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A wedding day is typically a celebration you’ve dreamed of and eagerly anticipated, but it can also be a major expense. If you’re wondering if you should finance your wedding, here is some guidance when it comes to making that decision. From payment plans to personal loans and everything in between, options abound for making your big day happen.

Understanding Wedding Costs Before Making a Plan

SoFi’s most recent survey found that the median cost of a wedding is $10,000, and when you look at average costs, you may see figures like the $36,000 price tag shared by Zola, a wedding registry site. Of course, prices can vary tremendously depending on what you plan: A destination wedding or one held in a big city with 300-plus guests will likely be a much bigger expense than having 50 of your nearest and dearest gather in your grandmother’s beautiful backyard flower garden.

Breaking Down Wedding Expenses by Category

Here’s a look at some of the key contributors to the cost of a wedding, according to The Knot, a wedding site:

•   27%: Venue and rentals

•   24%: Catering, cake, and drinks

•   10%: Photography and video

•   9%: Floral and decor

•   8%: Music

•   6%: Clothing and beauty

•   5%: Wedding rings

•   4%: Wedding planner

•   3%: Guest entertainment

•   2%: Transportation

•   1%: Stationery

•   1%: Officiant

Setting a Realistic Budget

To set a realistic budget, it’s wise to delve into some real-world prices and see what’s affordable given your financial situation. You may find that swapping out a swanky hotel ballroom for local, loft-style event space can help you save money, or limiting the guest list to 75 people instead of 175 can be a route to having an affordable wedding of your dreams.

Developing a spreadsheet that lists out your total budget and how much you will spend on each category is a helpful exercise. Also consider what you might be able to borrow or what friends and family can help with (perhaps they can handle flowers and decor).

An online wedding cost calculator can help you set a realistic budget for your wedding, too.

8 Ways to Pay for Your Wedding

There are many variables that can affect the average cost of a wedding, including the time of year you say “I do,” the day of the week, the number of guests, the reception venue, and a host of other factors (such as unexpected wedding expenses).

Whatever your budget may be, here are some ways to fund your big day.

1. Personal Savings

Perhaps you have already saved up a nice bundle of cash that you can put toward your wedding. Or maybe you have just gotten engaged and have a year or two to save up enough money for your wedding. Using this kind of money to finance your wedding helps you avoid interest charges. Keep the cash in a high-yield savings account to help it grow via the power of compound interest.

2. Wedding-Specific Savings Plan

You can also set up a wedding-specific savings plan. This means you have a dedicated amount into which you will regularly deposit a sum of money or use recurring automated transfers to stockpile cash in it. This can help you save enough money for your ceremony and celebration.

3. Family Contributions

Depending on your family situation, your parents and other relatives may be able to pay for some or all of your wedding expenses. It used to be common for the bride’s parents to pay for the wedding, but today, it’s often a matter of the family making a contribution toward the total cost, if at all.

4. Personal Loans

Personal loans are typically unsecured loans that can be used for almost any purpose. The interest rate charged can be lower than those of credit cards, and they offer a lump sum of cash (usually between $1,000 and $50,000 or even $100,000) that is then repaid in installments over a few or several years.

Some lenders specifically offer wedding loans, tailored to the needs of couples planning their big day.

5. Credit Cards

A convenient way to finance wedding costs can be breaking out your plastic. While this is a quick and easy way to pay vendors, be sure you are aware of and can afford this kind of high-interest debt. Also stay aware of your credit limit. Financial experts advise that having a balance that is more than 30% of your credit limit can negatively impact your credit score.

6. Wedding Funds or Registries

You can crowd-source money for your “I do” day by opening a wedding fund. Usually, the couple lets people know that they would prefer to receive cash vs. physical gifts from guests by directing invitees to a cash registry. This money can then be used to pay for wedding costs.

7. Side Hustles and Extra Income

Not everyone has the time or energy for a side hustle, but working a part-time gig can help you pump up your savings for your wedding. Whether that means selling your service as a pet photographer or driving a rideshare every other weekend, these pursuits can help you bring in extra cash to pay for a wedding.

You might also sell stuff you no longer want or need to bring in some additional money.

8. Vendor Payment Plans

You may find that some vendors, such as your event space or caterer, offer payment plans, allowing you to put money toward your debt over time. Check the details carefully to be sure that the interest rate and fees are fully understood and affordable.

The Pros of Financing a Wedding

Here are some of the upsides of financing a wedding:

•   You get your day with all the bells and whistles that you’ve dreamed of. You have the wiggle room to have more guests, a highly sought-after DJ or band, and food that will still be talked about on your anniversary. Mission accomplished in having a special day that will last a lifetime of memories, even if you don’t have all the cash waiting in the bank.

•   You might be able to borrow enough money to have a relaxing honeymoon, too, which might be nice after the stress of wedding planning.

•   You won’t deplete your savings to pay for your wedding. Starting your life together without an emergency savings account can be stressful.

The Cons of Financing a Wedding

Next, here are the downsides of financing a wedding:

•   When the wedding is long over, that monthly loan payment is still owed. Depending on the amount and term of the loan, that can be a big commitment.

•   Interest rates for loans and lines of credit typically vary based on the borrower’s credit rating and other factors. If you don’t qualify for favorable interest rates, you could end up paying a decent amount in interest over the life of the loan.

•   Taking out a loan also increases your debt-to-income (DTI) ratio. If you are planning on near-future large purchases that will require another loan, like a mortgage, having a high DTI ratio might make it more difficult to qualify for future loans, or might affect the rates you qualify for.

Creating Your Wedding Payment Strategy

Paying for wedding expenses can require a significant amount of cash, so it can be wise to be strategic about how you’ll pay your bills. Here are a couple of ideas:

Mixing Different Payment Methods

You don’t have to go all in on just one payment plan. For instance, if your caterer offers a super-low interest rate on their payment plan, you might want to sign up for that, and then use a personal loan to pay for other expenses, such as the wedding dress, rings, music, and photography.

As with any kind of loan or line of credit, but sure you understand the fees and interest rate (and whether, say, prepayment penalties are applicable). Either a lower interest rate or a shorter term may save money in the long run. A personal loan calculator or amortization table can help with this analysis, so you know exactly how much you are spending.

Timeline Considerations

Another important consideration when deciding on financing is how long of a run-up you have to the wedding itself. If you are planning on getting married in, say, two years, you could have a good amount of time to budget and save.

If, however, you are planning on a short engagement, then financing your wedding or asking for cash gifts might better suit your timeline.

Recommended: A Guide to Unsecured Personal Loans

Tips for Reducing Wedding Costs

If you’re having second thoughts about the cost of your wedding and how to afford it, know that with wedding planning, there’s usually a way to reduce expenses.

Off-Season and Weekday Discounts

The high season for weddings is usually late spring through fall. That’s when demand and prices are highest. You may be able to save big by booking a winter wedding or early spring one.

