Personal loans are a type of lending instrument offered through banks, credit unions, and online lenders. They’re paid back, with interest, in installments, and there are few limitations to how the loan funds can be used. They’re also typically unsecured, meaning you don’t have to put up any property as collateral for the loan.
A personal loan is an important financial tool if you can find one from a reputable lender at a reasonable interest rate, and you can commit to making loan payments on time. However, if you only qualify for a loan with a high-interest rate or you feel you may have trouble paying it back, you may want to think twice before applying.
Are Personal Loans Bad?
Not necessarily. There are both advantages and disadvantages to personal loans. Here’s a look at some of the benefits of taking out a personal loan:
• Personal loans generally offer a wide range of borrowing limits, typically between $1,000 and $100,000.
• There is flexibility in how the funds can be spent, unlike a mortgage, which you must use to buy a house, or an auto loan, which must be used to purchase a car.
• Proceeds of personal loans can be used for a variety of purposes, from paying down credit card debt to making home improvements and more.
• Unsecured personal loans are offered by many lenders. There is no need to put any of your assets up as collateral for the loan, nor do you risk losing them should you default.
It’s important to weigh these benefits against potential disadvantages, and determine if it’s bad to get a personal loan for your financial needs. Here’s a look at some of the downsides of taking out a personal loan.
• Personal loans may not offer the lowest possible borrowing option. For example, you might be able to get a better rate on a home equity loan or a home equity line of credit (HELOC) if you have enough equity in your home. That said, both of those lending instruments use your house as collateral, so if you default, you could risk losing your home.
• Personal loans sometimes have fees or penalties that can increase the cost of borrowing. For example, origination fees on personal loans tend to be between 1% and 5%. Some lenders may charge prepayment penalties to ensure they don’t lose future interest payments if you pay off your loan early.
• When you take out a personal loan, you’re increasing your overall debt. If you have other debts, comfortably affording all your monthly payments can become a challenge. And missing payments or making late payments can have a negative impact on your credit score.
Here’s a look at the pros and cons of personal loans at a glance:
Pros of Personal Loans
Cons of Personal Loans
Wide range of loan amounts, usually between $1,000 and $100,000.
Interest rates may be higher than other types of loans, such as home equity loans or HELOCs.
Use of funds is flexible. Borrowers can use money from personal loans toward almost any purpose.
Fees and penalties can make borrowing more costly.
They are generally unsecured loans, which is beneficial to those who don’t want to put up collateral.
They increase your debt, potentially putting a strain on your budget.
When Can It Be a Good Idea to Get a Personal Loan?
So when is a personal loan a good idea?
Debt Consolidation
One reason to take out a personal loan is as a credit debt consolidation loan to pay down high interest credit card debt. The average credit card interest rate as of August 2024 is 27.62%. The current average personal loan interest rate, on the other hand, is 12.38% (if you have excellent credit you may pay less; if you have poor credit, you could pay more).
Consolidating high interest credit card debt with a lower-interest-rate personal loan may make your monthly payments more manageable and potentially save you money in interest payments over the life of the loan.
Using a personal loan to make improvements to your home may also be beneficial as home improvements can increase the value of your home, possibly offsetting the cost of borrowing.
When Can It Be a Bad Idea to Get a Personal Loan?
There are a number of cases when you may wonder if getting a loan is bad. Here’s a look at some situations when getting a personal loan may not be a good idea.
No Credit Check Loans
Most loans — including most personal loans — require a credit check. This helps your lender understand your creditworthiness, or how likely you are to repay your debts. Generally speaking, the healthier your credit, the more favorable your loan interest rates and terms. Those with poor or limited credit may find it difficult to qualify for a loan.
No credit check personal loans, on the other hand, look at your bank account balance or require you to pledge some asset as collateral to secure the loan.
The problem is that these loans also tend to be extremely expensive — interest rates can well exceed 100%, which is considered to be predatory. There’s a pretty good chance that borrowers who rely on no credit check loans won’t be able to pay their bills on time, which could trap them in a cycle of debt.
Before taking out a personal loan, consider whether there are cheaper alternatives. We’ve already mentioned home equity loans and HELOCs. You might also consider a no-interest credit card, which charges 0% interest for an introductory period typically lasting between 12 and 20 months. If you can pay off your debt in this time period, this may be a good option. But whatever balance you don’t pay off in time may revert to the card’s regular rate, which is likely high.
