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

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

What Is an Annual Percentage Rate (APR)?

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

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

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

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

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

How Is APR Determined?

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

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

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

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

When It Matters to Look at APR

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

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

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

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

Types of Credit Card APR

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

Introductory APR or Promotional APR

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

Purchase APR

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

Cash Advance APR

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

Penalty APR

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

Balance Transfer APR

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

How to Evaluate and Compare APRs

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

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

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

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

Low vs High APR Credit Cards

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

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

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

What Is a Good APR for a Credit Card?

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

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

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

How to Avoid Paying APR

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

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

Tips for Qualifying for a Better APR

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

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

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

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

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

The Takeaway

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

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

FAQ

What is a bad APR rate?

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

What APR will I get with a 700 credit score?

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

Does the interest rate on my credit card change?

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

What other financial products have an APR?

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

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


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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Because a credit score is an important indicator for determining a consumer’s creditworthiness when buying a car, those with excellent credit histories tend to have an easier time borrowing money on favorable terms compared to those with lower credit scores. However, industry data shows that high-risk borrowers remain viable candidates for auto loans. In other words, there is no universally defined credit score needed to buy a car.

Read on to learn how your credit score can affect buying a car, plus some tips for purchasing a car with a lower credit score.

What FICO Score Do Car Dealers Use?

There are a few different scoring models that car dealers may use for determining a customer’s credit score. They may use the FICO® Auto Score, an industry-specific model featuring a score range from 250 to 900. The auto industry also may use VantageScore 3.0 or 4.0, which has a score range from 300 to 850.

No matter which scoring model is used, a bad credit score falls on the lower end of the range and a good credit score sits on the higher end of the range.


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

What Is the Minimum Credit Score to Buy A Car?

There may not necessarily be a minimum credit score required to buy a car. Consumers with deep subprime credit scores (300–500) have obtained financing for new and used vehicles in 2023, according to the credit bureau Experian. Although the percentage of borrowers in this category is very low, this indicates that even those with the lowest credit scores still may have access to auto financing.

Average APR by Credit Score Ranges

Consumers from all credit score categories have obtained auto loans in 2023, but car buyers with excellent credit histories tended to secure the lowest annual percentage rate (APR) financing, according to Experian. When assessing what is a good credit score to buy a car, Experian’s data confirms that consumers in the super prime and prime categories obtain the lowest interest rates on average for financing.

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

•   Deep subprime (300-500): 14.78%

•   Subprime (501-600): 12.28%

•   Near prime (601-660): 9.60%

•   Prime (661-780): 7.01%

•   Super prime (781-850): 5.64%

How to Buy a Car With a Lower Credit Score

Obtaining a loan to purchase a new or used vehicle when you don’t have great credit can be cumbersome, but it’s not impossible. Here are some ways a consumer with poor credit may be able to obtain auto financing:

Make a Large Down Payment

Offering a large down payment on a vehicle purchase may allow car buyers to obtain more reasonable rates and better terms for financing, resulting in more affordable monthly loan payments. By putting more money down at the time of purchase, lenders also may view the loan as less risky, thus increasing your odds of approval.

Get Cosigner Assistance

Buying a car with the assistance of a cosigner is another way to potentially bolster your chance of securing favorable financing. A cosigner agrees to share the responsibility of repaying the loan, effectively promising the lender that if you don’t make the payments they will. If the cosigner is creditworthy, it puts the buyer in a much better position to obtain financing than going it solo.

Consider a Less Expensive Car

Especially if you are buying a car with bad credit, it is important to know how much you can realistically afford to spend — and then stick to that budget, even if the dealer tries to upsell you. Additionally, finding a less costly car will reduce the amount you need to borrow, and it may be easier to get approved for a smaller loan amount than a larger one.

