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A personal loan can be a relatively low-interest way to access a lump sum of cash, which is usually paid back in monthly payments. This kind of unsecured installment loan (meaning you don’t need to put up collateral) can be used for a variety of purposes. For example, you might pay off high-interest credit card debt, fund a home renovation, or finance a family reunion trip to the beach next summer.

Here, you’ll learn the full story on one popular option, a $10,000 personal loan.

Reasons to Get a $10,000 Personal Loan

Many prospective borrowers are attracted to personal loans because of the freedom and flexibility that they offer compared to some alternatives. Reasons to get a $10,000 loan might include the following:

•   To pay off an unforeseen expense, such as costly car repairs or a major medical bill. (A borrower might use a lesser sum, like a $5,000 personal loan, in some situations.)

•   To consolidate other debts. For example, assume you have a $10,000 balance between two credit cards, each having an interest rate of over 20%. You might be able to secure a $10,000 personal loan with a significantly lower interest rate to pay off that debt.

•   To pay for a home renovation.

•   To start a side hustle.

•   To cover wedding expenses, such as venue costs, catering, or attire, through a wedding loan.

•   Any other legal need for a cash infusion.

Pros and Cons of Taking Out a $10,000 Personal Loan

Consider the pros and cons of taking out a $10,000 personal loan as you explore this option.

$10,000 Personal Loan Terms

Depending on the lender, the repayment periods typically range from 12 months to 84 months.

You can shop around for a personal loan with terms that allow for affordable monthly payments. Keep in mind that a longer term likely means you will pay more interest over the life of the loan.

When calculating the overall costs of a personal loan, consider such factors as the principal amount borrowed, interest rate, fees, and the loan term. You might use an online personal loan calculator to help you tally up costs.

Note: Also keep in mind that some personal loans are secured loans, meaning that you put up collateral which the lender can take ownership of if you default on the loan. Be clear on whether the loan you seek is secured or unsecured.

$10,000 Personal Loan Monthly Payments

Personal loans are typically repaid over a multi-year term through monthly payments. The cost of the monthly payments is influenced by the interest rate that applies to the specific loan. Interest rates are essentially the fees charged by the lender for providing the loan.

The lowest interest rates are typically offered to consumers with a good to excellent credit history and may also be influenced based on other factors including their current income. Generally speaking, lenders charge lower interest rates if they think an applicant is likely to repay their loan in a timely way.

The following chart shows the impact that interest rates have on the monthly payment and also how choosing a longer-term loan can increase the overall cost of the loan.

Personal loan interest rates are generally fixed, which means the monthly payment will remain the same. Variable-rate personal loans are offered by some lenders, and payments will be influenced by market conditions.

Recommended: $20,000 Personal Loan Rates and Requirements

$10,000 Personal Loan Fees

In addition to interest, some lenders charge origination fees that will also increase the overall cost of the loan.

The combination of the interest rate and any applicable fees is the annual percentage rate (APR) of the loan. Calculating the APR is necessary for determining the true cost of the loan. Recent Federal Reserve data shows the average APR of a 24-month personal loan to be 11.14%.

It’s important for applicants to closely review the terms of any potential loan agreement. For example, a lender may charge a late fee when payments are not received on time, and some may have prepayment penalties that apply if a borrower pays off the loan ahead of schedule.

Recommended: 39 Passive Income Ideas to Help You Make Money

What Credit Score Do You Need To Get a $10,000 Personal Loan?

Your credit score is a three-digit number that a lender checks to assess your creditworthiness. The most popular credit scoring systems (like FICO® Score) usually range from 300 to 850. Your credit score is calculated largely based on your credit history because past consumer behavior tends to predict the future.

Here are the usual credit score ranges according to FICO:

•   300 to 579: Poor

•   580 to 669: Fair

•   670 to 739: Good

•   740 to 799: Very good

•   800 to 850: Excellent or exceptional

There’s no single credit score needed for getting a personal loan. Keep in mind that a $10k loan is close to the average personal loan amount (the current average is $11,724). Rates may vary depending on the size of your loan.

Can You Get a $10,000 Personal Loan With Bad Credit?

