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Life can occasionally throw you — and your finances — a curveball. During those times, it might be too much of a stretch to make a payment on a personal loan. But what are the consequences of missing a loan payment?

What can happen if you miss one payment, of course, is quite different from what can happen if you miss several, so let’s take a look at possible ramifications.

What Does It Mean to Default on a Personal Loan?

Just as with a mortgage or student loans, defaulting on a personal loan means you’ve stopped making payments according to the loan’s terms. You might be just one payment behind, or you may have missed a few. The point at which delinquency becomes default with a personal loan — and the consequences — may vary depending on the type of loan you have, the lender, and the loan agreement you signed.


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

How Does Loan Default Work?

Even if you miss just one payment on a personal loan, you might be charged a late fee. Your loan agreement should have information about when this penalty fee kicks in — it might be one day or a couple of weeks — and whether it will be a flat fee or a percentage of your monthly payment.

The agreement also should tell you when the lender will get more serious about collecting its money. Because the collections process can be costly for lenders, it might be a month or more before yours determines your loan is in default. But at some point, you can expect the lender to take action to recover what they’re owed.

What Are the Consequences of Defaulting on a Personal Loan?

Besides those nasty late fees, which can pile up fast, and the increasing stress of fretting about a debt, here are some other significant consequences to consider:

Damage to Your Credit

Lenders typically report missing payments to the credit bureaus when borrowers are more than 30 days late. This means your delinquency will likely show up on your credit reports and could cause your credit scores to go down. Even if you catch up down the road, those late payments can stay on your credit reports for up to seven years.

If you actually default and the debt is sold to a collection agency, it could then show up as a separate account on your credit reports and do even more damage to your credit scores.

Though you may not feel the effects of a lower credit score immediately, it could become a problem the next time you apply for new credit — whether that’s for a credit card, car loan, or mortgage loan. It could even be an issue when you try to rent an apartment or need to open new accounts with your local utilities.

Sometimes, a lender may still approve a new loan for borrowers with substandard credit scores, but it might be at a higher interest rate. This means you’d pay back more interest over the life of the loan, which could set you back even further as you work toward financial wellness.

Dealing with Debt Collectors

If you have a secured personal loan, the lender may decide to seize the collateral you put up when you got the loan (your car, personal savings, or some other asset). If it’s an unsecured personal loan, the lender could come looking for payment, either by working through its in-house collection department or by turning your debt over to a third-party collection agency.

Even under the best conditions, dealing with a debt collector can be unpleasant, so it’s best to avoid getting to that stage if you can. But if you fall far enough behind to be contacted by a debt collector, you should be prepared for some aggressive behavior on the part of the collection agency. These agents may have monthly goals they must meet, and they could be hoping you’ll pay up just to make them go away.

There are consumer protections in place through the Fair Debt Collection Practices Act that clarify how far third-party debt collectors can go in trying to recover a debt. There are limits, for example, on when and how often a debt collector can call someone. And debt collectors aren’t allowed to use obscene or threatening language. If you feel a debt collector has gone too far, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

You Could Be Sued

If at some point the lender or collection agency decides you simply aren’t going to repay the money you owe on a personal loan, you eventually could end up in court. And if the judgment goes against you, the consequences could be wage garnishment or, possibly, the court could place a lien on your property.

The thought of going to court may be intimidating, but failing to appear at a hearing can end up in an automatic judgment against you. It’s important to show up and to be prepared to state your case.

A Cosigner Could Be Affected

If you have a cosigner or co-applicant on your personal loan, they, too, could be affected if you default.

When someone cosigns on a loan with you, it means that person is equally responsible for paying back the amount you borrowed. So if a parent or grandparent cosigned on your personal loan to help you qualify, and the loan goes into default, the lender — and debt collectors — may contact both you and your loved one about making payments. And your cosigner’s credit score also could take a hit.

Is There a Way to Avoid Defaulting on a Loan?

If you’re worried about making payments and you think you’re getting close to defaulting — but you aren’t there yet — there may be some things you can do to try to avoid it.

Reassessing Your Budget

Could you maybe squeak by and meet all your monthly obligations if you temporarily eliminated some expenses? Perhaps you could put off buying a new car for a bit longer than planned. Or you might be able to cut down on some discretionary expenses, such as dining out and/or subscription services.

This process may be a bit painful, but you can always revisit your budget when you get on track financially. And you may even find there are things you don’t miss at all.