Benefits of Good Credit When Buying a Car

The benefit of a good credit score when buying a vehicle is that you may secure lower interest rates compared to consumers with poor credit. Unless a consumer buys a vehicle outright with cash or receives 0% APR financing, the consumer will eventually face monthly principal and interest payments until they’ve paid off the loan balance in full. Auto financing terms may vary in length, with some maturing at 60 months, 72 months or 84 months.

Car loans with a high APR may cause consumers to pay a long-term premium above and beyond the actual sales price of the vehicle.

How to Monitor Your Credit Score

There are a number of ways you can check your credit score, including through your credit company or another financial institution where you have an account, as well as through a credit service or credit scoring website. Contrary to what you may expect, your credit report does not include your credit score, though it does provide valuable information about your credit history and debts, which is why it can still be helpful to read over your credit report before making a major purchase like a car.

Credit scores can fluctuate over time depending upon financial circumstances, and credit score updates occur at least every 45 days. That’s why it’s important to take a look at where your score stands right before you begin the process of car shopping.

Also keep in mind that it’s common for credit inquiries to occur when you’re shopping around to see what auto loan terms you qualify for. While soft inquiries don’t affect your credit score, hard inquiries, such as those that happen when you’re comparing rates for an auto loan, can ding your score. However, most major credit scores will count multiple car loan inquiries made within a certain period of time — typically 14 days — as one inquiry.

What to Expect in 2024

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


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

The Takeaway

While it is possible to buy a vehicle with bad credit in 2024, consumers in the subprime or deep subprime risk categories may want to explore ways of improving their credit scores to help secure financing with more favorable terms. As far as what credit score you need to buy a car, any score is potentially sufficient for obtaining financing.

If you want to check your credit or work to improve your score before buying a car, a money tracker app allows you to easily monitor and keep track of your credit score.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

Photo credit: iStock/tolgart

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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

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A signature loan is a type of loan that lenders can make without requiring any collateral. They’ll typically approve the loan based upon a person’s financials and credit scores — plus their signature on loan papers. This is also called an unsecured personal loan, a signature personal loan, good faith loan, or character loan.

Read on to learn more about signature loans, how they compare to other types of personal loans, and their pros and cons.

What Are Signature Loans?

Signature loans are unsecured personal loans. Unlike secured personal loans, a signature loan doesn’t require you to pledge collateral — an asset of value like a house or a bank account — that the lender can seize should you fail to repay the loan. Signature loans are approved based solely on the creditworthiness of the applicant.

Because the loan is unsecured, signature loans often come with higher interest rates than secured loans like car loans and mortgages. However, the interest rates are typically lower than credit cards.

You can use a signature loan for virtually any purpose, such as consolidating high-interest debts, a major purchase, or a medical emergency.


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

How Do Signature Loans Work?

A signature loan works in the same way as an unsecured personal loan. These loans are offered by many banks, credit unions, and online lenders. When you apply for a signature loan, the lender will consider a number of factors, such as your credit history, income, and credit score, to determine whether you qualify for the loan and what the rate and terms will be.

If you’re approved for a signature loan, the lender will issue you a lump sum of cash, which you will then repay (plus interest) in monthly installments over a set term, often 24 to 60 months.

A Quick Look at Secured Loans

A secured loan requires you to pledge collateral to secure the debt. For a car loan, it’s typically the vehicle that is being purchased with the loan proceeds. For a mortgage loan, it’s typically the house being financed or refinanced. If the borrower defaults on a secured loan, the lender seizes the collateral to recoup their losses.

Some personal loans are secured, while others are unsecured. Secured personal loans could have a savings account put up as collateral, as just one example. This strategy could be risky for the borrower, though, because it may tie up money meant to be used for living expenses or set aside for emergency circumstances.

A Quick Look at Unsecured Loans

A lender does not require any collateral on a signature personal loan, which is an unsecured personal loan. So should you default on the loan, you won’t lose an asset of value (though your credit will likely take a hit). However, an unsecured loan may be harder to qualify for and have a higher interest rate than a secured loan, due to the increased risk to the lender.