In general, you need a good credit score to qualify for a personal loan. If you have bad credit (say, in the poor or fair range), you might still be able to secure a loan, but potentially at a higher interest rate. If your credit score is in the very good or exceptional range, you may qualify for even more favorable interest rates and terms.

If a personal loan with bad credit is more expensive than you like, you might look into personal loan alternatives, such as a salary advance or using credit cards.

How Long Does It Take to Get a $10,000 Personal Loan?

Personal loans are known for offering fast processing — or funding — times, particularly among online lenders. Many lenders today offer same-day or next-day funding of personal loans after approval. Applicants should be properly prepared with the documentation necessary to confirm their identity, address, and income, as well as current bank statements.

Requirements for a $10,000 Personal Loan

Requirements will vary across lenders. However, qualifying for a $10,000 personal loan typically requires a credit score in the good range, an active checking account, and a steady, verifiable income, among other factors.

Top $10,000 Personal Loan Lenders

Here’s a look at some of the current leading personal loan lenders, along with interest rate ranges.

How to Compare $10,000 Loan Offers

When comparing offers for a $10,000 personal loan, keep these tips in mind:

•  Focus on the APR vs. simply the interest rate to get a better idea of the actual costs of borrowing, with fees included.

•  Look at the total cost of the loan over its term. You’ll see that a longer term typically reduces your monthly payment but means you pay more interest over the life of the loan.

•  Do look into the fees involved, such as origination and late fees, as well as prepayment penalties. These can make a significant difference in some situations, so you want to take out a loan with a “no surprises” understanding.

Tips for Getting Approved for a $10,000 Loan

If you’re thinking about applying for a $10K personal loan, here are some ways to help improve your odds of success. You’ll see that understanding and optimizing your creditworthiness can be an important step.

•  Work on maintaining or building a credit score that’s at least in the good range, if not very good or exceptional for the most favorable terms.

•  Check your credit report for any errors and work to correct any that you find.

•  Calculate your debt-to-income ratio, or DTI, and focus on keeping it below 36% for the best odds of approval.

•  Only borrow how much you actually need, since applications for higher sums can face a more stringent approval process.

•  Gather all of your documentation (such as pay stubs, tax returns, and bank statements) needed for personal loan approval in advance

•  Prequalify for a loan and compare offers carefully.

The Takeaway

If you’re considering a personal loan, it’s a good idea to take the time to compare the various options available and make sure you understand the terms and costs of a loan. Those with lower credit scores are likely to encounter fewer choices and higher interest rates and fees, while those with a strong financial profile may have a number of solid offers to choose among.

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

FAQ

What is the monthly payment on a $10,000 personal loan?

The monthly payment on a $10,000 personal loan will fluctuate based on your credit score, the loan’s interest rate and fees, and the term of the loan, among other factors.

Do I need at least a 620 credit score to get a $10,000 loan?

There is no formal minimum credit score needed for getting a personal loan. Different minimums may apply across the various institutions that offer personal loans in the $10,000 range. Those with a 640 or higher credit score are likely to find a number of options for a $10,000 personal loan; those with higher scores may have more options as well as more favorable terms.

How long will it take to get a $10,000 loan?

Fast-funding options including same-day and next-day loans are common for 10,000 dollar loans. As long as you are prepared with some basic documentation that verifies your identity, address, and income, rapid approval and funding may be available.

Photo credit: iStock/Edwin Tan

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

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A flex loan is a line of credit that is unsecured (meaning no collateral is required). It allows you to withdraw funds as needed up to a predetermined limit. As you pay down the balance, you can continue to borrow from the credit line, similar to a credit card.

While flex loans are usually easier to qualify for than more traditional lending products, they typically come with higher annual percentage rates (APRs) and fees. (Note: SoFi does not offer flex loans, but we do offer personal loans.) Here’s what you need to know about flex loans, including how they work, how much you can borrow, and the pros and cons of using a flex loan for fast cash.

What Is a Flex Loan?

Despite the name, a flex loan isn’t actually a loan — it’s an unsecured personal line of credit. Most commonly, you can find flex loans through cash advance companies, though some select credit unions, banks, and online lenders offer them.