Talking to Your Lender

If you’re open about your financial issues, your lender may be willing to work out a modified payment plan that could help you avoid default. Some lenders offer short-term deferment plans that allow borrowers to take a temporary break from monthly payments if they agree to a longer loan term.

You won’t be the first person who’s contacted them to say, “I can’t pay my personal loan.” The lender likely has a few options to consider — especially if you haven’t waited too long. The important thing here is to be clear on how the new payment plan might affect the big picture. Some questions to ask the lender might include: “Will this change increase the overall cost of the loan?” and “What will the change do to my credit scores?”

Getting a New Personal Loan

If your credit is still in good shape, you could decide to get proactive by looking into refinancing the old personal loan with a new personal loan that has terms that are more manageable with your current financial situation. However, be sure to factor in any fees (such as origination fees on the new loan and/or a prepayment penalty on the old loan) to make sure the refinance will save you money. You’ll also want to keep in mind that extending the term of the term of your loan can increase the cost of the loan over time.

You can use an online personal loan calculator to see how much interest you might be able to save by paying off your existing debt with a loan.

Or you might consider consolidating the old loan and other debts into one loan with a more manageable payment. This strategy would be part of an overall plan to get on firmer financial footing, of course. Otherwise, you could end up in trouble all over again.

But if your income is higher now and/or your credit scores are stronger than they were when you got the original personal loan, you could potentially improve your interest rate or other loan terms. (Requirements vary by lender.) Or you might be able to get a fresh start with a longer loan term that could potentially lower your payments.

If you decide a new personal loan is right for your needs, the next step is to choose the right lender for you. Some questions to ask lenders might include:

•   Can I borrow enough for what I need?

•   What is the best interest rate I can get?

•   Can I get a better rate if I sign up for automatic payments?

•   Do you charge any loan fees or penalties?

•   What happens if I can’t pay my personal loan because I lost my job? Do you offer unemployment protection?

💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

Is There a Way Out of Personal Loan Default?

Even if it’s too late to avoid default, there are steps you may be able to take to help yourself get back on track.
After carefully evaluating the situation, you may decide you want to propose a repayment plan or lump-sum settlement to the lender or collection agency. If so, the CFPB recommends being realistic about what you can afford, so you can stick to the plan.

If you need help figuring out how to make it work, the CFPB says, consulting with a credit counselor may help. These trained professionals can work with you to come up with a debt management plan. While a counselor usually doesn’t negotiate a reduction in the debts you owe, they might be able to get your interest rates lowered or have loan terms increased, which could lower your monthly payments.

What’s more, a credit counselor can also help you create a budget, advise you on managing your debts and money, and may even often offer free financial education workshops and resources.

But consumers should be cautious about companies that claim they can renegotiate, settle, or change the terms of your debt. The CFPB warns that some companies promise more than they can deliver. If you’re interested in exploring credit counseling, a good place to start is browsing this list“>this list of nonprofit agencies that have been certified by the Justice Department.

Finally, as you make your way back to financial wellness, it can be a good idea to keep an eye on two things:

1. The Statute of Limitations

For most states, the statute of limitations — the period during which you can be sued to recover your debt — is about three to six years. If you haven’t made a payment for close to that amount of time — or longer — you may want to consult a debt attorney to determine your next steps. (Low-income borrowers may even be able to get free legal help.)

2. Your Credit Score

Tracking your credit reports — and seeing first-hand what helps or hurts your credit scores — could provide extra incentive to keep working toward a healthier financial future. You can use a credit monitoring service to stay up to date, or you could take a DIY approach and check your credit reports yourself. Every U.S. consumer is entitled to a yearly free credit report available at annualcreditreport.com, which is a federally authorized source.

The Takeaway

If your debt seems daunting right now, and you’re struggling to make payments, some proactive planning could help you avoid falling so far behind that you default on your personal loan. That plan may include talking to your current lender about modified payment terms — or it might be time to consider a new personal loan to consolidate high-interest debt.

The good news is there’s help out there. And the sooner you act, the more options you may have to protect your credit and stay away from the serious consequences of defaulting.

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

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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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Student loans don’t just help you pay for your college education. They also allow you to build a credit history, which can be useful when it comes time to get a mortgage or take out a car loan. The key, though, is to make regular on-time payment – or you may wind up with the sort of credit history that negatively impacts your ability to borrow money in the future.

Here’s a look at how student loans can affect your credit score.

How Is My Credit Score Calculated?