You Are Not Good at Managing Debt
If you’re not good at managing debt, think twice before taking on more. And if you use your personal loan to consolidate credit card debt, you’ll want to be careful about racking up new credit card bills.
Discretionary Spending
Borrowing money for discretionary spending, such as vacations or an engagement ring generally isn’t a good idea. While these things are nice, they are not necessarily worth jeopardizing your financial wellbeing. Instead of borrowing to pay for big-ticket items like these, you may be better off saving for them in advance as a part of your regular budget.
Borrowing Money for Investments
It’s generally not a good idea to borrow money to make investments. By nature, investments are risky, and you are not guaranteed a return. Should the investment lose money instead of gain, you’ll be responsible for paying off your debt regardless of the investment loss.
The Takeaway
So are personal loans bad? The answer depends on how you plan to use the loan. Personal loans can be useful tools for purposes like consolidating credit card debt, making home improvements, and more.
Any time you’re considering a loan, it’s important to understand if it will meet your needs, what it will cost you, and whether there are any better alternatives out there.
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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
Photo credit: iStock/Morsa Images
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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 .
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.
You might be wondering how easy it is to get approved for a $5,000 personal loan. In most cases, the process is straightforward and no collateral is required — though you might pay more in interest if your credit is poor. Overall, a $5,000 personal loan is a good way to access cash for unexpected bills and necessary expenses.
Learn more about the typical terms and requirements for a $5,000 personal loan.
Key Points
• A $5,000 personal loan provides a straightforward way to access cash for unexpected expenses without requiring collateral, though interest rates may vary based on credit scores.
• Flexible repayment terms allow borrowers to choose between lower monthly payments with longer terms or higher payments with shorter terms, catering to different financial situations.
• Borrowers should be cautious regarding origination fees, which can significantly increase the overall cost of the loan and may be as high as 15% of the loan amount.
• The average interest rates for personal loans differ based on credit quality, with higher rates for those with fair credit, potentially leading to substantial costs over the loan’s life.
• Shopping around for lenders is essential to find competitive interest rates and favorable terms, ensuring borrowers secure the best deal possible for their financial needs.
Pros of a $5,000 Personal Loan
A personal loan is money that you borrow from a bank, credit union, or online lender that you pay back in regular installments with interest, usually over about two to seven years. Personal loans have several advantages over high-interest credit cards, making them a good option for a variety of borrowers.
Popular uses for personal loans include consolidating debt, covering medical bills, and home repairs or renovations. Here’s a look at some of the pros of taking out a $5,000 personal loan.
Flexible Terms
With $5,000 personal loans, you can often choose the repayment terms to fit your budget. For example, you may be able to opt for a longer repayment term with a higher interest rate but a lower monthly payment, or you might be able to choose a shorter repayment term with a lower interest rate and a higher monthly payment.
No Collateral
Most personal loans are unsecured, meaning you aren’t required to provide collateral to be approved. That said, using collateral on a personal loan can increase your approval odds, especially if your credit is poor. Doing so could result in a larger loan amount, lower interest rate, and better terms.
Fixed Payments
The interest rate on a $5,000 personal loan is usually fixed, meaning your payments will stay the same for the life of the loan. Fixed payments are typically easier to budget for.
You’ll be going into debt when you take out a $5,000 loan, which is the biggest downside. If you struggle to repay the loan, you can end up in a worse financial position than before you took it on.
Origination Fees
Personal loans can have many fees, including origination fees. This fee is separate from the interest the loan charges and has no direct benefit to you as the borrower.
Some origination fees can be high, up to 15% of the loan principal. Even just a 5% fee on a $5,000 loan is $250 — just to receive the money. Fortunately, there are ways to avoid loan origination fees.
Interest Rates
While personal loan interest rates are usually lower than credit cards’, they can cost you hundreds (or even thousands) over the life of the loan.
Pros
Cons
Flexible terms: Choose the repayment terms that suit you.
Debt: Personal loans increase your debt and the risks that come with it.
No collateral: Most personal loans are unsecured.
Origination fees: Personal loans often have fees for borrowing money.