Common Reasons to Get a Personal Loan

Personal loans are versatile, with the borrower typically able to use the funds for any personal, family, or household purposes. Some common personal loan uses are:

•   Credit card debt consolidation Interest rates on credit cards can be high — the average annual percentage rate (APR) is now 24.66%. So you might use a lower-interest personal loan to combine credit card balances into one loan.

•   Home improvement projects Depending upon the size of the remodeling project, costs can range from hundreds of dollars to thousands — even tens of thousands. A personal loan can give the borrower the opportunity to conveniently pay for home repairs and upgrades.

•   Medical bills Unexpected medical expenses can quickly add up, putting a real dent in someone’s budget. Paying for them with a personal loan can often make more sense than using a high-interest credit card for that purpose.

•   Weddings From engagement rings to ceremonies and receptions, weddings can get expensive — and that doesn’t even include the honeymoon. Couples may decide to look into signature personal loans as a way to cover their expenses.

•   Moving expenses From moving supplies to renting a truck or hiring movers, the dollars can rack up, with a personal loan being one way to pay for the expenses.

Pros and Cons of Signature Loans

If you need loan funds fast, you don’t have collateral to pledge, or don’t want to tie up assets as collateral, a signature loan might be the right choice for you. Here are some of the pros and cons of signature loans:

Pros of Signature Loans

•   Funds disbursement is typically quick

•   There is no collateral requirement

•   Generally a wide range of loan amounts available

Cons of Signature Loans

•   Lenders may see unsecured signature loans as riskier than collateralized personal loans, so interest rates may be higher than secured loans.

•   Some lenders’ minimum loan amounts may be higher than some people need.

•   Short-term signature loans can be payday loans, which typically have extremely high interest rates and fees.

Signature Loans vs Personal Loans

A signature loan is a type of personal loan, specifically an unsecured personal loan. Each is approved based on the applicant’s creditworthiness, without collateral being a consideration. A secured personal loan, however, is not the same thing as a signature loan, since collateral is required to back up this type of loan.

As with other types of personal loans, online signature loan lenders are widely available, making it easy to compare lenders. Once approved for a signature loan, funds may be disbursed quickly, sometimes in just a few days. There are few restrictions on the use of the signature loan funds.

Signature Loans vs Revolving Credit

Signature loans are typically installment loans, with a lump sum loan amount repaid in equal installments over a set amount of time. Revolving credit, like a credit card or line of credit, works differently.

With revolving credit, you have access to a credit limit. You can then borrow money when you want to (up to your limit), pay it back over time, and borrow again as needed. You only pay interest on the amount you actually borrow, not the full credit limit.

What Are Signature Loans Commonly Used For?

There are few restrictions on the use of signature loan funds. One common use of a signature loan is to consolidate other, high-interest debt with the goal of either getting a lower interest rate or having a fixed payment end date.

Signature loan funds are also commonly used to pay for wedding expenses, medical expenses, or home renovation or repairs.

Advantages and Disadvantages of Signature Loans Online

Signature personal loans are widely available online and can be good choices for people who don’t mind not having a physical bank branch to drive to for transactions.

Advantages of signature loans online include:

•   Competitive rates Online lenders can often offer competitive rates because they don’t have the expenses involved in maintaining physical branches.

•   Convenience It can often be quick and easy to apply online (no driving, no appointments needed), and online lenders often offer streamlined processes which may result in quicker approval times.

•   Different criteria Some online lenders might focus more significantly on a borrower’s cash flow and employment history, perhaps allowing for a bit more wiggle room on credit scores than a traditional bank would be willing to give.

•   Additional benefits Online lenders may also offer more perks to their customers than a traditional bank offers.

There are, however, disadvantages to working with an online lender vs. a bank you have an established relationship with. Some to consider:

•   No history As an established customer of a traditional bank, you may qualify for a reduced interest rate, depending on your creditworthiness.