Flex loans allow you to withdraw funds from a credit line up to a preapproved limit. You can use the funds in any way you wish. As you pay down the balance, you can continue to borrow from the credit line, similar to a credit card.

Because flex loans typically don’t require a credit check, they can be an attractive option for those who have a poor or limited credit history. But keep in mind: Because lenders assume additional risk by not checking credit, flex loans typically have higher APRs than other lending products, including personal loans, personal lines of credit, and credit cards. For this reason, you may struggle to make payments if interest and fees continue to accumulate.

How Do Flex Loans Work?

A flex loan works similar to a credit card in that it’s a revolving line of credit. Once approved, you’re given a certain credit limit and can borrow up to that amount. As the balance is paid down, that money is once again available to be borrowed.

You’ll receive regular statements showing how much you’ve borrowed and the interest owed, and typically need to make minimum monthly payments. Like a credit card, you may choose to pay only the minimum, or you can pay more. The more you pay each month, generally the less interest you’ll accrue.

Some flex loan lenders charge fees in addition to interest. This may include a flat fee when you take out the loan, as well as periodic fees, which may be daily, monthly, or each time you draw funds from the loan.

How Much Can You Get With a Flex Loan?

The exact amount you’ll be approved for will depend on the lender, as well as where you live, since state laws regulate credit limit amounts. You may be able to borrow anywhere from $100 to several thousand dollars with a flex loan.

Borrowers often turn to flex loans to cover immediate financial needs, emergencies, or hardships, but you can use the loan funds for almost any reason. However, due to the high APRs, it’s generally a smart idea to draw funds from a flex loan only when necessary.

Will a Flex Loan Hurt My Credit?

Getting a flex loan may not require a credit check so applying for one won’t necessarily affect your credit score. But lenders assume extra risk when they don’t do a credit check, so they might charge higher interest to make up for that.

A flex loan may hurt your credit if you don’t manage it responsibly. As with other types of debt, making late payments or missing payments on a flex loan may adversely affect your credit score. It’s a good idea to budget carefully to ensure you’re not borrowing more than you afford to pay back.

Recommended: Personal Loan Calculator

Benefits of Flex Loans

Flex loans may be beneficial for some borrowers. Here’s a look at some of the advantages of flex loans.

Application Process

•   In many cases, you can apply for a flex loan and receive a lending decision within minutes, especially if you apply online.

Access to Funds

•   You may receive access to your funds on the same day as your flex loan approval. Once approved, you can then make withdrawals from your credit line as needed. Funds are typically directly deposited into your bank account.

Credit Score

•   Most flex loan lenders won’t subject you to a credit check, making it less burdensome to qualify for a flex loan even if you don’t have good credit.

Requirements

•   In many cases, flex loans have more lenient requirements compared to other types of loans. In addition to giving the lender your personal details, you may only have to provide proof of employment and income.

Flexible Payment Terms

•   Each month or billing cycle, you can pay the minimum due or more. There are typically no penalties for paying down your debt faster.

Recommended: Typical Personal Loan Requirements Needed for Approval

Dangers of Flex Loans

Flex loans may be an attractive borrowing option because even those with poor credit can borrow money quickly. However, flex loans can present potential dangers.

Interest Rates

•   Flex loans typically carry much higher APRs than traditional lending products like personal loans and credit cards. If you can get a flex loan through a credit union, APRs can range from 24% to 28% or higher. If you get one from a cash advance company, the APR on a flex loan can reach triple digits.

Minimum Payments

•   You have the option to pay only the minimum payments on your flex loan. But if that’s all you pay, fees and interest will continue to grow your debt, making it increasingly harder to pay off the entire balance.

Excessive Debt

•   It can be tempting to borrow money repeatedly with a flex loan, but doing so can come at a high cost. If you continue to borrow money and don’t have a plan to pay down the amount you owe, a flex loan can lead to a cycle of debt that can be hard to break out of.

Risk of Predatory Lending Practices

•   It’s worth noting that some lenders can charge what are considered predatory interest rates, as high as 280% APR vs. an interest rate of, say, 20% you might pay on a credit card. This means borrowers run the risk of being mired in fast-rising debt.