First, it can be helpful to know how your credit score is calculated. There are several types of credit scores, but FICO scores are the most commonly used by top lenders.

Your FICO score is calculated using five categories of data found in your credit reports, which each category weighted differently.

Category	Weight in Scoring
Payment History	35%
Amounts Owed	30%
Length of Credit History	15%
New Credit	10%
Credit Mix	10%

Based on these calculations, there are a few ways you can build good credit and maintain a good credit score. Paying your bills on time is a big one, since your payment history is the most heavily weighted factor. Paying down existing debt and keeping credit card balances low will also have a big effect. Less impactful, but important strategies, also include diversifying the types of credit you have, avoiding opening too many new accounts at once, and keeping accounts open to lengthen the average age of your credit history.

What Student Loan Factors Affect My Credit Score?

Now that you know how credit scores generally work, you might be wondering how your student loans specifically impact your score.

Again, one of the biggest ways your student loans can affect your credit is whether or not you pay them on time. If you’re a responsible borrower who continually makes on-time student loan payments, you will see positive shifts in your credit score over time.

But if you fail to repay a loan or continually make late payments, your credit score will likely see a dip. If you default on your student loan, your credit score could drop significantly. The lender may also send your account to a collections agency, and you may have a more difficult time securing credit in the future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Does a Late Student Loan Payment Affect My Credit Score?

Making payments on time is important, but what you might not realize is exactly how damaging late payments can be. Even if your credit history is pristine, it only takes one report of 30 days past due to change your score. Once a late payment is reported to the credit bureaus, it could remain on your credit report for up to seven years.

To help ensure your payments are on time, you might want to set up an automatic payment plan. Most lenders will even give you a small discount on your interest rate for doing so. If you know you can’t make a payment on time, talk to your lender or loan servicer right away. The Department of Education, which is the lender for four types of Direct Loans, and even some private lenders, offer loan deferment or forbearance. These options allow a borrower to temporarily suspend payments, which will minimize the impact on their credit score.

Does It Hurt to Pay Off Student Loans Quickly?

Repaying student loans quickly will always improve your credit score, right? Not necessarily. In fact, you could even see a small, temporary dip in your credit score right after paying off a loan. There are several reasons for this. If student loans are your primary source of open credit, closing those accounts means you’re no longer building payment history. Prematurely paying off a loan can also change your credit mix or credit utilization.

But credit score is just one factor to consider when deciding how quickly to pay off a student loan. You may want to think about how much extra interest you’d pay by leaving the account open. Carrying a high loan balance could also make it harder to qualify for new loans, which is something to keep in mind when it comes time to buy a home or car.

Notorious Big Bad D’s: Delinquent and in Default

Student loans affect credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you’re even one day late with a payment, you’ll be considered delinquent and may be charged a penalty.

Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.

After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full along with any accrued interest, fines, and penalties.

(Note that the on-ramp that’s in place for federal student loan repayment from October 2023 through September 2024 temporarily shields borrowers from the most immediate consequences of delinquency and default.)

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

When you’re shopping around for the best interest rate possible on a private student loan, lenders may pull your credit file. This is called a hard inquiry, and each one could temporarily knock a few points off your credit score.

To help protect your FICO score, try to finish shopping for rates and finalizing your loan within 30 days. Researching rates and getting quotes ahead of time can give you a good idea of whether you’ll qualify for a loan before you formally apply.

You may also want to ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual hard inquiry, but getting prequalified allows you to compare interest rates without impacting your credit score.

Will Refinancing Student Loans Help My Credit?

Because refinancing involves taking out a new loan with new terms to pay off existing debt, refinancing student loans affects your credit score—both positively and negatively.

In the short-term, refinancing will involve a hard credit inquiry and may cause a temporary ding to your credit. Again, as long as you keep your loan shopping to a short period, multiple inquiries will be treated as one, and should have a minimal impact on your score.

In the long-run, refinancing student loans at a lower interest rate can have an indirect positive effect on your credit. For example, if refinancing lowers the amount you pay each month, you may be more likely to make payments on time. You may also pay off your loans faster, which can help you reduce your overall debt and improve your score. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

If you refinance federal loans with a private lender — in effect, turning your federal loans into a private loan — rest assured that credit bureaus don’t view these two types of loans any differently. However, when you refinance your federal loans, you will lose certain federal protections, such as income-driven repayment plans, deferment or forbearance, and loan forgiveness programs.

Do I Need a Good Credit Score to Take Out a Student Loan?