Similarly, you’ll find that costs tend to peak for weekend weddings. If you can swing, say, a Thursday night instead of a Saturday, you could save a significant amount.

DIY Elements

Think about how you could save money by DIY-ing some aspects of your wedding vs. paying a professional. Also, you might tap friends and family to contribute. For instance, if you have a friend who loves to bake, perhaps they would make your cake. Or if you have a friend with a flair for photography, they could shoot your pictures as a gift to you and your partner. If you have a cousin who’s in a band, they might play at your wedding for free or a reduced rate. Perhaps your family members would be happy to create centerpieces and bouquets from affordably sourced flowers. Think freely, and call in those favors!

Any of these ideas will help you save money and avoid financing your wedding’s full cost.

Prioritizing What Matters Most

There’s no law that you have to have a traditional wedding. If what matters most to you is having a wedding that involves dancing till dawn, or having 200 friends and family members with you as you say your vows, go ahead, but then perhaps do a potluck meal so you don’t have to shell out for a huge catering bill, too.

If you’re a foodie, maybe your wedding celebration could be a small dinner in a private room at your favorite restaurant after the ceremony. By prioritizing what matters most to you on your special day, you can have a wonderful wedding without landing in deep debt.

How to Avoid Wedding Debt Altogether

If you are looking for some inspo on how to avoid wedding debt, consider these possibilities:

•   Postpone the wedding. You might be able to avoid borrowing altogether by postponing the wedding to give yourself time to save the money to pay for it. Cutting unnecessary expenses might free up some money in your budget. Or earning extra money by taking on a side hustle might be a good way to add to your savings.

•   Use a zero-interest credit card. Using a credit card to pay for wedding expenses might be another option. While a personal loan might offer a lower rate than a credit card, you might find credit card offers with low introductory rates — perhaps even 0% — for a limited time. If you’re confident that you can pay the card off in full before the introductory rate ends, this could be an attractive option.

•   Ask your family to contribute. Asking parents for money might not be the most appealing option, but it might be a worthwhile consideration. Even though the average age of newlywed couples is rising, which might mean more couples are established financially before they marry, it’s still common for the couple to have help paying for the wedding.

•   Elope. If your priorities are saving for a down payment on a house or paying off college debt, maybe you are the kind of person who would be comfortable eloping or having a city hall ceremony and Champagne with just a few of your nearest and dearest. That can definitely be a way to avoid debt from financing a wedding.

The Takeaway

Your wedding is a special day, but it can be a very expensive one. Think carefully about how to budget for and finance your wedding, which can often cost five figures. Some ideas are saving the money, asking loved ones to contribute, using vendor payment plans, and taking out a personal loan.

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

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What’s the best way to pay for a wedding?

There is no one best way to pay for a wedding. Your personal finances and the kind of wedding you are having will play a role in deciding what works best. By saving up for a wedding or asking for help financing it, however, you may be able to avoid some or all of the interest charges you’ll encounter if you take out a loan or use a credit card.

How far in advance should we start saving for our wedding?

A wise way to figure out when to start saving is to calculate how much your wedding will cost, subtract how much relatives might contribute, and then divide that sum by how much you can save every month. So if you want to raise $10,000 and you and your partner can put aside $500 a month, then it would take 20 months to accumulate the funds needed.

Is it common for parents to pay for weddings today?

It is less common than in the past, but many parents do pay for weddings or at least make a contribution to the cost. Since the age at which people marry is rising, it’s become more common for the couple to have the financial means to pay their own way.

How can we ask for money instead of gifts?

You can put the word out tactfully among friends and family, or use a wedding website that clearly shows your registry preference is cash vs. gifts. Zola, Honeyfund, The Knot, and Joy are among the options you may find. Compare fees and features to find the best fit.

Where should I keep a wedding fund?

If you’re saving money towards a wedding, it’s wise to keep it in a high-yield savings account, where it’s safe, accessible, and earning interest.

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Photo credit: iStock/PeopleImages

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The cost to renovate a house can vary drastically based on myriad factors, with the average whole house remodel cost ranging anywhere from $40,000 to $75,000. Of course, that’s a whole house renovation — the cost of a house remodel, say in just the kitchen or an outdated bathroom, can run much lower.

Before you start in on a project, it’s critical to assess how much it will cost to remodel or renovate so you can make decisions that are financially realistic. While it might seem like a pain upfront, creating a budget beforehand can help you avoid headaches and hard choices down the line.

What Is the Average Cost to Remodel a House?

The national average cost to remodel a whole home generally falls between $40,000 and $75,000. That being said, the cost to remodel a house can vary quite a bit depending on the scope of the project, the size of the house, and the quality of the materials used. On the low end, someone could spend just a few thousand dollars, while on the high side, a home remodel’s cost could reach $200,000.

National vs. Regional Remodeling Cost Averages

One key factor to consider when considering a remodeling project is your home’s location. Consider whole home renovation costs: A home remodel in a lower-priced market might fall near the low end of the $40,000-$70,000 average cost range, while higher prices for materials and labor in markets like New York City or San Francisco could push prices up. The Bureau of Labor Statistics reports that the mean annual wage for an electrician in the highest-cost areas (New York, Illinois, Alaska, Hawaii, and Washington, D.C.), tops $75,000, whereas wages in less expensive states in the South, such as Tennessee and Alabama, don’t often top $51,000).

Cost to Renovate a House Per Square Foot

Because the size of the house can play a big role in the ultimate cost to remodel a house, it can be helpful to know the average cost to remodel per square foot. On average, the cost to renovate or remodel a whole house runs between $15 and $60 per square foot.

For certain rooms, however, the price per square foot is typically higher. For instance, the cost for a kitchen or bathroom renovation may be more like $100 to $250 per square foot. This is because of the materials needed and also the labor involved due to plumbing and electrical work required.

Factors of a Home Remodel Cost

As mentioned, there are several factors to take into account when budgeting for a home remodel. Some of the major factors to consider that will influence the ultimate cost of a house renovation include whether the remodels are high-end, mid-range, or low-end, the type of home, and the number and size of rooms to be renovated.

Recommended: Home Affordability Calculator

1. High-End Versus Low-End Renovation

The variation in price for a home renovation project stems mostly from the scale of the projects. According to HomeGuide.com, a homeowner generally can expect to complete the following home remodels within each budget range:

•   Low-end home remodel: A low-end renovation would include small changes such as new paint, updated hardware, and fresh landscaping. It might also include inexpensive finishes like new counters and flooring.

◦   Budget: $15,000-$40,000

•   Mid-range home remodel: In addition to the low-budget projects, a mid-range home renovation includes full-room remodels like a bathroom and kitchen, as well as a higher quality flooring than the low-end renovation.

◦   Budget: $40,000-$75,000

•   High-end home remodel: A high-end home remodel would include the low-end and mid-range projects, as well as high-quality finishes including custom cabinetry and new appliances. It might also include improvements to the foundation, HVAC, plumbing, and electrical.