Pros and Cons of Flex Loans

Here’s how the pros and cons look in chart form:

When Should You Take Out a Flex Loan?

A flex loan may be worth considering if you need quick access to cash and don’t want to go through a lengthy application process or can’t qualify for more traditional lending options. A flex loan may also be an option for those who want to have a backup source of funds in case of an emergency, like an unexpected car repair or dental bill.

However, because of the high APRs and added fees, you generally want to consider a flex loan only after exhausting other borrowing options, such as personal loans.

When to Apply for a Flex Loan

There may be other ways to get needed cash without paying interest rates as high as flex loans tend to offer. But if you’ve exhausted all other options, even a loan from a pawn shop, and you have a plan to repay the loan at the lowest possible cost to you, it may be an option you could pursue.

Emergency Expenses

Unfortunately, emergency situations can be part of life. Perhaps you need a major car repair or get hit with a huge dental bill. Or your home’s heating system conks out in the middle of winter. If you don’t have enough in an emergency fund to cover this kind of expense and other financing isn’t available, a flex loan might be an option.

Temporary Cash Flow Gaps

There are times when you may have issues with money coming in and going out. Perhaps you are in between jobs, or you are a seasonal worker and it’s the off-season. In these situations, you may want to access a flex loan to cover bills that need paying.

Alternatives to Flex Loans

Before applying for a flex loan, you may want to consider the following alternatives.

Personal Loan

Even if you have a limited credit history or bad credit, you may still qualify for a personal loan, albeit with a higher interest rate than those with solid credit would likely be offered. It can be worthwhile to see what terms various lenders offer you in this scenario.

Credit Cards

Like flex loans, credit cards are a form of revolving credit you can draw from on a recurring basis. While interest charges for credit cards can be high, they tend to be lower than flex loans. Depending on the card, you may also have an annual fee and other fees based on your use of the account.

Other Options

Here are a couple of other alternatives to a flex loan:

•   Personal line of credit: If you have healthy credit, a personal line of credit may be a worthy alternative because of its typically lower interest rates. However, you will be subject to a credit check, and the application process may take longer compared to a flex loan.

•   Personal loan with a guarantor: If you’re unable to qualify for an unsecured personal loan due to a poor or limited credit history, you might consider asking a friend or family member to help you get a guarantor loan. A guarantor is legally responsible for the repayment of the loan if the borrower defaults, but has no legal claim to any property the funds were used to purchase.

•   Payday alternative loans (PALs) are offered by federal credit unions and may provide an option for a small amount of short-term funding. Interest rates are typically capped at 28%.

Also explore if your employer offers any programs to advance your pay, whether cash advance apps could help, or if a buy now, pay later purchase could help you through a time when money is tight. One last consideration: You might ask a friend or family member for a loan.

Recommended: What Are Hardship Loans?

The Takeaway

Before taking out any type of loan, you’ll want to consider the benefits versus the costs. If you need cash for an emergency, it can be a good idea to look at all your borrowing options before settling on a flex loan due to the high interest rates and fees associated with these loans. (Note: SoFi does not offer flex loans, but we do offer personal loans.) Shopping around is a good way to see what you may qualify for and help you find a lender you feel comfortable working with.

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

FAQ

What is a flex loan?

A flex loan is a form of revolving credit that allows you to withdraw funds up to a certain credit limit. As you pay down your balance, the funds become available to borrow again.

How much can you get with a flex loan?

Borrowing limits for flex loans will depend on the lender and where you live, since state laws regulate credit limit amounts. You may be able to borrow anywhere from $100 to several thousand dollars with a flex loan.

Will a flex loan hurt my credit?

Applying for a flex loan typically won’t affect your credit because lenders typically don’t do a credit check when you apply for the loan. However, lenders may report your borrowing activity to the major consumer credit bureaus. As a result, any late or missed payments could negatively affect your credit.

When should you avoid a flex loan?

There are a few scenarios when it can be wise to avoid a flex loan. One case is when the interest rates are excessively high; this can lead to getting deeper in debt. Also be cautious if you feel you don’t have good self-control when it comes to spending. A flex loan could be a path to owing more rather than repaying your debt.

Are there better alternatives to flex loans?