•   Potential scams Not all online “lenders” are legit so you’ll want to be wary of unsolicited offers, and only enter financial information on official, secure websites. It’s also a good idea to research the lender’s reputation before giving them your personal information.

•   No face-to-face interaction Unlike working with a brick-and-mortar financial institution, you likely won’t have the chance to meet with an online lender in person. If this is something you value and desire in a lender, the online loan option may not be for you.

•   Potential spam If you contact a number of online lenders directly to compare rates, you can end up on their email contact list, even if you don’t choose to work with them.

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

Application and Approval Processes

Similar to an unsecured personal loan, a signature loan’s application and approval process is generally simple and straightforward.

Things to Look Out for When Getting a Signature Loan

It’s a good idea to review your credit report before shopping around for a loan. A free annual credit report can be requested from each of the three major credit reporting agencies. If there are errors or inaccuracies on your credit report, you can try to correct them before any lenders start the loan qualification process.

Credit reports don’t include a person’s credit score . However, you may be able to access that information through your bank, credit card issuer, or a reliable website at no charge.

When you’re satisfied that your credit report is accurate, you may want to compare lenders and consider getting prequalified. Many lenders will do a soft credit check at that point, which will not affect your credit score. You’ll be able to compare interest rates and terms from multiple lenders to find the one that works best for your unique financial situation.

Getting prequalified can give you a good sense of how much might be available to borrow, what the interest rate would likely be, and how that translates into a monthly payment.

Before applying, it’s important to know how much you need to borrow. You generally want to choose an amount that would cover the expenses at hand while trying to avoid borrowing more than necessary. Interest will be charged on the amount borrowed, not only the amount used.

When comparing prequalification quotes from different lenders, it’s a good idea to find out if there are any hidden fees, such as origination fees, late fees, or prepayment fees.

Typical Signature Loan Requirements

Each lender has unique application and approval requirements but may commonly ask for the applicant’s name, proof of address, photo ID, and proof of employment and income. After the application has been submitted, a lender will conduct a hard credit check to review the applicant’s credit report.

Besides checking credit scores, lenders like to see steady employment and enough income to meet expenses, including this new loan. Sometimes, having a cosigner or co-borrower might improve the chances of loan approval or help to secure a more favorable interest rate.

Getting a Personal Loan With SoFi

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

Are signature loans easy to get?

You typically need a good credit score to get a signature loan, since lenders want to be confident that you will repay the money.

Signature loans are unsecured, meaning you don’t have to pledge an asset of value (like a home or bank account) that the lender can seize should you fail to repay the loan. This raises risk for the lender. As a result, signature loans can sometimes be harder to get than secured loans like car loans.

Do you need a down payment for a signature loan?

No down payment is necessary for a signature loan.

What is the maximum that can be borrowed with a signature loan?

Lending limits will vary by lender, but you can often get as much as $100,000 in funding with a signature loan.

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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Your chances of qualifying for a personal loan after a bankruptcy might become higher as time goes by. A bankruptcy will remain on your credit reports for up to seven to 10 years, but with effort, your credit scores can become healthier during that time and beyond.

If you are approved for a personal loan, you likely will pay fees or a higher interest rate than you might have without having a bankruptcy on your credit report.

Read on to learn how bankruptcy works, the pros and cons of filing for Chapter 7 vs Chapter 13 bankruptcy, and how to get approved for a loan with a bankruptcy in your credit history.

How Does Bankruptcy Work?

When a person can’t make payments on their outstanding debts, despite trying to do so, bankruptcy may be an option to have a fresh financial start.

Bankruptcy can be either a liquidation of the debtor’s assets to satisfy creditors or the creation of a repayment schedule that will satisfy creditors and allow the debtor to keep their property instead of liquidating it.