◦   Budget: $75,000-$200,000

As a homeowner, you can expect to customize your home remodel budget once you identify what rooms you want to upgrade and to what extent. Only one in five homeowners finish home remodels under budget, so it’s smart to pad estimates by 10% to 15% in the event of unexpected renovation costs.

2. Type and Age of Home

Older homes will typically need more attention during the home renovation process, especially as new issues arise when existing problems are addressed. Once walls and floors are opened up, for example, a homeowner might realize the wiring and plumbing are outdated and should be brought up to code.

While a house won’t necessarily be unsellable if everything isn’t up to code, there could be issues with sellers financing. That’s because lenders generally will not close on a house where health and safety issues are identified as problems.

If your home is deemed old enough to be considered “historic”— which is generally 50 years or older, according to the National Park Service — you’ll want to check on any existing guidelines that your city’s codes office may have, or if there’s a historic overlay that enforces the need for an architectural review. Designated historic properties in states like California, where owners of qualified historic buildings can receive property tax relief for maintaining their homes, could boost a home’s value.

Depending on the condition of the house and any past upgrades, its age can have an impact on the cost of a home remodel, but so, too, can the type of home, regardless of age. According to Angi.com, Victorian homes generally cost the most to renovate — anywhere from $20 to $200 per square foot — while farmhouses and townhouses tend to have the lowest cost per square foot, between $10 and $50.

3. Size and Layout

The square footage of a home has a sizable impact on renovation costs, with a small-footprint home of 1,200 square feet averaging about $20,000 and a home over 3,000 square feet averaging more than $75,000.

4. Permits and Local Building Codes

The permitting process can be costly, HomeGuide.com reports. Small jobs might require a single permit that is priced as low as $50, but for large projects, a permit might cost $500 and some projects require multiple permits. And that is just the cost of the permit itself. Some projects require an expeditor who is a pro at securing permits to help move permits through the buildings department process. In an expensive market like New York City, for example, this can add several thousand dollars to costs.

5. Labor and Material

As noted above, labor costs are a big part of any renovation project and can vary greatly by region. As a general rule, you can expect labor to be about two-thirds of your budget, although the exact proportion differs according to the type of project. Materials are another significant line on the budget, with a kitchen or bathroom typically having higher materials costs. A kitchen, for example, might need cabinets, appliances, countertops, and flooring.

Recommended: Homebuyer’s Guide

Typical Renovation Costs by Room

When it comes to home-renovation expenses, generally not every room is created equal. Rooms with cabinets and appliances — think bathrooms and kitchens — tend to be the priciest and are often where a home remodel budget can go awry.

Kitchen Remodel

The typical range for the cost of remodeling a kitchen comes in between $14,590 and $41,533, with $26,972 being the average, according to Angi.com. But kitchens also can have the most variation when it comes to cost, depending on cabinetry, finishes, appliances, and other add-ons.

Here’s what a homeowner might expect to pay for a home remodel of a kitchen:

•   Low-end kitchen remodel: This would include new lighting, faucets, a coat of paint, refreshed trim, and a new but budget-friendly sink backsplash. A low-end kitchen remodel also might include knocking down walls or a counter extension project.

◦   Budget: $5,000-$30,000

•   Mid-range kitchen remodel: A remodel of this level could encompass new appliances, floors, and tiled backsplash to the sink and countertop. It also might include new cabinets and mid-range slabs for the countertop.

◦   Budget: $30,000-$60,000

•   High-end kitchen remodel: With this range of remodel, there could be custom cabinets, high-end countertops like rare stone or granite, and deluxe appliances added. When the budget for a kitchen is expanded, the projects start to take on custom finishes. Other projects might include new lighting, hardwood flooring, and new faucet fixtures.

◦   Budget: $65,000 and up

Because a kitchen can be extremely customizable and include so many levels of finishes, your home remodel budget could fluctuate greatly due to the cost and availability of materials, the labor involved, and where you live.

Bathroom Remodel

Bathrooms take on a similar budgeting structure to kitchen remodels. The typical range for the cost of a bathroom remodel is between $6,639 and $17,621, with $12,119 being average. However, that budget includes a range of projects, customizations, and features.

For example, new cabinets in a bathroom can account for up to 30% of the budget. Other big-ticket items affect pricing based on whether you choose low-end or high-end finishes.
On the low-end, a new bathtub might cost around $400, but if you are looking for a high-end tub, you could pay upward of $8,000. Similarly, a sink can run anywhere from $190 to $6,500, while a toilet might cost between $130 and $800.

Bedroom Remodel

Budgeting for a bedroom remodel can be a little more cut-and-dried, since it generally doesn’t include as many costly fixtures as you might find in the bathroom or kitchen. You might spend as little as $3,500, although $20,000 is the average cost.

This typically includes installing new carpet, windows, and doors, as well as refreshing the molding or trim. A bedroom remodel might also include new heating and insulation and updated wiring and lighting.

Remodeling a primary suite could cost a bit more since it typically includes a bathroom and bedroom renovation in one. If you want to add or expand a closet in the primary suite, you can estimate adding around $3,000 to the budget.

Living Room Remodel

Similar to a bedroom remodel, a living room remodel can be more economical, costing between $2,500 and $15,000, with an average spend of around $8,000. Like the bedroom, living rooms tend to lack the “wet” features (plumbing and appliances) that can drive up the cost of bathroom and kitchen renovations.

If you plan to add a fireplace feature to a living room, expect to spend a bit more. A fireplace could add up to $5,000 per room.

Exterior Remodel

Updating roofing and refreshing the exterior of a home is a common part of a home remodel. The national average cost to replace a roof runs $4 to $11 per square foot, but that price will vary depending on materials.

Adding new siding to a home typically costs anywhere from around $5,000 to $17,000, with the cost again fluctuating based on the material used. Painting the exterior of a home will cost between $1,800 and $4,400.

Basement or Attic Remodel

A basement remodel can be surprisingly costly, especially if it involves digging up the floor to increase the room height. On average, it will run you $22,000, with costs trending higher if you are starting with a raw, unfinished space. An attic remodel is similarly costly, averaging $20,000. It could creep much higher if you want to bring plumbing lines up to the floor.

Garage Remodel

A garage remodel could be slightly less costly than an attic or basement, averaging around $17,000. Adding plumbing or needing to increase insulation could push prices upward.

Other Home Remodeling Considerations

A home remodel isn’t just financial spreadsheets. There are other things you may want to consider — like if you are planning to sell the house or make it your forever home — before taking a sledgehammer to a room.

Home Remodel Timeline

A renovation project could take anywhere from a few days to a few months, so you may want to plan your home remodel timeline accordingly. It might be tempting to duck out of town when big projects are underway, but staying around means that you can monitor projects and provide answers to your contractors if any unexpected issues arise.

Additionally, home renovations can be stressful and might be best scheduled around other big life events. For example, you might think twice about a full home remodel that coincides with a wedding, the holidays, or a baby on the way. Unexpected events could arise, but there often is no need to pile on projects with other major life events going on.