Fixed payments: Payments stay the same for the life of the loan
Interest: You’ll be charged interest, which can cost hundreds or thousands of dollars.
Requirements for a $5,000 Personal Loan
Requirements for a $5,000 loan vary by lender. But in general, you should have at least Fair credit, which is a score of 580 or above. Lenders may also look at other factors, such as your income and your debt-to-income ratio (DTI), during the application process.
Repayment terms for a $5,000 personal loan are usually in the range of two to seven years. The length of the repayment term will play a role in determining the monthly payment amount and the interest rate.
Your credit score will also affect the interest rate. For example, the average interest rate for personal loans is 10.73%-12.50% for those with Very Good or Excellent credit. However, if you have Fair credit, the average jumps to 117.80%-19.90%.
Payment on a $5,000 Personal Loan
The payment on a $5,000 personal loan depends on the interest rate and the loan term. For example, a two-year $5,000 personal loan with a 7.80% interest rate results in your paying $226 per month. This means you’ll pay $416.34 in total interest over the life of the loan.
If, on the other hand, you take out a three-year $5,000 loan at an interest rate of 15%, you’ll pay $173 per month. In this case, you’ll pay a total of $1,239.76 in interest over the life of the loan.
Many lenders offer $5,000 personal loans with competitive interest rates and flexible terms. However, you are still charged interest and often additional fees, so you’ll want to shop around for the best deal you qualify for.
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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
What credit score do I need for a $5,000 personal loan?
In most cases, the credit score needed for a personal loan is at least 580, considered a Fair credit score. If your score is lower than that, your borrowing opportunities will be limited. Lenders may also look at other factors, such as your income and your debt-to-income ratio (DTI), during the application process.
How much is the monthly payment for a $5,000 personal loan?
The amount you will pay per month on a $5,000 personal loan will depend on the loan’s interest rate and term (length of the loan). As an example, the monthly payment on a $5,000 personal loan with a 13% interest rate and a three-year term will be $168.
How can you get a $5,000 personal loan?
Getting a personal loan generally involves checking your credit, comparing lenders (including banks, credit unions, and online lenders), getting prequalified, and then submitting your application.
Photo credit: iStock/SDI Productions
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
We’re a nation of coffee lovers, with java consumption at a two-decade high, according to the National Coffee Association’s 2024 research. Whether you like a cup of basic black coffee or an iced latte with all the bells, whistles, and whipped cream, coffee may feel like an affordable treat.
However, that little indulgence and energy booster is getting more expensive. In fact, between inflation and the higher cost of coffee beans, java prices have increased nationwide. Specifically, in April 2024, the price was 26.5% higher than it was in April 2010, according to U.S. Bureau of Labor Statistics data. This means you’re most likely paying more for your coffee at home and in neighborhood and national chain coffee shops.
While you might not consider spending an extra 25 or 50 cents a cup a big deal, these expenses can add up and mess with your budget. Fortunately, there are lots of ways you can still enjoy your daily cup of joe without going broke. Read on for 17 practical ways you can save money on coffee.
How Much Does the Average Person Spend on Coffee?
It’s estimated that women shell out $2,327 on coffee each year, while men spend $1,934, according to the Perfect Brew. Statistics show Millennials are the biggest spenders with the average 25 to 34 year-old dishing out $2,008 a year on their coffee habit, followed by 35 to 44 year-olds, who spend $1,410 on coffee each year.
The average price of a cup of coffee-shop joe costs nearly $5 according to the latest data. If you’re buying your coffee five days a week, that’s $25 a week and $100 a month. It might not sound like a lot, but do the math and you’ll find even if you’re only ordering one cup, you’re shelling out $1,200 a year just on to-go coffee. By making a few small changes to your routine, you could potentially save yourself hundreds of dollars and then use that money to open a savings account and sock the funds away for future goals, like a vacation or even a down payment on a house.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
17 Great Ways to Save Money on Coffee
Think you might be spending a small fortune on coffee? It may be time to take stock of how much of your money is going towards those pots of Italian roast at home and pumpkin spice lattes when out and about. By incorporating some small changes, you can end up with extra money that can go into savings.
Here are 17 great ideas on how you can lower the cost of buying coffee every day.