There can be better alternatives to flex loans. You might see what interest rate you are offered for a personal loan or how much it would cost to use a credit card. Or you could investigate payday alternatives loans (PALs), which are offered by federal credit unions at more favorable rates. Cash advance apps, employer paycheck advances, family loans, a personal loan with a guarantor, and buy now pay later purchasing can also be helpful options.

Photo credit: iStock/PeopleImages

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

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A personal line of credit is a type of revolving credit line that can be used to pay for a variety of personal expenses. It works in a similar way to a credit card: A lender approves you for a specific credit limit, and you draw only what you need and pay interest only on the amount you use. This is different from a personal loan, which is a type of installment loan. With an installment loan, you receive a lump sum of money up front that must be repaid at specified intervals.

While both options allow you to borrow money, each comes with its own benefits and drawbacks. Continue reading for more information on personal lines of credit and when this type of financing may make the most financial sense.

What Is a Personal Line of Credit?

A personal line of credit is what’s known as a revolving credit vehicle. It’s similar to a credit card in that:

•  It has a maximum credit limit.

•  A minimum payment is required every month.

•  When the debt on the credit line is repaid, money can be withdrawn again.

Although a personal line of credit isn’t linked to a physical card, you can generally write checks, withdraw cash at an ATM, and transfer money into another account using the line. Generally speaking, the interest rates on a personal line of credit are lower than those on a credit card.

Personal lines of credit may be secured (requiring collateral) or unsecured (not requiring collateral). Whether secured or unsecured, some lines of credit require minimum payments of interest and principal, while others require only interest payments for a period of time, known as the draw period. That means that for a set period, you can draw money from your line of credit and need to make only interest payments during that time. After the draw period is over, the line of credit is no longer revolving (meaning, you can’t borrow against it anymore), and you’re typically required to make interest and principal payments.

Unlike personal loans, which tend to have fixed interest rates, a personal line of credit may have a variable rate during its draw period, then switch to a fixed rate once that period ends.

Recommended: Line of Credit vs. Revolving Credit

Where to Get a Personal Line of Credit

Personal lines of credit can be found at some banks, credit unions, and other financial institutions. However, not every lender offers them.

How to Get a Personal Line of Credit

The process for applying for a personal line of credit is usually similar to applying for other loans or credit cards. Lenders may accept applications online, in person, or over the phone, and specific application requirements may vary by lender.

Before formally applying, it’s a good idea to review your credit score and shop around at different lenders to compare the rates and terms you may qualify for. Many lenders will allow you to see if you prequalify, which may require a soft credit check, which won’t impact your credit score. Also be sure to evaluate any fees associated with the line of credit and review the draw period and repayment periods.

Once you’ve determined which loan you’d like to apply for, you’ll need to gather the required documentation (such as statements for proof of income). Your chosen lender will generally have a list of required documents. From there, you’ll fill out the application and wait for approval. At this stage, the lender will usually complete a hard credit inquiry which may temporarily impact your credit score.

When to Use a Personal Line of Credit

Personal lines of credit typically offer greater flexibility when it comes to accessing the loan and repaying it than other types of financing, such as a personal loan.

If you’re planning to do a home renovation, for example, you may not need a big chunk of money all at once. A line of credit allows you to access money over time to pay for things in dribs and drabs as you pick out the tile for your kitchen and your contractor finally gets around to installing it. This flexibility can reduce your interest charges because you are only borrowing money you plan to use immediately.

Another benefit of a line of credit is that you can pay it off and then typically borrow from it again. This can make it a good backup to have in case you suddenly experience an expensive emergency that you don’t want to put on your credit cards.

You may also be able to choose a line of credit with a draw period that allows you to only pay interest on the money borrowed for a period of time.

Awarded Best Online Personal Loan by NerdWallet.

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How a Personal Line of Credit Works

As we mentioned, personal lines of credit have a draw period and a repayment period. It’s important to understand how both work.

The draw period begins once you open a personal line of credit, and the funds are available for you to use as needed. You can borrow up to your credit limit, pay off the balance, and draw from it again. Your financial institution will likely send you a monthly bill, and you’ll need to make a minimum payment based on the amount you borrow, plus interest. (If you pay the balance in full each month, you may be able to avoid interest charges.)