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

Filing for Bankruptcy

Bankruptcy petitions are filed with the bankruptcy court in the debtor’s judicial district. The process is mostly administrative, with minimal time spent in front of a judge — often no time at all unless there is an objection by a creditor. A court-appointed trustee oversees the case.

The debtor must attend a “341 meeting” (named for section 341 of the Bankruptcy Code), at which creditors can present questions and concerns. For Chapters 7 and 13 bankruptcies, which are being discussed here, the remainder of the process differs slightly. Read on for specifics about each of these types of bankruptcies.

Can I Get a Loan With a Discharged Bankruptcy?

It’s not impossible to get a loan after bankruptcy, but interest rates may be high and loan terms less favorable than for someone who hasn’t been through a bankruptcy. The negative effect a bankruptcy has on a person’s credit lessens over time, but lenders may not be willing to offer their best rates to someone they perceive as not having been financially responsible in the past.

Two Main Types of Bankruptcy Filings

There are two main types of bankruptcy available to individuals, Chapter 7 and Chapter 13. With both, typically a bankruptcy trustee reviews the bankruptcy petition, looks for any red flags, and tries to maximize the amount of money unsecured creditors will get.

Chapter 7 is the most common type of bankruptcy for individuals, followed by Chapter 13.

Chapter 7 Bankruptcy

This is often called liquidation bankruptcy because the trustee assigned to the case sells, or liquidates, nonexempt assets in order to repay creditors.

Many petitioners, though, can keep everything they own in what is known as a “no-asset case.” Most states allow clothing, furnishings, a car, money in qualified retirement accounts, and some equity in your home if you’re a homeowner to be exempt from liquidation. (Each state has a set of exemption laws, but federal exemptions exist as well, and you might be able to choose between them, a subject a bankruptcy attorney should be able to provide insight on.)

After the bankruptcy process is complete, typically within three to six months, most unsecured debt is wiped away. The filer receives a discharge of debt that releases them from personal liability for certain dischargeable debts.

Recommended: What Is Nondischargeable Debt?

Are Personal Loans Covered Under Chapter 7?

In most cases, personal loans may be discharged in a Chapter 7 bankruptcy proceeding. A secured personal loan for which collateral has been pledged is included in discharged debts, but the asset put up as collateral will likely be sold to satisfy the debt.

Recommended: Secured vs. Unsecured Personal Loans — What’s the Difference?

The Pros and Cons of Chapter 7 Bankruptcy

A Chapter 7 bankruptcy can create a fresh start for someone struggling to repay their debts, but it’s not a magic wand. Here are some pros and cons:

Chapter 13 Bankruptcy

This form, aka reorganization bankruptcy or a wage earner’s plan, allows petitioners whose debt falls under certain thresholds to keep their assets if they agree to a three- to five-year repayment plan.

There are three types of claims in a Chapter 13 bankruptcy: priority, secured, and unsecured. The plan must include full repayment of priority debts. A trustee collects the money and pays the unsecured debts, with the individual debtor having no direct contact with the creditors. Secured debts can be handled directly by the debtor.

Once the terms of the plan are met, most of the remaining qualifying debt is erased.

The U.S. Bankruptcy Code specifies that if the debtor’s monthly income is less than the state median, the plan will be for three years unless the court approves a longer period. If the debtor’s monthly income is greater than the state median, the plan generally must be for five years.

Certain debts can’t be discharged through a court order, even in bankruptcy. They include most student loans, most taxes, child support, alimony, and court fines. You also can’t discharge debts that come up after the date you filed for bankruptcy.

Are Personal Loans Covered Under Chapter 13?

Personal loans can be discharged in Chapter 13 bankruptcy, but whether a creditor is likely to be repaid in full depends on if the personal loan is secured or unsecured. Priority claims are paid before any others, followed by secured, then unsecured claims.

The Pros and Cons of Chapter 13 Bankruptcy

Debtors who have assets they’d rather not have liquidated might opt for Chapter 13 bankruptcy vs. Chapter 7, which involves liquidation of most assets. But like any type of bankruptcy, there are pros and cons.