1. Grind Your Own Beans
Even though bags of pre-ground coffee and whole beans may cost the same, grinding beans can be more economical in the long run. Why? Whole beans stay fresher longer compared to pre-ground coffee, which is often made with lower quality beans, additives, and fillers, tending to go stale faster. Coffee that’s lost its aroma and flavor may go unused or tossed, resulting in pouring money down the drain along with your brew.
2. Improve Your Brew Method
One reason why you might skip making coffee at home is because it doesn’t taste like it does at the coffee shop. If this is the case, it’s time to up your brewing game. Start by using the right grind size for your coffee method, such as a coarse grind for a French press or a medium-coarse grind for automatic drip. Also try figuring out your preferred coffee strength for the ratio of coffee to water, and understand the best water temperature for your chosen brewing method.
3. Invest in a Quality Coffee Maker
Here’s another smart idea for how to save money on coffee: Get a coffee maker you’re excited about. It will likely inspire you to drink more coffee at home. Purchasing a coffee maker may feel like a bit of a splurge, but in the long run, you’re likely to be spending money wisely. Making coffee at home will offset the cost of daily trips to the coffee shop.
4. Get an Inexpensive Milk Frother
Instead of paying extra for a latte or a cappuccino from your local barista, make your own at home with a milk frother. Milk frothers work by aerating the milk and creating the foam to add to your hot or cold coffee drinks. There are different types of frothers, from handheld to electric, which vary considerably in price, but you can find one on Amazon for as low as $4. Little savings like this can help you live below your means.
5. Drink Your Coffee Black
It might take time to get used to it, but by drinking black coffee, you’ll be saving money on buying milk or creamer in the supermarket and at the cafe. Some national coffee chains charge as much as 80 cents extra or more if you order coffee with certain types of dairy-free milk, such as almond, oat, soy, or coconut. What’s more, when you keep it simple and black, you can really appreciate the coffee’s true aroma and flavor.
6. Switch to a Cheaper Alternative
If you’ve been toying with giving up coffee for a less expensive fix, consider switching to tea, which can cost up to three times less than coffee you make at home. Caffeinated teas such as black, matcha, and Oolong can provide plenty of flavor while still providing you the buzz you need.
The cheapest choice? Decrease the amount of coffee you drink everyday or quit entirely.
7. Refrigerate or Freeze Leftover Coffee
Made too much coffee? No problem. Refrigerate it later and drink it iced, or add it to a smoothie with other ingredients such as peanut butter, banana, vanilla extract, and the milk of your choice. Leftover coffee can also be used to make coffee popsicles or fill an ice tray for cubes you can add to iced coffee.
8. Make Your Own Creamer
Those French vanilla and other flavored creamers can liven up your cup of joe, but they don’t come cheap. Cut your grocery bill by saying no to those costly supermarket creamers. Do a search for homemade creamer recipes on the internet, and you’ll find many different variations. Making your own creamer can be as easy as combining 1 can of sweetened condensed milk, 1-¾ cup skim milk, and 2 teaspoons of vanilla extract.
9. Add Your Own Flavorings Instead of Paying Extra
Before you head out to a coffee bar for one of those flavored treats, try spicing up your coffee at home by sprinkling in cinnamon, powdered cocoa, cayenne pepper, or vanilla extract. Fancy syrups used by coffee shops are easy to create yourself and you can find a variety of recipes online. A couple of teaspoons of maple syrup can sweeten up your java too.
The difference between buying a small and a large size coffee can be as much as 80 cents or more. Opting for a smaller cup over the largest size over the course of a week could save you about $5. That’s $20 a month and a yearly savings of $240.
11. Pay with Cash Instead of Credit
When paying for coffee, it’s easy to whip out a credit card. However, using your card each time and not keeping track can be an eye-opener when your bill comes due. If you’re carrying a balance and have an interest rate of, say, 19%, you’re paying almost 20% more by using your plastic for that cup of joe. Instead, switch to cash only for coffee to become more aware of how much you’re really spending — and to avoid getting into a position of having to pay off outstanding debt.
12. Ask for Gift Cards
For special occasions like birthdays or holidays, put a coffee gift card on your wishlist. A $15 or $20 gift card from a loved one can give you a week or two reprieve from spending your own money at coffee shops.