The repayment period starts when the draw period ends. During this time, you won’t be able to borrow new funds. And you’ll likely be responsible for repaying the total amount you owe by the end of the repayment period.

Drawbacks to a Personal Line of Credit

One drawback is that unsecured lines of credit can be more difficult to qualify for than some other types of loans, such as a home equity line of credit (HELOC). This is because unsecured loans are generally more risky for the lender. Without collateral, the lender needs to be sure that the borrower has the ability to pay back their loan. That’s why for some, it may be easier to qualify for a HELOC (which uses your home as collateral) than a personal credit line. However, keep in mind that with a HELOC, you are taking on some additional risk by putting your house on the line.

Also, the flexibility that comes with a line of credit may be a double-edged sword. The ability to keep borrowing for an extended period of time could lead to feeling tempted to take on more debt or take longer to pay off debt… all of which could mean more interest charges over time.

Using a Personal Loan as a Personal Line of Credit Alternative

When comparing a personal line of credit vs. a personal loan, the major difference is that a personal loan is an installment loan. Like a personal line of credit, personal loans can be used to pay for nearly any personal expense. Borrowers receive a lump sum payment and pay back the loan in installments.

A personal loan may make more sense for borrowers who have a firm idea of their budget or a fixed expense, such as for medical bills, buying an engagement ring, or consolidating debt. Additionally, depending on creditworthiness, the average interest rate on a personal loan may be lower than that of a personal line of credit. Interest rates will vary by lender, so evaluate the options available to you.

Also compare any fees or penalties associated with the personal loan. If a personal loan has a prepayment penalty, you may not be able to benefit from paying off the personal loan early.

Recommended: Alternatives to Personal Loans

Other Personal Line of Credit Alternatives

•  HELOC: With a home equity line of credit, borrowers tap into the equity in their home to borrow a line of credit. This is a secured loan where the home functions as the collateral. This can help borrowers qualify for a more competitive interest rate than with an unsecured personal line of credit, but it also means that if the borrower has issues repaying the HELOC, their home is at risk.

•  Credit Card: In certain situations, a credit card may be used to help pay for emergency expenses. Be aware that credit cards generally have high interest rates — the average credit card interest rate was 24.04%, as of November 28, 2025.

•  Secured loans for a specific purpose: For example, if you are buying a car, you may be better off with a car loan over a personal line of credit or personal loan.

Personal Line of Credit vs Credit Card

A personal line of credit and a credit card both offer a pool of money you can borrow from and pay back over time. But there are key differences to keep in mind. Let’s take a closer look.

Flexibility and Usage

A credit card is designed for everyday convenience and can be a good fit for making small purchases like groceries, shopping, or dining out. To use, you just swipe or tap the card at a store or online checkout. Some credit cards may also earn cash back, points, or miles, which can be an added benefit.

A personal line of credit works more like a flexible bank loan. When you’re ready to use the funds, you might have the option to write a check, transfer the money to your bank account, or make a cash withdrawal. And unlike credit cards, PLOCs don’t typically earn rewards.

Interest Rate Differences

Credit cards tend to have higher interest rates than personal lines of credit. As mentioned, the average APR on credit cards is around 24.04% as of November 2025.

By comparison, the average APR on a personal line of credit is around 12.25%. Note that your credit score can impact the rate you receive for a personal line of credit. As a general rule, the stronger your credit score, the lower the rate you may qualify for.

The Takeaway

Personal lines of credit offer flexibility for borrowers because they are a revolving line of credit that functions similarly to a credit card. Borrowers can continue drawing on the line of credit for a set period of time to cover the cost of necessary expenses. For a one-time expense, however, you may be better off with a personal loan vs. a personal 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.

FAQ

What is the difference between a personal loan and a personal line of credit?

The biggest difference between a personal loan and a personal line of credit is that a personal loan is an installment loan. Borrowers receive a lump sum payment and pay back the loan in fixed monthly payments. A personal line of credit, on the other hand, lets you borrow up to a set limit, and you pay interest only on the funds you use.

Does a personal line of credit affect your credit score?

