages $1,800 per job. For all-around yard maintenance, like weeding and mulching, you might find a landscaper who charges an hourly rate (often $50 to $100 per hour) or charges a flat rate per job.

Keep in mind that mowing, trimming back shrubs, weeding, and mulching are also jobs you can likely do yourself, which will cut down on your landscape maintenance costs.

What Are Some Options to Finance a Landscaping Project?

If you want to invest in your home through landscaping but the price point is above what you have in savings, you may want to look into financing. Here are two common types of loans for landscaping.

Financing a Landscaping Project With a Home Equity Loan

A home equity loan gives you access to cash by tapping into the equity you have in your home. Your home equity is the difference between your home’s current market value and what you owe on your mortgage. Depending on the lender and your credit profile, you may be able to borrow up to 75% to 85% of your home’s current equity.

You can use a home equity loan for various purposes, including home upgrades like new landscaping. Because your home serves as collateral for the loan, you may qualify for a lower interest rate than on some other financial products, like personal loans and credit cards. If you have trouble repaying the loan, however, your lender could foreclose on your home. You’ll also pay closing costs with a home equity loan.

Financing a Landscaping Project With a Personal Loan

You can also use a personal loan to fund any type of home improvement project, including upgrading the outside of your home.

Personal loans for home improvement generally have fixed interest rates and a fixed repayment timeline. You’ll receive all the funds upfront, generally soon after you’re approved, and your monthly payments will be fixed for the duration of your loan.

Personal loans are typically unsecured, making them less risky than home equity loans, and don’t come with closing costs. They also tend to be faster to fund than home equity loans, which means you can get your landscape project going sooner. However, because personal loans are unsecured (which poses more risk to the lender), rates are typically higher than rates for home equity loans.

💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

The Takeaway

Landscaping projects can add curb appeal and value to your home, and can be well worth the time, effort, and money you invest.

The average cost of a landscaping project nationwide is $3,494. Of course you could spend a lot less if you are looking at a small project, like swapping out plants in your front garden. Or, you could spend significantly. Installing a swimming pool, for example, can run $40,000-plus.

If you don’t have enough cash in the bank to cover your landscaping project, you may want to consider getting a loan, such as a home equity loan or a personal loan.

Ready to get started on your landscaping project? Consider a SoFi Personal Loan. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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.

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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