13. Pay with an EBT Card
The USDA’s Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, provides financial assistance towards groceries for individuals in need. SNAP recipients receive an Electronics Benefit Transfer (EBT) card to buy food items and non-alcoholic beverages at most major supermarkets as well as Amazon, Instacart, and more. This means you can use your benefits in participating retailers to buy such brands as Califia Farms, Starbucks, or Dunkin’ brand packaged coffee, K-cups or cold bottled drinks. Although Starbucks doesn’t accept SNAP at their stand-alone stores, some of its licensed kiosks found inside certain grocery sellers such as Target, Fred Meyer, and Safeway, accept EBT.
The catch? You can only purchase SNAP-eligible items that have a nutritional label. Hot foods and beverages are excluded so barista-prepared coffee isn’t covered. You can check to see what stores in your area take EBT cards with the USDA Snap locator .
14. Check out Coffee ‘Happy Hours’
Look for coffee shop happy hours where you can get your favorite beverages at lower prices. Starbucks, Peet’s, and Ziggi’s Coffee are some national chains that often offer happy hour deals, and your local coffee shop may have them as well.
15. Avoid Hanging Out in Coffee Shops
With more people working remotely, coffee shops have become a popular place to get out of the house and get one’s job done. But, as the hours pass, you’re likely to order more coffee. Just like the price of eating out vs. eating at home can be more expensive, camping out for a longer period of time also means you may feel obligated to purchase food, plus contribute to the tip jar.
16. Budget for Your Coffee
Sometimes you just have to reward yourself with a fancy coffee. This is doable as long as you work it into your weekly budget. That gives your spending some structure and gives you permission to buy that treat guilt-free. As you hone your money-saving skills by sticking to your budget, a PSL can be a great way to celebrate a job well done.
One way to create a flexible budget is to try following the 50-30-20 rule, which teaches you to allocate your take-home income into three categories: needs (50%), wants (30%), and savings (20%). That weekly peppermint mocha can be factored in as a non-essential want.
17. Use a Reusable Cup
In an effort to reduce single-cup waste, some national chains such as Starbucks, Tim Hortons and Peet’s, give customers 10 cents off of each cup of coffee if you bring a reusable cup. Drinking out of an insulated cup not only means you’re helping the environment, but your coffee tends to stay hotter longer too.
Banking With SoFi
Want to find room in your budget for a little more java? Opening the right bank account could help you save and potentially even grow your money. That way you can order a special coffee from time to time and really savor it.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
Is it cheaper to make or buy coffee?
Making coffee at home turns out to be much more affordable than buying coffee at a shop. Depending on the type of coffee maker and coffee you use, you can spend pennies per cup. Using a drip coffee maker can cost about 29 cents a cup compared to $3 or more at a cafe.
How much money do you save if you make your own coffee?
At about 29 cents a cup, making coffee at home can cost as little as $105.85 a year if you drink it every day. On the flip side, getting a $4 coffee at a popular cafe every day can be as much as $1,460 a year. Based on those figures, drinking coffee at home can save you a little more than $1,354 annually. In the bigger picture, over the course of 10 years, you’d save more than $13,540. And that’s without interest.
Is coffee worth the money?
For people who can’t live without their daily coffee, this is a no brainer. Spending money on coffee you love is worthwhile, as long as it fits within your budget. You shouldn’t have to sacrifice your daily pick-me-up. The key is deciding if regular visits to the coffee shop are worth the money, or if you can still enjoy a quality cup of coffee with a less costly alternative.
4.00% APY
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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What unlimited cash-back means is you can earn uncapped rewards using the card — in other words, your earning potential isn’t limited to a certain amount. While this might sound too good to pass up, there are both pros and cons to consider to determine whether unlimited cash back is worth it for you.
What Is Cash Back?
Cash back is a type of reward that a credit card issuer may offer through its rewards credit cards. Depending on the terms, cardholders can earn a certain percentage back on qualifying purchases (cash advances typically don’t qualify). For instance, you may be able to earn 2% cash back on purchases at gas stations, or 3% back at grocery stores.
Some cards may put caps on how much cash back you can earn. As an example, a card may limit cardholders to 2% cash back for up to $5,000 in purchases in a calendar year. While cardholders may still be able to earn cash back after they’ve hit their certain earnings threshold, they may earn rewards at a lower rate thereafter.