Who Is the Home Remodel for?

Before diving deep into plans, you may want to consider who your home remodel ultimately is for. Is it for you to enjoy decades from now, or is it to make the house more marketable for a future sale? The renovation could take a different shape depending on your answer to this critical question.

If the remodel is just for you as the homeowner, you might choose fixtures based on personal taste or decide to splurge on high-end bathroom features that you’ll enjoy for years to come. On the other hand, if you plan to sell within a few years, you may consider tackling projects that have the greatest return on investment (ROI), which could mean prioritizing projects like a kitchen update or bathroom remodel.

Not sure about a project’s resale value? SoFi’s home project value estimator can be a useful tool to help determine the approximate resale value of a home improvement project.

Home Remodel Delays and Unforeseen Expenses

When deciding to take on a major home remodel, it’s helpful to expect the unexpected. Unforeseen delays like a shortage of materials can extend your home remodel timeline, or materials cost increases due to tariffs could drive a project over budget. As a general rule of thumb, estimate at least 10% in added budget for emergencies or unexpected costs.

Using a General Contractor vs Subcontractors

As you weigh the costs of your project, one consideration will be whether you plan to manage the project yourself or use a general contractor, who would hire subcontractors for different aspects of the work. Having a general contractor to manage project costs, deal with permits, and ensure subcontractors are licensed and insured can be a timesaver and provide peace of mind, although it may add to costs.

Financing a Home Remodel

Coming up with the money to finance a home remodel can be daunting enough to make some homeowners abandon the whole process entirely. However, there are multiple financing avenues you can explore.

Out-of-Pocket Home Remodel Expenses

Homeowners who take on small renovations and have liquid savings might decide to pay for everything out of pocket. The upside of this approach is not having to deal with debt or interest rates.

However, paying cash for a large project can be challenging for some homeowners. It might even lead to cutting corners on important elements in an effort to keep costs down. Plus, unexpected emergency costs could drive you into debt.

Borrowing Money from Friends or Family

Another alternative to financing your home remodel is borrowing money from family members or friends. While this may save you from having to deal with loan applications and approvals — and potentially provide more flexible terms — it can come with its own share of issues, such as risking the personal relationship if you’re unable to pay back the lender.

Additionally, loans from family members may be considered gifts by the IRS — and, thus, may be taxable. Consider discussing this method of financing a home remodel with a tax professional before proceeding if you have any concerns or uncertainties.

HELOC

A HELOC, or home equity line of credit, allows homeowners to pull a certain amount of equity from their home to finance things like renovations. Qualifying for a HELOC depends on several factors, including the outstanding mortgage amount on the home, the home’s market value, and the homeowner’s financial profile.

HELOCs typically come with an initially low interest rate, and a homeowner generally has the option to only pay interest on the amount they’ve actually withdrawn. For many homeowners, the ability to borrow in increments makes a HELOC preferable to a home equity loan, because funds can be withdrawn as needed over the course of a renovation project. It’s important to remember, though, that your home is acting as collateral, meaning that if you fail to make payments, your home could be on the line.

Personal Loan

If you don’t have the cash on hand or enough equity in your home for a HELOC, then a personal loan is another consideration. The most common type of personal loan is an unsecured loan, meaning the loan isn’t attached to your home equity. For home projects, a home improvement loan is often a good fit.

Personal loans might be a good option for people who recently bought their homes, need capital quickly for unexpected reasons, or need a loan for their home improvement project — there are a number of potential uses for personal loans.

Figuring out your remodel costs ahead of time is important if you want to take out a personal loan though. One of the steps to get a personal loan approved is determining how much you’ll need to borrow.

Cash-out Refinance

Another way to finance a large remodeling project is to do a cash-out refinance. This involves getting a completely new home loan with a new interest rate and term. The amount you borrow will cover whatever you owe on your original mortgage, so you can pay that one off. It will also provide a lump sum of extra cash that you can use to fund your remodel.

Recommended: Personal Loan Calculator

The Takeaway

The cost to remodel a house will depend on the number of rooms you decide to renovate, the degree to which each room is remodeled, the materials you use, and the area in which you live. Opting to DIY some projects could help bring down the budget, but it can be smart to bring in a professional for more specialized projects like electrical work and plumbing.

Before you get started, consider mapping out a plan that prioritizes which projects you tackle first and how you intend to finance your home remodel. One option you might consider is a home improvement loan. Another smart choice is a home equity line of credit.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

What’s the difference between a house rehab, remodel, and renovation?

A house rehab, or rehabilitation, involves keeping and repairing old or historical elements of a home to make it in better condition, which could include introducing new materials. With a remodel, you’re changing the structure of a room, whereas a renovation is reviving the existing room to make it more attractive or personalized.

How do I estimate renovation costs?

The best way to estimate your renovation costs is to talk to a local contractor. You might contact a few to get some different estimates to work with. From there, you might consider adding at least 10% to that figure to account for unforeseen expenses and other surprises.

How much should I spend on a home renovation?

It’s really up to you how much to spend on a home renovation. That being said, it’s important to keep in mind the value of surrounding homes as you add value to your own. You might contextualize remodeling costs in the context of the overall value of your home.

How much remodeling can be done with $100,000?

It’s possible to renovate an entire house with a budget of $100,000, considering the national average cost to remodel a whole home generally falls between $40,000 and $75,000. However, the amount of remodeling you can do also depends on factors such as the quality of materials used, the square footage of the house, and the home’s location. The cost of remodeling can vary widely based on these factors and others.

What is the most expensive part of a home renovation?

Labor — especially skilled trades such as plumbers or electricians — typically constitutes the bulk of the cost of any home renovation project. As a rule of thumb, you can expect labor to require two-thirds of your budget and materials one-third.

What are some ways to save on home renovation costs?

You can save money on home renovations by creating and sticking to your budget and managing the project and doing some part of the labor yourself. Of course, not everyone has the skills or time to be their own contractor. Other ways to save include reusing materials and choosing more affordable finishes, fixtures, and appliances. Minimizing the moving of plumbing or electrical lines can also help save costs.

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

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All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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SOHL-Q225-014

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A promissory note is a written agreement between a borrower and a lender to formalize the lending of money.

Through this legal agreement, both the borrower and the lender consent to clearly defined repayment terms. Promissory notes can be used for a variety of purposes, including personal and commercial transactions.

Here’s a guide to common types of promissory notes, how to create one, and when they may be a good option for borrowing or lending money.

What Is a Promissory Note?

Put simply, a promissory note is a written promise to pay someone a certain amount by a specified time. The type of promissory note and agreement between the issuer and payee dictate the payment schedule and amount. If the borrower is a business, the issuer may wish to see its pro forma income statement when setting up a repayment schedule.

Similar to loans, promissory notes may be secured or unsecured. Unsecured notes are issued based on the borrower’s ability to repay, whereas secured notes use collateral such as real estate or a vehicle.