Your credit score may be a factor when you’re applying for a student loan. It all depends on the type of loan you’re planning to take out. Most federal loans don’t have a minimum credit requirement, which is why nearly every borrower gets the same interest rate regardless of their financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.

Credit scores are typically more of a factor with private student loans. Lenders often consider your score when determining student loan approval and interest rate. In general, the better your score, the better your rate will be.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

Which Credit Scores Do Private Lenders Use?

When considering your student loan application, most private lenders look at your FICO® score. This score, which ranges from 300 to 850, helps lenders determine whether to extend credit and at what interest rate.

Because FICO is used widely throughout the lending industry, including by mortgage lenders and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

The Takeaway

Student loans can help borrowers establish a solid credit history, which can ease the way for future borrowing opportunities and attractive interest rates. The key is to pay what you owe on time, every time.

Paying a loan off early or shopping around for rates could cause a small, temporary dip in credit scores. Being late with a payment — or stopping payment altogether — may lower your credit score and hurt your ability to qualify for another loan.

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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do student loans help build credit?

Student loans are an opportunity for borrowers to build credit and establish a solid credit history, which can help when it’s time to get a mortgage or take out a car loan. The key is to make regular, on-time payments.

How can I improve my credit score if I have student loans?

Payment history is one factor of your overall credit score, so making regular, on-time payments on your student loans can help you build credit.

How is my credit score determined?

Your credit score is calculated using five different categories of data. These include payment history, amounts owed, length of credit history, new credit, and credit mix.

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

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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

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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It could come as a dreaded envelope in your mailbox, or as a call from an unknown number you’re afraid to take. Whether you’re receiving calls or mail from a debt collector or are going out of your way to avoid either (or both!), you’ll probably want to know: What is a debt collection agency, and how does it work?

How Do Collection Agencies Work?

At their most basic, debt collection agencies exist in order to try to get borrowers to pay their overdue debts. Debt collection companies make money by buying debt from lenders, often for pennies on the dollar, and then attempting to get the original amount owed from the borrower.

A bill that’s 30 days past due is otherwise known as a delinquent account. Lenders and creditors have some leeway when they report overdue debts to credit bureaus. For borrowers who continually miss payments, a lender may report a missed payment right at the 30-day mark. But for a borrower who has a positive repayment record, a lender might allow a few missed payments before reporting it to the credit bureaus.

A debt is typically not sent to a collection agency until several months have gone by and your lender no longer wants to put effort into collecting the debt from you. Instead, the lender might either enlist an agency that is hired to collect third-party debts or sell the debt to a collection agency. Once the debt has been sold to a debt collection agency, you may start to get calls and/or letters from that agency.

You may be wondering what a collection agency can do to you. The debt collection industry is heavily regulated, and borrowers have many rights when it comes to dealing with bill collectors. Debt collectors are allowed to try to get you to pay, but they are restricted by the Fair Debt Collection Practices Act (FDCPA), which prohibits them from harassing you or lying to you in order to collect your debt. Despite this, debt collectors will try everything in their power to get you to pay your old debt.


💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

What Is a Debt Collector?

A debt collector can be either an individual person or an agency. In either case, their task is to collect overdue debts from those who owe them. Sometimes referred to as collection specialists, an individual debt collector may be responsible for many accounts. They may be paid a base salary plus commission, so they have a high incentive to convince the debtor to pay.

What Do Collection Agencies Do?

Debt collection agencies are hired by creditors and are generally paid a percentage of the amount of the debt they recover for the creditor. The percentage a collection agency charges is typically based on the age of the debt and the amount of the debt. Older debts or higher debts may take more time to collect, so a collection agency might charge a higher percentage for collecting those.

Some agencies may also charge a flat fee for collecting a debt. Others work on a contingency basis and only charge the creditor if they are successful in collecting on the debt.

The debt collection agency enters into an agreement with the creditor to collect a percentage of the debt — the percentage is stipulated by the creditor. One creditor might not be willing to settle for less than the full amount owed, while another might accept a settlement for 50% of the debt.

When the debt is collected, the agency takes its payment from the amount paid and sends the remainder to the creditor.

Recommended: What Are the Common Uses for Personal Loans?

How is this different from a debt buyer?

The main difference between a debt collector and a debt buyer is the stage the debt is with the creditor. If a creditor is still trying to collect a debt, either on its own or through a debt collection agency, the debt is considered to be a current debt. But if a creditor has given up trying to collect a debt, they may write off — or charge off — the debt, no longer expecting it to be paid.