Recommended: What Is an Installment Loan?

Will Bankruptcy Ruin My Credit?

A bankruptcy will be considered a negative entry on your credit report, but the severity depends on a person’s entire credit profile.

Someone with a high credit score before bankruptcy could expect a significant drop in their credit score, but someone with negative items already on their credit reports might see only a modest drop.

The good news is that the negative effect of the bankruptcy will lessen over time.

Lenders who check credit reports will learn about bankruptcy filing for years afterward. Specifically:

•   For Chapter 7, up to 10 years after the filing.

•   For Chapter 13, up to seven years.

Still, filing for bankruptcy doesn’t mean you can’t ever get approved for a loan. Your credit profile can improve if you stay up to date on your repayment plan or your debts are discharged — among other steps that can be taken.

You may even be able to bolster your credit during bankruptcy by making the required payments on any outstanding debts, whether or not you have a repayment plan. Of course, everyone’s circumstances and goals are different so, again, always consult a professional with questions.

That said, some lenders may deny credit to any applicant with a bankruptcy on a credit report.

Recommended: What Is Considered a Bad Credit Score?

How Long After Bankruptcy Discharge Can I Get a Loan?

As long as you can find a lender willing to approve you for a loan, there is no definite amount of time needed to wait until applying for one. However, your credit report will reflect a discharge for seven to 10 years, and lenders may not offer favorable terms or interest rates.

Should I Apply for a Loan After Bankruptcy?

Making sure you are in a stable financial situation after bankruptcy is a good idea before thinking about applying for a loan at that time. Having a repayment plan that you can stick to before taking on more debt is imperative. That being said, taking out a loan and repaying it on time and in full can be a good way to rebuild your credit.

Before applying for an unsecured personal loan, meaning a loan is not secured by collateral, it’s a good idea to get copies of your credit reports from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Make sure that your reports represent your current financial situation and check for any errors.

If you filed for Chapter 7 bankruptcy and had your debts discharged, they should appear with a balance of $0. If you filed for Chapter 13, the credit report should accurately reflect payments that you’ve made as part of your repayment plan.

Next, you can consider getting prequalified for a personal loan and comparing offers from several lenders. They will likely ask you to supply contact and personal information as well as details about your employment and income.

If you see a loan offer that you like, you’ll complete an application and provide documentation about the information you provided. Most lenders will consider your credit history and debt-to-income ratio, among other personal financial factors.

You may want to think carefully before considering “no credit check” loans: They typically have high fees or a high annual percentage rate (APR).


💡 Quick Tip: Fixed-interest-rate personal loans from SoFi make payments easy to track and give you a target payoff date to work toward.

If You’re Approved for a Personal Loan

Before you sign on the dotted line, it’s smart to take the following steps:

Read the Fine Print

If you’ve had a bankruptcy on your record, the terms of your offer may be less than favorable, so consider whether you feel like you’re getting a reasonable deal.

People with credit scores considered average or bad might see APRs on personal loans ranging from nearly 18% to 32%. Make sure you are clear on your interest rate and fees, and compare offers from different lenders to make the choice that works for you.

Avoid Taking Out More Than You Need

You’re paying interest on the money you borrow, so it’s generally better to only borrow funds that you actually need. Further, it’s probably wise to only take out as much as you can afford to repay on time, because paying on time is an important key to rebuilding your credit. Having a focused plan for what you’ll spend the personal loan funds on may give you some incentive to manage it responsibly.

If You’re Not Approved for a Personal Loan

If you are denied a personal loan, don’t despair. You may have options for moving forward:

Appealing to the Lender

You can try to explain the factors that led you to file for bankruptcy and how you have turned things around, whether that’s a record of on-time payments or improved savings. The lending institution may not change its mind, but there’s always a possibility the lender can adjust its decision case by case.