A promissory note may be issued by a financial institution, but this financing is commonly provided by individuals or businesses, too. Essentially, promissory notes allow anyone to act as a lender, which can be useful for creating legal documentation of a lending agreement between family members and friends.

Core Components

Promissory notes generally include the principal amount, interest rate, date and place of issuance, and signatures from the lender and borrower. There may also be provisions for late fees and recourse if a borrower defaults.

💡 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.

Types of Promissory Notes

There are several types of promissory notes. Usually, the nature of the loan determines the appropriate type. Let’s take a closer look at some of the most common varieties.

Line of Credit Promissory Note

Borrowers can withdraw any portion of funds from a line of credit, up to the established maximum loan amount. Once the money is taken out, the borrower is liable for repaying the lender.

A promissory note can be used to guarantee that the borrower repays money withdrawn from the line of credit. The promissory note can specify the interest rate, repayment schedule, and whether the line of credit is secured or unsecured.

Investment Promissory Note

Businesses looking to access capital can sell promissory notes to investors instead of taking out a conventional business loan or a line of credit. As with a conventional loan, however, the company will typically be expected to show the lender its balance sheet indicating that it is solvent.

Through an investment promissory note, businesses receive capital from investors in exchange for fixed repayments. In the event a business is unable to repay, the investors may acquire the company.

Generally, investment promissory notes are sold at a discount to account for the impact of inflation on future payments. Promissory notes may be sold publicly in some cases but are most often purchased by corporate entities and experienced investors with high net worth who can handle the greater level of risk.

Real Estate Promissory Note

Promissory notes can be used in mortgages and other real estate purchases. In practice, borrowers use a home or other property as collateral for a real estate promissory note.

While promissory notes can accompany a mortgage, they are in fact different. The note provides legal documentation of the borrower’s promise to repay the loan, whereas the mortgage outlines the lender’s recourse for foreclosure in case the borrower cannot pay. Qualifying for a mortgage may also require a loan contract and more detailed financial information.

Real estate promissory notes can be used outside a mortgage. For example, two individuals could create such an agreement. Although the lender may not have the power of foreclosure, they can secure the agreement with the authority to place a lien on the property if a borrower defaults. A property lien creates a public record of a borrower’s unpaid debt.

Keep in mind that real estate promissory notes can be traded through brokerages without the borrower’s consent.

Recommended: A Guide to What Mortgage Notes Are and What They Do

Student Loan Promissory Note

College students will likely be required to sign a promissory note for both private and federal student loans.

For private lenders, each student loan may carry its own promissory note, as terms can vary. Anyone taking out federal student loans must sign a Master Promissory Note to promise repayment of loans, fees, and interest to the U.S. Department of Education. The MPN can cover multiple loans within a 10-year time frame for authorized schools.

Recommended: Understanding Your Student Loan Promissory Note

Vehicle Promissory Note

A vehicle promissory note creates a binding document that promises a borrower will pay a lender for a car or other type of vehicle. This agreement can be between two individuals or a borrower and a conventional lender, such as a bank.

Aside from repayment terms and conditions, it’s important to include the vehicle’s make, model, year, body, and VIN in a promissory note.

Personal Loan Promissory Note

It’s not uncommon to sign a promissory note when acquiring a personal loan from a traditional lender.

A promissory note can also be used for a personal loan between friends and family. Formalizing the loan amount and repayment terms through a promissory note can help avoid disagreement and protect both parties down the line. Compared with typical personal loan requirements, a promissory note can be a more flexible financing option.

Having financial information like credit score and proof of income at the ready can streamline getting approved for a personal loan.

💡 Quick Tip: With fixed interest rates on loans from $5K to $100K, a SoFi personal loan for credit card consolidation can substantially lower your payments.

Promissory Note Repayment Options

Besides type, promissory notes can differ by repayment method. Borrowers can expect to repay money and interest through one of the following options:

•  Lump sum: This requires the entire amount to be repaid in a one-time payment on a specific date. Lump-sum payments are more common with small loans.

•  Due on demand: The borrower must repay the loan upon the lender’s request. Due on demand payment is used frequently for promissory notes between friends and family members. Any promissory note without written payment terms is considered due on demand.

•  Installment: Installment payments follow a specified schedule (monthly, for instance) to pay back a loan over a longer period of time. Usually payments are structured as equal amounts and include interest.

•  With (or without) interest: A promissory note can define the interest rate and any related contingencies.

In some cases, a promissory note may employ a combination of repayment options. For example, a vehicle promissory note may include an upfront lump sum followed by installment payments.

Structured Repayment Strategies

Here are some effects of the various repayment plans to consider.

•  Amortized payments: The borrower makes equal payments each month, paying down principal and interest together. The plus: The consistency makes it easy to plan and budget. The minus: The monthly installments may be costly.

•  Equal monthly payments and a final balloon payment: Installments are likely smaller than with full amortization, because the borrower pays less toward principal; the balloon payment resolves that at the end. Upside: Lower monthly payments preserve more cash on hand for other needs. Downside: If the borrower plans to refinance the loan before the balloon’s due date, they run the risk that interest rates may go up.

•  Interest-only payments and a final balloon payment: With monthly payments applied only to interest, the borrower owes the entire principal until the final balloon payment. Pro: This method allows for the lowest monthly payments. Con: The borrower pays more interest because they have possession of the full principal throughout the term of the loan.

•  Single payment of principal and interest: This is the lump sum method, where everything is paid back on the specified date. For the most part, only friends and family members will accept this arrangement. Good news: Borrowers need not pay anything toward the loan each month (though escrowing money would be wise). Bad news: If the business cycle is in a contraction phase when the note comes due, repayment of a large sum all at once could be very tough.

Legal Implications of Repayment

Signing a promissory note makes the borrower legally liable for the loan according to the terms of the note. In many states, defaulting on a promissory note that’s part of a mortgage contract could allow the lender to foreclose on the house and then sue the borrower personally for any deficiency.

What Does a Promissory Note Look Like?

There are different laws in every state regarding promissory notes. One common feature of promissory notes is that they must be written. A verbal agreement between two parties will not qualify as a promissory note or carry the same legal enforceability.

Standard Template

Promissory notes must include language outlining an agreement and unconditional promise for the borrower to repay the loan. Additionally, the repayment must be money, rather than labor, professional services, or other capital.

Other details and elements generally needed in a promissory note include the following:

•  Amount or principal: How much was borrowed and is to be repaid

•  Payor: The party promising to repay the debt

•  Payee: The party lending the money

•  Interest rate: States how much interest is charged and how it is calculated

•  Start date: The date the promissory note becomes effective and funding is released to the payor

•  Maturity date: When the interest and principal must be repaid in full

Without these elements, lenders may have trouble enforcing the promissory note.

Risks and Protections

Like any loan contract, a promissory note involves financial risk to both borrower and lender.

Unsecured promissory notes will likely entail a higher interest rate than secured ones. A higher interest rate makes paying off a loan more expensive, increasing the possibility of default.