Yes, a personal line of credit impacts your credit score. Opening a PLOC can cause a temporary dip in your credit score, but if managed responsibly, it can help build your score over time.

Can you pay off and reuse a personal line of credit?

Yes. During the draw period, you repay the money you borrowed, and those funds become available for you to borrow again, up to your approved credit limit.

What are typical interest rates for personal lines of credit?

As of November 2025, the average interest rate for a personal line of credit is around 12.25%. However, the rate you receive will depend largely on your creditworthiness.

Is a personal line of credit secured or unsecured?

A personal line of credit can be either unsecured or secured, though most are unsecured.

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

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While in school, most student loans accrue interest. The main exception to this rule is for those who hold federal Direct Subsidized Loans. While a student is taking classes, the interest on these loans is covered by the U.S. government.

It can be important to understand exactly what type of student loan you have to make sure you understand the terms of the loan and when interest accrues. This, as you might guess, impacts how much you will be paying back.

Read on for a guide to how student loan interest works while you are still in school.

Understanding How Federal Student Loan Interest Works

Some federal student loans accrue interest while you’re in school, but others do not. To understand how your interest works, it’s essential to know exactly what type of student loan you have. Each loan type follows its own rules for when interest begins accruing and how it’s handled during enrollment.

Subsidized vs. Unsubsidized Loans

Federal student loans may be subsidized or unsubsidized. The accrued interest on Direct Subsidized Loans is covered by the government while a student is enrolled at least half-time. Direct Subsidized Loans are only available to undergraduate students.

For Direct Unsubsidized Loans, students are responsible for paying the interest that accrues on their student loans. Interest begins accruing as soon as the loan is disbursed, or paid out to the borrower.

You won’t be required to make payments while in-school, but be aware that if you don’t, you may graduate with a higher balance than when you started. That’s because the accrued interest is capitalized on the original balance of the loan. Direct Unsubsidized Loans are available to undergraduate and graduate students.

Direct PLUS Loans are available for graduate students (Grad PLUS Loans) or their parents (Parent PLUS Loans). The interest on these loans begins accruing when the loan is disbursed and continues accruing while the student is enrolled in school. Keep in mind that as of July 1, 2026, Grad PLUS Loans will no longer be available (Parent PLUS Loans will still be available, however).

How Does the Grace Period Impact Interest Accrual?

Both Direct Unsubsidized and Subsidized Loans have a six-month grace period after the borrower graduates. On subsidized loans, the borrower is not responsible for paying interest during the grace period. On an unsubsidized loan, interest continues to accrue during the six-month grace period.

Direct PLUS Loans do not have a grace period. Graduate students do receive an automatic deferment after graduation and interest does accrue during this time period.

How Does Capitalized Interest Work?

While payments are not required on most federal student loans while the student is enrolled in school, students with Direct Unsubsidized or PLUS Loans have the option of making interest-only payments. This can be helpful because, as mentioned previously, after the grace period and at the end of periods of deferment or forbearance, the accrued interest is capitalized on the loan.

Capitalized interest on student loans occurs when the accrued interest is added to the principal balance of the loan (the amount that was originally borrowed). This becomes the new balance of the loan, and interest will continue to accrue based on that new balance.

Think of all that accumulating interest like a snowball rolling down a mountain. You might be able to stay ahead of it for a while, but it also might catch up with you.

Interest Accrual During Deferment and Forbearance

During student loan deferment, interest accrual depends on the type of student loan you hold. Federal Direct Subsidized Loans typically do not accrue interest during approved deferment periods, as the government covers these costs. However, unsubsidized loans, PLUS Loans, and most private loans continue accruing interest even while payments are paused. If this unpaid interest is not addressed, it may capitalize once deferment ends, increasing your overall loan balance and the amount you’ll pay over time.

Forbearance, on the other hand, almost always results in interest accruing regardless of loan type. Whether you have subsidized, unsubsidized, or private loans, interest continues to build during a forbearance period. Interest typically does not capitalize at the end of a forbearance, though.

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Understanding How Private Student Loan Interest Works

When thinking about private vs. federal student loans, know that private loans are not subject to the same rules as federal student loans. They’re offered by private companies, and each lender will likely have its own terms and conditions.