A debt collector is hired by the creditor to attempt to collect what is owed on the current debt by the debtor.

A debt buyer, in comparison, doesn’t work for the creditor like a debt collector does. They buy debts that have been charged off by creditors, sometimes buying a collection of old debts from a single creditor. They may pay very little for the debt, sometimes just a few cents of what was originally owed. Debt buyers then attempt to collect the debt, sometimes using aggressive tactics.

The debt buyer buys only an electronic file of information, often without supporting evidence of the debt. The debt is also generally very old debt, sometimes referred to as “zombie debt” because the debt buyer tries to revive a debt that was beyond the statute of limitations for collections.

How to Deal With a Debt in Collections

Debt collection agencies may contact you either in writing or by phone.

If your first instinct is to hang up when you get a phone call from a debt collector, you’re not alone. But not talking to them won’t make the debt go away, and they may just try alternative methods to contact you, including suing you. When a debt collector calls you, it’s important to get some initial information from them, such as:

•  The debt collector’s name, address, and phone number.

•  The total amount of the debt they claim you owe, including any fees and interest charges that may have accrued.

•  The date the debt was incurred and who it was originally owed to.

•  Proof they have that the debt is actually yours.

The debt collector must let you know that you have the right to dispute the debt and how to do so. If they don’t say this in their first contact with you, they must notify you of your right to dispute within five days of their initial contact with you. Under the FDCPA, a debt collector must send a debt validation notice, which must include certain information.

•  The letter must state that it’s from a debt collector.

•  Name and address of both the debt collector and the debtor.

•  The creditor or creditors to whom the debt is owed.

•  An itemization of the debt, including fees and interest.

They must also inform you of your rights in the debt collection process, and how you can dispute the debt.

•  If you don’t dispute the debt within 30 days of their first contact with you, they’ll assume the debt is valid.

•  If you do dispute the debt within 30 days, they must cease collection efforts until they provide you with proof that the debt is yours.

•  They must provide you with the name and address of the original creditor if you request that information within 30 days.

The debt validation notice must include a form that can be used to contact them if you wish to dispute the debt.

The FDCPA ensures that consumers aren’t harassed during the collections process. Some things debt collectors cannot do are:

•  Make repeated calls to a debtor, intending to annoy the debtor.

•  Threaten physical violence.

•  Use obscenity.

•  Lie about how much you owe or pretend to call from an official government office.

How Does a Debt in Collections Affect Your Credit?

Generally, unpaid debt is reported to the credit bureaus when it’s 30 days past due. If payments continue to be missed, additional late payments will be reported, and with each missed payment, your credit is likely to be negatively affected.

If your debt is transferred to a debt collector or sold to a debt buyer, an entry will be made on your credit report. Each time your debt is sold, if it continues to go unpaid, another entry will be added to your credit report.

Each negative entry on your credit report can remain there for up to seven years, even after the debt has been paid. This, of course, will likely affect your credit score. Higher credit scores may take a greater hit than lower credit scores.

A late payment or collections entry on your credit report could lower your credit score by as much as 110 points, a debt settlement entry could lower it by as much as 125 points, and a bankruptcy could lower it up to 240 points.

Recommended: How to Check Your Credit Score for Free

Alternatives to Debt Collection Agencies

You have options when it comes to dealing with your debt. Here are a few you may want to consider.

Credit Consumer Counseling Services

With credit consumer counseling services, you may be paired with a trained credit counselor who works with you to develop a debt management plan. Generally, counselors don’t negotiate a reduction in debts owed, but they could help lower monthly payments by working to increase the loan terms or lower interest rates. A plan may require you to make a single monthly payment to the agency, which then makes monthly payments to all of your creditors.

The credit counselor can also provide guidance on your money and debts, work with you to create a budget, and even offer free workshops or financial literacy materials.

Many agencies are nonprofit and offer counseling services for free or at a low cost. To find a nonprofit agency that’s certified by the Justice Department, you may want to start with this list.

Debt Settlement

Debt settlement is where a third-party company negotiates with your creditors or debt collectors on your behalf to try to reduce your debt.

Paying off less debt might sound like an easy win, but debt settlement can come with some big financial risks, possibly affecting the debtor’s credit score and ability to access credit in the future, and costing more along the way. Plus, creditors are under no obligation to accept a settlement proposal, and not all creditors will negotiate with a debt relief company.