Promissory notes secured with collateral tend to have lower rates, but borrowers who can’t pay the debt risk having their collateral seized.

Depending on due diligence, providing capital based on a promissory note may expose the lender to some financial risk if the borrower is untrustworthy. As noted, having collateral helps mitigate that risk.

As for protection, a promissory note safeguards the lender by recording the terms of the loan in a valid and enforceable contract. It protects the borrower by providing documentation of the loan in case of an audit.

Both parties should make sure the note follows state or federal laws governing loans or investments to ensure additional safety.

The Takeaway

Promissory notes create a binding promise to repay borrowed money. This financial agreement can be used when borrowing money from individuals, financial institutions, or both. To be valid, the note must contain all the important details about the principal, the loan term, the interest rate, and must be signed by both parties to the agreement.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

With one simple search, see if you qualify and explore quotes for your business.

FAQ

What makes a promissory note legally binding?

A promissory note is legally binding if it includes the date of the loan, the dollar amount being borrowed, the signatures of both the lender and the borrower, the rate of interest, any collateral involved, the start date, and the repayment time frame. The note must also comply with any applicable state laws.

How is a promissory note different from a loan agreement?

A loan agreement is more comprehensive than a promissory note, with specific terms and defined rules and restrictions. Promissory notes usually suffice for loans from one person to another. If a business is involved or the loan amount is large, a loan agreement is more appropriate.

Can a promissory note be transferred?

Yes, it is possible to transfer ownership of the promissory note. If the borrower defaults, for example, the lender may sell or transfer the note to a debt collector. Or, if the lender needs to raise cash, they can negotiate with a buyer and sell the note.

What happens if someone defaults on a promissory note?

If a borrower defaults, the lender usually sends them a demand letter. If the borrower still does not pay, the lender can hire a collections lawyer to sue and get restitution through a court judgment. The lender may also have the right to seize any collateral and sell it at auction.

How long is a promissory note valid?

Depending on your state, the statute of limitations for promissory notes can range from three to 15 years.

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

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

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SOSMB-Q225-002

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An individual retirement account (IRA) is a savings account with tax advantages that is designed as a long-term investment vehicle. If you are wondering about getting an IRA loan, it’s important to know that it’s not possible to borrow against an IRA. Taking an early withdrawal from an IRA is an option, but that can come with taxes and penalties.

Read on to learn the impact of an early withdrawal from an IRA and some other ways to find the cash for unexpected expenses.

Can You Borrow From Your IRA?

There are strict rules around withdrawing money from traditional and Roth IRAs. IRA loans are not allowed. However, while you cannot borrow money from these accounts, you can withdraw cash from your IRA. If you are under age 59 ½, however, this is considered an early withdrawal and it comes at a cost.

What Is Possible: Early IRA Withdrawals

Instead of an IRA loan, which is not permitted, IRA account holders can take an early IRA withdrawal. But doing so can result in taxes and a 10% penalty, with some exceptions and depending on the type of IRA you have. Here’s what you need to know about early withdrawals from traditional and Roth IRAs.

Traditional IRAs

With a traditional IRA, you make contributions with pre-tax dollars and pay taxes on the money when you withdraw it.

If you are 59 ½ or older, you can take money out of your traditional IRA with no penalty, but you will owe income taxes on the money.

If you’re under age 59 ½, there are some exceptions that will allow you to avoid the additional 10% penalty, including:

First-time homebuyers can withdraw $10,000 for a down payment.

•  The funds are being used for higher education expenses.

•  The funds are for the birth or adoption of a child.

•  The account holder has become permanently disabled.

Roth IRAs

With a Roth IRA, you make after-tax contributions and withdraw the money tax-free in retirement. If you’re at least 59 ½ and you’ve owned your Roth IRA for five years or more, you can take tax- and penalty-free withdrawals from your Roth IRA.

However, if you are taking an early withdrawal from your Roth (before age 59 ½), you can take out your contributions tax- and penalty free, but not your earnings. If you withdraw earnings, such as dividends or interest, you might have to pay the 10% penalty plus income and state tax on that portion of the withdrawal.

Financial Impact of Early IRA Withdrawals

Taking an early withdrawal from an IRA typically has financial ramifications that it’s important to understand.

Penalties

When you take an early withdrawal from your IRA, you generally incur a penalty of 10% unless the money is for one of the exceptions noted above, or if you are withdrawing contributions (but not earnings) from a Roth IRA that you’ve owned for five years or more.

Taxes

In addition to the penalty you may face for an early withdrawal from your IRA, you will generally also owe taxes on the money you take out. With a Roth IRA, if you take out earnings, you will owe taxes on that money, but not on contributions.

Lack of Growth Potential

By taking money out of your IRA through a withdrawal, and thus lowering the amount in your account, you may lose out on future growth. Less money in your account means you are also decreasing the ability of that sum to generate returns.

This two-fold hit to your savings could impact your financial future. You might not meet your goals for retirement in terms of how much you have saved and what lifestyle you’ll enjoy, for example.

Alternative Funding Sources

There are alternatives to early withdrawals from an IRA. The best choice for you depends on how much cash you need, the taxes and penalties you might incur, and the interest and fees you may pay on the alternative. Here are some options to consider.

401(k) Loan

Unlike an IRA, borrowing from your 401(k) is allowed. (SoFi does not offer 401(k)s at this time, however we do offer a range of IRAs.) Depending on your 401(k) plan, you can take out as much as 50% of your savings, or as much as $50,000, whichever is less, within a 12-month period. You will have to pay back the money, plus interest, within five years. However, the interest is paid back into your own account.

The advantage of a 401(k) loan is that there are no taxes or penalties. The disadvantage is that if you leave your current job, you may have to repay your loan in full at that time. If you cannot, you’ll likely owe both taxes and a 10% penalty if you’re under 59 ½.

Family Loan

A family loan could be the best option if you can negotiate favorable terms. This alternative is also the most flexible, but it can affect family relationships if not handled well. Be sure to set expectations and draw up a contract to protect both parties.

While some people may be lucky enough to score a no-interest loan, most can expect to pay for this privilege of access to cash. However, you can likely avoid closing costs and the like. And, of course, you won’t face the taxes and possible penalties involved when taking an early withdrawal from an IRA.

Credit Card Cash Advance

A credit card cash advance is a quick way to get funds by borrowing against the credit limit on your credit card. No hard credit inquiry is required, so there is no effect on your credit score. You can pay small fixed monthly payments, but there will be interest that accrues daily as well as fees.

However, the potentially high interest charges (often higher than the standard credit card interest rate) and fees will need to be weighed against the cost of an early withdrawal from an IRA. There may be an additional charge of up to 5% for a cash withdrawal, as well as a flat charge for a withdrawal in addition to the percentage charge. Depending on your credit line, the amount you can withdraw may be less than your credit limit.