The majority of private student loans will start to accrue interest while the student is enrolled in school. Some lenders may allow borrowers to defer payments until after they graduate. In this case, the accrued interest from when the borrower was in school will likely be capitalized on the loan. To be sure of the terms on your loan, review the loan agreement or check in with the lender directly.

Keep in mind that, as mentioned, private student loans don’t always offer the same benefits or borrower protections (things like income-driven repayment options) that federal loans do. Because of this, they are generally considered after all other sources of financing, including federal student loans, have been exhausted.

This table provides an overview of how interest accrues on the various types of loans discussed in this article.

Recommended: How to Calculate Student Loan Interest

Can You Minimize Student Loan Interest Accrual While in School?

One way to limit accrued interest is to limit what you borrow in the first place. When it comes to student loans, aim to borrow only what you really need. Perhaps get a part-time job to help cover some of your expenses, make interest-only payments on your loans, and/or consider refinancing your loans after you graduate.

Work-Study or a Part-Time Job

Work-study, for those eligible, or a part-time job can help you take out less in student loans. You can use the money earned to help pay for tuition, books, and living expenses. Minimizing your total student loan amount is one of the best ways to minimize student loan interest accrual. The less you owe in loans, the less you’ll pay in interest.

Make Interest Only Payments

Making student loan payments while in school isn’t likely to be a requirement, but as mentioned earlier, many loans allow borrowers to make interest-only payments while they’re in school. While this won’t eliminate accrued interest, it can reduce the total amount you pay over the life of the loan because the interest won’t capitalize if you’re paying it as it accrues.

Compare and Refinance Loans with Better Terms

Once you begin repaying your student loans, refinancing your student loans can be an effective way to manage interest accrual and reduce overall costs. By comparing lenders and securing a lower interest rate, you may be able to decrease both your monthly payments and the total amount of interest you’ll pay over the life of the loan.

You may also choose to extend the term of your loan, which can decrease your monthly payment. Keep in mind, though, that extending the term will most likely mean you’ll pay more in interest over the life of the loan.

And remember that refinancing federal loans means giving up federal protections and benefits, such as income-driven repayment plans and student loan forgiveness. It can still be a valuable strategy, though, for lowering long-term expenses if the new terms align with your financial goals.

Recommended: Applying for No Interest Student Loans

The Takeaway

Interest on many types of student loans accrues while the student is in school. Federal Direct Subsidized Loans are an exception, as the accrued interest is paid for by the government while the student is enrolled in school and during the grace period.

Generally speaking, interest on other types of student loans, including Direct Unsubsidized and PLUS Loans, begins accruing interest when they are disbursed, and continue accruing interest while the student is enrolled. For private student loans, each lender will likely have its own terms and conditions.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

When does student loan interest start accruing?

Student loan interest typically begins accruing as soon as the loan is disbursed. For federal subsidized loans, the government covers the interest while you’re in school and during certain periods. For unsubsidized federal and most private loans, interest starts accruing immediately, even while you’re still enrolled.

Is it better to pay interest while still in school?

Yes, it’s better to pay interest while still in school because it can save you money in the long run. Paying interest while still in school prevents that interest from capitalizing and adding to your loan balance. Even small payments can reduce overall costs.

How is capitalized interest different from regular interest?

Regular interest accrues on your current loan balance, increasing what you owe over time. Capitalized interest, however, is unpaid interest that gets added to your principal balance. Once it capitalizes, future interest is charged on this higher principal, making your total loan cost grow more quickly.

Do private student loans always accrue interest while in school?

Yes, private student loans almost always accrue interest while you’re in school, regardless of your enrollment status. Unlike some federal loans, private lenders rarely offer subsidized options. Interest typically starts accruing at disbursement, and if you don’t make in-school payments, it will continue to grow and may capitalize later.

What’s the difference between subsidized and unsubsidized interest?

Subsidized loans don’t accrue interest while you’re in school or during deferment — the government pays it for you. Unsubsidized loans accrue interest from the moment they’re disbursed, and you’re responsible for all of it. If unpaid, that interest may capitalize, increasing your total loan balance and long-term cost.

SoFi Student Loan Refinance
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