You likely have the best chance at an institution that you’ve worked with for years or one that is less bound to one-size-fits-all formulas — a local credit union, community bank, online lender, or peer-to-peer lender.

Looking Into Applying With a Co-signer

A co-signer who has a strong credit and income history may be able to help you qualify for a loan. But keep in mind that if you can’t pay, the co-signer may be responsible for paying back your loan.

Building Your Credit

It’s OK to take some time to try to improve your credit profile before reapplying for an unsecured personal loan. You still have a chance to work toward reducing your other debt. There are many types of personal loans available, and a little waiting time to consider what’s right for you isn’t a bad thing.

The Takeaway

Getting approved for an unsecured personal loan after bankruptcy isn’t impossible, but it’s a good idea to compare offers, go in with eyes wide open about interest rates and fees, and gauge whether it’s the right time to borrow.

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

Can I get a loan with a discharged bankruptcy?

Yes, it is possible to get a loan after bankruptcy, but the rates and terms may be less than favorable.

Are personal loans covered under Chapter 7?

Yes, personal loans can be discharged under Chapter 7 bankruptcy.

Are personal loans covered under Chapter 13?

As with Chapter 7, personal loans can be discharged under Chapter 13 bankruptcy. Secured personal loans will take priority over unsecured personal loans, however.

How long after bankruptcy discharge can I get a loan?

There is no set time a person must wait in order to apply for a loan after bankruptcy discharge. Each lender will have its own conditions for approval.

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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The allure of a quick loan can be hard to resist when there is a pressing need for immediate cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who might charge high interest rates and offer loan terms that are difficult to meet.

This is called predatory lending, and it works in the best interest of the lender, not the borrower.

When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.

Guide to Predatory Loans and Avoiding Them

Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less-than reputable, those two things become even more important.

One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AAnnualCreditReport.com. Personally identifiable information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.

Making sure other items on your credit report are accurate is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.

When you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

What Is Predatory Lending?

Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and for other unfair and discriminatory reasons.

Lenders who offer financial products that are typically considered predatory loans do not have the best interest of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics.

Predatory lending may often mean a short-term, high-interest loan that a borrower might have difficulty repaying, potentially leading to a cycle of debt.

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Predatory Lending Tactics and Practices

Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.

Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.

To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.

•   An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS)®. Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠ .

•   Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.

•   High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.

•   Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.

Recommended: What Is Considered a Bad Credit Score?

Common Types of Predatory Loans

Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.

Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.

Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — on average, 400% APR, but can be much higher.

Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.

Subprime mortgages are another predatory lending example.

This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.

What Are Good Lending Practices?

A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.

•   Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.

•   Answering your questions. When you have questions about a lender’s loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.

•   Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans.

•   Realistic offers. A lender that has your best interest in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.

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

What Can Be Done if You Are a Victim of a Predatory Loan?

One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.

All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.

Personal Loans as an Alternative to Predatory Loans

When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.

If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.

A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can have a positive affect on your credit profile — and not doing so can have a negative affect.

Recommended: Typical Personal Loan Requirements Needed for Approval

Are Smaller, Short-Term Loans the Same as Predatory Loans?

There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.

Some lenders do have minimum amounts they will lend, sometimes $3,000 or $5,000. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.

What is the Smartest Way to Get a $5,000 Loan?

A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.

A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.

Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.

Comparing lenders, however, is the smartest thing you can do when you’re looking for a loan.

The Takeaway

There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan in a short amount of time.

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

Is predatory lending a crime?

Many states have enacted anti-predatory lending laws. Some states have completely outlawed payday lending, while others have placed caps on the amount lenders can charge. However, many violations go unpunished because consumers aren’t aware of their rights.

What are the most common predatory loans?

The most common types of predatory loans include payday loans, car title loans, and subprime mortgages.

What APR is considered predatory?

Predatory loans generally have interest rates in the triple digits. Loans with annual percentage rates (APRs) no higher than 36% are considered affordable loans.

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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