Personal Loan

If you are looking for a specific sum of money that you would like to repay over time, a personal loan could be a good choice. These usually unsecured loans can be used for almost any purpose (from affording a wedding to paying for home repairs) and are often funded quickly.

Current personal loan interest rates are generally much lower than for a cash advance on your credit and may be a better option than paying taxes and possibly penalties on an IRA withdrawal. Also, you will not be pulling from your retirement nest egg and lessening its opportunities for growth.

Recommended: Personal Loan Glossary

Early IRA Withdrawal vs. Personal Loan

Deciding between an IRA withdrawal vs. a personal loan when you need funds requires careful consideration. Here are the pros and cons of personal loans and early IRA withdrawals to help you weigh the choices and make an informed decision.

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Pros of Early IRA Withdrawal

There are several possible advantages to taking an early IRA withdrawal. These include:

•  You can access cash through an IRA withdrawal without paying interest or fees.

•  You may be able to avoid any early withdrawal penalties, depending on how the funds are used.

•  An IRA withdrawal may help you pay off high-interest debt.

•  If you have a Roth IRA, you can withdraw contributions (but not earnings) free of tax and penalties.

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Cons of Early IRA Withdrawal

While dipping into your IRA may seem like a good way to get money quickly, consider the downsides before doing so.

•  You will likely owe taxes and possibly an early withdrawal penalty.

•  Withdrawing funds from your IRA can take a chunk out of your retirement savings.

•  If you withdraw earnings from a Roth IRA, you may have to pay taxes and fees.

•  You’ll miss out on earnings from the amount you withdraw from your IRA, which could have a negative impact on your retirement savings.

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Pros of a Personal Loan

A personal loan provides flexible borrowing when you need access to cash. Here are some of the other potential benefits:

•  Personal loan funds can be used for virtually any purpose, including home improvement loans.

•  Interest rates on personal loans are typically lower than those of credit cards.

•  You can get funding quickly, typically within days.

•  You may choose from personal loans with fixed or variable interest rates.

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Cons of a Personal Loan

Along with their possible advantages, personal loans do have some drawbacks to keep in mind. These are a few to think about:

•  You will likely need to meet certain personal loan credit score requirements to get the best interest rates. The higher your score, the lower your interest rate may be.

•  There may be loan fees to pay on a personal loan, such as an origination fee, which covers the loan processing.

•  Taking out a personal loan can increase the amount of debt you have.

•  Repaying a personal loan could mean that you have less money to devote to savings for other goals, such as buying a house.

The Takeaway

IRA loans are not allowed. You can make an early withdrawal from an IRA instead, but that typically comes with taxes and possibly a 10% early-withdrawal penalty. An IRA withdrawal also subtracts money from your retirement savings.

Alternatives to an early IRA withdrawal include a 401(k) loan, a credit card cash advance, borrowing from family, and a personal loan.

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

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Can I take a loan from my IRA?

There is no such thing as an IRA loan. You can take an early withdrawal from an IRA, but that may involve paying taxes and a penalty, depending on the type of IRA you have, your age, and what you are using the money for. For instance, a first-time homeowner can typically avoid the IRA 10% early withdrawal penalty if they are taking out $10,000 or less for a down payment

How do I get an IRA loan?

You can’t borrow from your IRA. However, if you’re 59 ½ or older, you can take a withdrawal from your traditional IRA without any penalty. Since your original contributions were tax-deductible, you’ll need to pay income tax on the funds you withdraw.

If you have a Roth IRA, you can withdraw both contributions and earnings tax-free and penalty-free if you are 59 ½ or older and have owned your Roth IRA for five years or more. If you withdraw earnings early, you’ll have to pay a 10% penalty and income tax on the amount you withdraw.

How long do you have to pay back an IRA loan?

There is no such thing as an IRA loan. However, one workaround is to do a 60-day rollover. This isn’t a loan, but it may function similarly to a loan as long as you can use the money quickly and then replenish it within the 60 day time frame.

To do a 60-day rollover, you need to withdraw funds from your IRA and roll them over into another IRA or retirement plan, or even back into the same IRA, within 60 days to avoid paying taxes or penalties. If you don’t roll over the funds within 60 days, you will have to pay taxes plus possibly an additional 10% penalty.

Can I borrow from my Roth IRA without penalty?

You can withdraw contributions you’ve made to a Roth IRA at any time without penalty or taxes. Just be sure not to also withdraw any earnings, such as dividends and interest. The reason: You would owe a 10% penalty plus income taxes on the earnings portion of the withdrawal.

How can I get my money out of my IRA without penalty?

You can get money out of your IRA without penalty if you’re 59 ½ or older. (If you have a traditional IRA, you will owe taxes on the money you withdraw; if you have a Roth IRA that you’ve owned for at least five years, you won’t owe taxes.)

If you’re under age 59 ½, there are some exceptions that allow you to avoid the 10% penalty for early withdrawal, including if you are a first-time homebuyer, you’re using the funds for higher education expenses, the funds are for the birth or adoption of a child, or you have become permanently disabled.

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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.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party 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.

SOPL-Q225-106

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A 401(k) loan allows you to borrow money from your retirement savings and pay it back to yourself over time, with interest. While this type of loan can provide quick access to cash at a relatively low cost, it comes with some downsides.

Read on to learn about borrowing against a 401(k), how 401(k) loans work, when it may be appropriate to borrow from your 401(k) — and when you might want to consider an alternative source of funding.

Can I Borrow From My 401(k)?

Borrowing from a 401(k) is possible under many 401(k) plans. In general, it’s wise to let your retirement savings stay invested so you’ll have that money for the future, but in some circumstances, borrowing against a 401(k) could make sense. For instance, if you find yourself in a situation where you need money immediately and have no other options, you may want to consider a 401(k) loan.

A 401(k) loan lets you borrow money from your retirement savings account and pay it back over time with interest. You’re essentially paying back yourself — the money you borrow against your 401(k) goes back into your 401(k) account with interest.

Not all 401(k) plans offer loans, so check with your plan administrator to find out if yours does.

What Is a 401(k) Loan & How Does It Work?

A 401(k) loan is a provision that allows participants in a 401(k) plan to borrow money from their own retirement savings. Here are some key points to understand about 401(k) loans.

Limits on How Much You Can Borrow

The Internal Revenue Service (IRS) sets limits on the maximum amount that can be borrowed from a 401(k) plan. Typically, you can borrow up to 50% of your account balance or $50,000, whichever is less, within a 12-month period.

Spousal Permission

Some plans may require borrowers to get the signed consent of their spouse before a 401(k) loan can be approved.

You Repay the Loan With Interest

Unlike a withdrawal, a 401(k) loan requires repayment. You typically repay the loan (plus interest) via regular payroll deductions, over a specified period, usually five years. These payments go into your own 401(k) account.

401(k) Loans vs. Early Withdrawals

When you withdraw money from your 401(k), these distributions generally count as taxable income. And, if you’re under the age of 59½, you typically also have to pay a 10% penalty on the amount withdrawn.