What Is Unlimited Cash Back?
Unlimited cash back means that your credit card offers cash-back rewards with no caps or limits on how much you can earn. In most cases, you can earn cash back on all of your purchases, though some cards may only offer unlimited cash back on certain spending categories.
For most credit cards, your cash-back rewards don’t expire as long as you keep your card open. This means that if you continue racking up rewards, you may be able to redeem your accumulated cash-back rewards for a sizable statement credit or other perk.
How Unlimited Cash Back Credit Cards Work
How credit cards work that offer unlimited cash back is that they allow cardholders to earn cash back on their purchases with no earning cap. In other words, there is no limit as to how much you can earn on qualifying purchases with these types of credit cards.
As you earn these rewards, you can redeem them in several ways. This includes as a statement credit or actual cash via a check or bank transfer.
In general, you’ll need good or excellent credit (meaning a score of 670 or above) to qualify for an unlimited cash back card. That being said, there are also cash back credit cards with less stringent credit card requirements, meaning you may be able to qualify even if you have a fair credit score or limited credit history. In general, however, the higher your score, the better the rewards tend to be.
Before signing up for an unlimited cash back credit card, consider the advantages and disadvantages first.
Pros
Cons
Can earn money back on purchases, with no caps on earnable rewards
Generally need at least good credit to qualify for top rewards programs
Don’t have to worry about hitting spending thresholds or other caps
May need to pay an annual fee
Simple and straightforward to earn and redeem rewards
Like other rewards credit cards, may have a higher APR (annual percentage rate) than standard credit cards
Can help to build credit with responsible usage
Not as lucrative of a rewards option for frequent travelers
Is Unlimited Cash Back Worth It?
Getting an unlimited cash back credit card might be worth it if you’re confident you can maximize its rewards. For instance, if you continually make purchases in higher rewards categories, you can save some serious cash due to the rewards earnings. Ideally, you’d be able to earn enough rewards to entirely offset the annual fee, if your card has one.
An unlimited cash back card may not be a great fit if you continually carry a balance on your credit card, given what a credit card is and how you’ll accrue interest. Your interest rate will likely be higher than the cash back rate you’ll earn, which means carrying a balance could cancel out rewards earnings.
Another reason to think twice about an unlimited cash back card is if you’re a frequent traveler. A travel rewards program may be a better choice since you can earn free flights, hotel rooms, and even cash back. Plus, you might earn more lucrative rewards on travel-related spending than a cash back card would offer.
Categories of Unlimited Cash Back Credit Cards You Can Choose From
There are several ways credit cards give you cash back, including flat rate and through different spending categories.
Flat Rate
Flat-rate rewards allow you to earn the same cash-back rate across all purchases made using a credit card. For instance, you might earn 3% cash back on all purchases made with the card. Some may issue you a certain percentage cash back when you make a purchase, and then another amount you pay off your credit card bill. Regardless, your specific spending category won’t matter for earning with a flat-rate rewards card.
Rotating Categories
Your credit card may offer several spending categories each quarter that you can select from to earn cash back. For instance, you might be able to choose to get 5% cash back on purchases at gas stations or office supply stores for the first quarter. After the quarter is over, you can choose a different spending category.
While rotating categories can allow you to maximize your rewards-earning potential, this setup does require some strategizing. You’ll need to stay on top of choosing a new category each quarter. Plus, you’ll then have to make sure you adequately take advantage of spending within that category.
Fixed Spending Categories
Instead of choosing different categories every quarter, some credit cards offer fixed cash-back earnings for various spending categories. For instance, a card may allow you to earn 3% cash back for purchases at grocery stores, and 1% cash back on all other purchases.
While fixed spending categories require much less planning ahead for, you will want to ensure the card you sign up for credit card rewards you in a category you regularly spend in. Otherwise, you could end up forgoing valuable rewards.
Maximizing Unlimited Cash Back Earnings
If you want to make the most of earning unlimited cash back, here are some general credit card rules to keep in mind:
Select the Right Card
It’s a good idea to do your research and find a card that matches your spending habits. For example, if you use your credit card a lot at gas stations, it might not be the best choice to sign up for a card that doesn’t offer cash back rewards for this category.