You may be able to avoid a withdrawal penalty, if you have a heavy and immediate financial need, such as:

•  Medical care expenses for you, your spouse, or children

•  Costs directly related to the purchase of your principal residence (excluding mortgage payments).

•  College tuition and related educational fees for the next 12 months for you, your spouse, or children.

•  Payments necessary to prevent eviction from your home or foreclosure

•  Funeral expenses

•  Certain expenses to repair damage to your principal residence

While the above scenarios can help you avoid a penalty, income taxes will still be due on the withdrawal. Also keep in mind that an early withdrawal involves permanently taking funds out of your retirement account, depleting your nest egg.

With a 401(k) loan, on the other hand, you borrow money from your retirement account and are obligated to repay it over a specified period. The loan, plus interest, is returned to your 401(k) account. But during the term of the loan the money you borrow won’t enjoy any potential growth.

Recommended: Can I Use My 401(k) to Buy a House?

Should You Borrow from Your 401(k)?

It depends. In some cases, borrowing against a 401(k) can make sense, while in others, it may not. Here’s a closer look.

When to Consider a 401(k) Loan

•   You’re in an emergency situation. If you’re facing a genuine financial emergency, such as medical expenses or imminent foreclosure, a 401(k) loan may provide a timely solution. It can help you address immediate needs without relying on more expensive forms of borrowing.

•   You have expensive debt. If you have high-interest credit card debt, borrowing from your 401(k) at a lower interest rate can potentially save you money and help you pay off your debt more efficiently.

When to Avoid a 401(k) Loan

•   You want to preserve your long-term financial health. Depending on the plan, you may not be able to contribute to your 401(k) for the duration of your loan. This can take away from your future financial security (you may also miss out on employer matches). In addition, money removed from your 401(k) will not be able to potentially grow or benefit from the effects of compound returns.

•   You may change jobs in the next several years. If you anticipate leaving your current employer in the near future, taking a 401(k) loan can have adverse consequences. Unpaid loan balances may become due upon separation, leading to potential tax implications and penalties.

Pros and Cons of Borrowing From Your 401(k)

Given the potential long-term cost of borrowing money from a bank — or taking out a high-interest payday loan or credit card advance — borrowing from your 401(k) can offer some real advantages. Just be sure to weigh the pros against the cons.

Pros

•   Efficiency: You can often obtain the funds you need more quickly when you borrow from your 401(k) versus other types of loans.

•   No credit check: There is no credit check or other underwriting process to qualify you as a borrower because you’re withdrawing your own money. Also, the loan is not listed on your credit report, so your credit won’t take a hit if you default.

•   Low fees: Typically, the cost to borrow money from your 401(k) is limited to a small loan origination fee. There are no early repayment penalties if you pay off the loan early.

•   You pay interest to yourself: With a 401(k) loan, you repay yourself, so interest is not lost to a lender.

Cons

•   Borrowing limits: Generally, you are only able to borrow up to 50% of your vested account balance or $50,000 — whichever is less.

•   Loss of potential growth: When you borrow from your 401(k), you specify the investment account(s) from which you want to borrow money, and those investments are liquidated for the duration of the loan. Therefore, you lose any positive earnings that would have been produced by those investments for the duration of the loan.

•   Default penalties: If you don’t or can’t repay the money you borrowed on time, the remaining balance would be treated as a 401(k) disbursement under IRS rules. This means you’ll owe taxes on the balance. And if you’re younger than 59 ½, you will likely also have to pay a 10% penalty.

•   Leaving your job: If you leave your current job, you may have to repay your loan in full in a very short time frame. If you’re unable to do that, you will face the default penalties outlined above.

Alternatives to Borrowing From Your 401(k)

Because borrowing from your 401(k) comes with some drawbacks, here’s a look at some other ways to access cash for a large or emergency expense.

Emergency fund: Establishing and maintaining an emergency fund (ideally, with at least three to six months’ worth of living expenses) can provide a financial safety net for unexpected expenses. Having a dedicated fund can reduce the need to tap into your retirement savings.

Home equity loans or lines of credit: If you own a home, leveraging the equity through a home equity loan or line of credit can provide a cost-effective method of accessing extra cash. Just keep in mind that these loans are secured by your home — should you run into trouble repaying the loan, you could potentially lose your house.

Negotiating with creditors: In cases of financial hardship, it can be worth reaching out to your creditors and explaining your situation. They might be willing to reduce your interest rates, offer a payment plan, or find another way to make your debt more manageable.

Personal Loans: Personal loans are available from online lenders, local banks, and credit unions and can be used for virtually any purpose. These loans are typically unsecured (meaning no collateral is required) and come with fixed interest rates and set terms. Depending on your lender, you may be able to get funding within a day or so.

The Takeaway

Borrowing against your 401(k) can provide short-term financial relief but there are some downsides to consider, such as borrowing limits, potential loss of growth, and penalties for defaulting.

It’s a good idea to carefully weigh the pros and cons before you take out a 401(k) loan. You may also want to consider alternatives, such as using non-retirement savings like an emergency fund or taking out a personal loan or a home equity loan or line of credit.

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

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What is a 401(k) loan?

A 401(k) loan allows you to borrow money up to a certain amount from your retirement savings account and pay it back over time with interest. The money you repay goes back into your 401(k) account.

How do 401(k) loans work?

A 401(k) loan allows you to borrow money from your 401(k) account. Not every plan allows 401(k) loans, but many do. There are limits on how much you can borrow — generally up to 50% of your account balance or $50,000, whichever is less, within a 12-month period. In addition, you may have to get your spouse’s permission to take out a 401(k) loan, and you need to repay the amount you borrowed with interest typically within five years.

When should I consider taking a 401(k) loan?

It’s generally best not to touch money in a retirement savings account if possible so it can potentially keep growing for your future. However, in some situations it may make sense to take out a 401(k) loan — for instance, if you’re facing an immediate medical emergency or you’re trying to pay off extensive high-interest debt, such as credit card debt. If you have no other financial options, a 401(k) loan might be something to consider.

How do 401(k) loans differ from early 401(k) withdrawals?

With a 401(k) loan, you borrow money from your retirement account and must repay it over a specified period, typically within five years. The loan, plus interest, is repaid to your 401(k) account. An early 401(k) withdrawal, on the other hand, is when you withdraw money from your 401(k) before age 59½. These distributions generally count as taxable income. And because you’re under the age the IRS specifies for qualified retirement withdrawals, you typically will also have to pay a 10% penalty on the amount you took out.

There are some possible exceptions to the early withdrawal penalty. If you have a heavy and immediate financial need, such as medical expenses, for example, you may be able to avoid the 10% penalty on an early 401(k) withdrawal.

What are some alternatives to borrowing from my 401(k)?

Alternatives to borrowing from your 401(k) include taking the money from an emergency savings fund, taking out a home equity loan if you have equity in your house, taking out a personal loan, or negotiating with your creditors to see if they might be willing to put you on a payment plan.

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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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