Time Your Spending
If you sign up for a credit card with a sign up bonus, consider timing your card opening with a major purchase you’d been planning. Doing so will help ensure that you meet the minimum spend requirements in order to earn the bonus.
Or, if your credit card is about to have extra earnings for a rotating category, you might think about waiting until that time to make a planned purchase.
Note Spending Categories
After signing up for a card, pay attention to how much cash back you’ll earn in different categories if it’s not a flat rate card. That way, you can be sure to use that card exclusively for certain spending categories, or make sure you sign up for rotating categories well within the deadline.
Review Credit Card Terms
Looking over your credit card terms can help to ensure that you know what does and doesn’t count toward earnings. You might also discover through your card’s terms that you can earn enhanced rewards by taking certain actions, such as holding a certain amount of money in an associated bank account.
The Takeaway
A cash-back credit card is a great way to earn rewards that doesn’t necessarily require a complicated redemption process. Even better is when the card doesn’t place limits on the amount of cash-back rewards you can earn, which is the meaning of unlimited cash back.
Still, you’ll need to make sure you avoid carrying a balance and take steps to maximize your rewards to ensure you don’t negate your cash-back rewards earnings.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
How does unlimited cash back work?
If you have a credit card with unlimited cash back, that means there are no limits on the amount of rewards you can earn through qualifying purchases.
Is unlimited cash back better than points?
Whether cash back or points is better really depends on your preferences. Cash back is straightforward to track and redeem. Meanwhile, points may translate to a greater range of redemption opportunities, including for travel-related purchases. However, the value of points can vary depending on the card and the way the points are redeemed.
Photo credit: iStock/AsiaVision
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.
Investing in real estate can be a lucrative endeavor. But if you don’t have hundreds of thousands of dollars saved in cash to put toward a property, using a credit card to secure a real estate investment might be an option.
There are ways to execute this investment approach. However, there are also serious caveats to consider before moving forward with using a credit card to invest in real estate.
Can You Buy Real Estate With a Credit Card?
You can’t purchase a physical real estate property outright with a credit card the way you would when using a credit card to buy lunch or a new television. One reason for this is because a typical consumer credit card likely doesn’t offer a credit line large enough to cover the entire home price.
Even if you do qualify for a credit line to cover all or a significant portion of the home price, you’ll face another challenge. The title company or real estate agency that’s facilitating the deal requires that payment is provided using bank-certified funds — such as a cashier’s check, certified bank check, or wire transfer — to finalize your investment transaction. Given what a credit card is, it won’t meet those standards.
How to Finance Real Estate Investments With a Credit Card
While you can’t swipe your credit card to purchase real estate, there are ways that you can leverage your credit card to help fund your real estate investments.
Through a Cash Advance
If you have a high enough credit limit, a viable way to buy real estate with a credit card is by getting a cash advance against your card. By doing this, the funds you borrow from your credit card will become quickly available for use on a real estate investment, which might be helpful if you’re buying real estate in a hot market.
Keep in mind that fees typically apply for cash advances. Typically, you’ll pay a fee in the range 3% to 5% of the transaction amount, depending on your particular card.
Also know that cash advances typically come with interest rates that are higher than the card’s standard annual percentage rate (APR). Plus, interest begins to accrue immediately rather than at the end of the grace period like it does on regular credit card purchases.
Some investors also use credit cards to invest in real estate by using their card for renovation project expenses. If you purchased a low-cost investment property and want to update it for passive rental income, for example, you might be able to invest in your property by putting charges for contractors and materials on your credit card.
By Using Credit Card Rewards
Another unconventional approach to buying real estate with credit cards is directly redeeming earned rewards as cash. Cash redemption values are typically lower compared to redeeming rewards toward travel, for example, but this approach can still unearth the capital you need to invest in your next property.
This strategy is particularly effective if you’ve already amassed years of rewards through a business credit card, and are willing to pool earned rewards from your personal credit card rewards programs, too.
Advantages of Using a Credit Card to Invest in Real Estate
Although buying real estate with a credit card is an unconventional approach, there are some benefits in doing so. In particular, the advantages include that:
• You can invest faster: If you don’t have a lump sum of cash savings ready, it might take years to save up enough capital to get your foot into real estate investing. Using a credit card to invest in real estate can help you realize your investment goals faster.
• You’ll have fewer costs at closing: Since you’re not financing through a mortgage lender, there are fewer fees to worry about. Unlike when buying a home as your primary residence through a mortgage loan, costs like origination fees, appraisals, and escrow fees aren’t a required part of a real estate investment transaction done in cash.
• You might earn rewards in the process: Most card issuers don’t let you earn credit card rewards from cash advances. However, you can accelerate your rewards earnings by using your card for spending associated with your property investment. For example, materials and contractor costs for renovation projects, like a kitchen update or a room addition, can help you rack up rewards faster.
Downsides of Using a Credit Card to Buy Real Estate
There are major disadvantages to using a credit card to invest in real estate. If you’re considering how to buy rental property with credit cards, keep in mind the following drawbacks:
• You’ll have a hard time using credit cards directly to invest in real estate: A notable downside to buying real estate with credit cards is that you’ll likely be unable to throw a credit card onto the table to close a real estate transaction. You’ll have to undergo the extra step of getting a credit card cash advance. But be aware that card issuers might set a lower available limit for cash advances and will impose a higher APR. Plus, you’ll pay cash advance fees.
• You’ll face high interest rates: If you have to draw a cash advance against your credit card to buy real estate, you’ll face expensive APRs, compared to other financing sources, like a personal loan. According to the latest Federal Reserve data, the average credit card rate across all accounts with balances is currently 22.76%. By comparison, the average personal loan rate is 12.36%.
• You’re taking on a lot of risk: How credit cards work is that they let you purchase goods and services, even if you don’t have the cash to cover the full amount, immediately. The caveat, however, is that you’ll need to repay the amount either in a lump sum when your statement is due or over time.
If you successfully buy real estate with a credit card, you’re legally liable for that debt and must repay it based on the rate and terms of your credit card agreement. This holds true regardless of whether your investment turns a profit. Plus, if you choose to pay back the funds you borrowed over many months, you’ll incur exorbitant interest charges in addition to the principal balance.
Factors to Consider Before Using Your Credit Card to Invest in Real Estate
After assessing the pros and cons of investing in real estate using a credit card, also consider the following factors that might impact your investment:
• Whether you’ll need additional funding sources: If your credit card doesn’t provide a sufficient amount for your real estate investment, you’ll need to seek funds elsewhere.
• What the local real estate market is like: Whether your goal is buying a property to flip and sell or buying rental real estate, do your homework. This includes finding a desirable neighborhood and a suitable property, as well as assessing renovation projects and other repairs necessary to set your investment up for profitability.
• If you can repay your credit card bill: At best, consider your credit card as a short-term loan tool. Plan to put profits you’ve earned toward paying down your debt ASAP.
Alternatives to Buying Real Estate With Credit Cards
If you don’t have hard cash stowed away for your next real estate investment, but aren’t ready to leverage your credit cards for the investment, you have a couple of other options:
• Personal loans: A personal loan is another financing option, particularly if you have strong credit. It offers a higher borrowing limit and longer repayment timeline compared to a credit card. Also, as mentioned earlier, personal loan interest rates are generally lower than credit card APRs.
• Personal savings: Another option is using cash and avoiding credit cards and other methods of borrowing altogether. If you have personal savings that you can tap into or are willing to hold off on investing in real estate until you’ve built up enough savings, you can potentially avoid costly finance charges.
The Takeaway
Tread carefully when using a credit card (i.e. borrowed money) to fund any investment, including real estate. Adhering to important credit card rules — like staying on top of your credit utilization and paying your credit card statements in full — can help you avoid going into debt for your investment.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
How can I buy rental property with a credit card?
If done strategically, you can use a credit card to finance a rental property either through a credit card cash advance or by using the credit card to pay for renovations on an investment property flip.
Can I use a business credit card to buy real estate?
Yes, you may be able to use a business credit card to invest in real estate. Doing so separates the debt from your personal credit profile, so the high credit utilization on the business credit card doesn’t affect your personal credit score.
Is it a good idea to buy real estate with a credit card?
Whether buying real estate with credit cards is a good idea depends on your investment risk tolerance. A credit card might work as a short-term funding option, but plan on repaying the debt with your profits quickly to avoid an underwater investment.
Photo credit: iStock/SDI Productions
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.