Instead of paying a company to negotiate on your behalf, you can try talking directly to your creditors for free. While creditors may not reduce your debt, they may be open to negotiating for a lower rate or offering a modified payment plan so your payments are more manageable.

Debt Consolidation

If you have multiple, high-interest debts, you may choose to consolidate them into a new, single personal loan. Ideally, this new loan has a lower interest rate or more favorable terms to help streamline the repayment process.
Personal loans are often unsecured, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but it’s usually easy to find a lender that offers fixed-rate personal loans.

Note that some loans come with origination fees, which can add to the total balance you’ll have to repay. You may also be charged with late fees, prepayment penalties, or other fees. Make sure you understand any fees or penalties before you sign the loan agreement.


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

The Takeaway

If you’ve received a phone call or letter from a debt collector, it helps to understand how debt collection agencies work and how to deal with a debt in collections. Avoiding a collector won’t make your debt disappear — it’s better to get all the information you can from the debt collector to help you make informed choices as you go through the collections process or dispute the debt. And if you’re having trouble managing multiple high-interest debts, remember there are options available to help get control of your finances.

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

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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 personal loan is a flexible type of loan issued by a bank, credit union, or online lender that you pay back in regular, fixed payments over a set term.

Personal loans work a little differently than other types of loans. Consumer loans typically specify what the money should be spent on: Mortgages are used to purchase or refinance homes, and student loans are used to pay for an education. But there aren’t as many restrictions on how you can or can’t spend personal loan funds, which allows for more flexibility than other types of loans.

Read on to learn more about how personal loans work, including how much you can borrow, how to apply, and the different types of personal loans.

What Is a Personal Loan?

As mentioned before, a personal loan is a one-time lump sum you borrow from a bank or other financial institution and repay over time, usually with interest. The funds can be used for almost anything.

Loan amounts generally range from $1,000 to $50,000, though some lenders offer personal loans up to $100,000. Repayment terms are usually anywhere from two to seven years.


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

How Do Personal Loans Work?

Personal loans are typically unsecured loans (meaning you don’t have to pledge an asset to secure the loan) that provide you with money you then pay back in regular installments over the term of the loan.

How Do You Get the Money?

The first step is applying for a personal loan (more on that below). After loan approval, the lender typically deposits the loan proceeds directly into the borrower’s bank account.

Repaying a Personal Loan

You repay a personal loan in monthly installments that go toward both principal and interest.

Typically, personal loans are amortized. This means the total amount you owe is divided into equal monthly payments over the term of the loan. Even though the total monthly payment remains the same, the amounts being directed to principal and interest will change each month. An amortization schedule can show you exactly how much of your payment is going towards paying down the principal and how much is being paid in interest.

Personal loans with longer terms may offer lower monthly payments, but cost more in interest over the life of the loan. A shorter-term personal loan can have higher monthly payments, but cost less overall in interest.

How Personal Loan Interest Rates Work

The interest rate on a personal loan is determined by the lender and is based on a number of factors, including the applicant’s financial history, income, debt, and credit score. Generally speaking, the better an applicant’s credit score, the better the chance they have to receive a lower interest rate on the loan. The higher the interest rate, the more money the loan will cost over its term.

Personal Loan Uses

Personal loans can be used for just about anything. That said, there are some common reasons people take out different types of personal loans, including:

•   Debt management and consolidation

•   Home improvement expenses

•   Wedding costs

•   Unexpected medical expenses

•   Moving expenses

•   Funeral expenses

•   Family planning

•   Car repairs

•   Vacation

The Personal Loan Application Process

While it’s not as simple as walking into a bank, asking for a loan, and walking out with a check, the application process for personal loans is relatively easy.

Before you apply for a personal loan, you’ll want to consider how much money you want to borrow, how much you can afford to pay each month, how long you want to make payments, and whether or not you want to put up collateral (though less common, some lenders offer secured personal loans). There may be other considerations for specific financial circumstances, which can vary from person to person.

Checking Your Own Credit

Because lenders will be looking closely at your creditworthiness, it’s a good idea to give your financial health a check-up before you begin the application process. You can get a free copy of your credit reports from the three main consumer credit bureaus — Equifax, Experian, and TransUnion — for free at AnnualCreditReport.com.

Once you get your reports, it’s a good idea to review them carefully and report for any errors. Correcting anything that isn’t accurate means your credit report will look as good as possible to lenders.

Comparing Loans

Just like shopping around for the best prices before making a large purchase, comparing lenders’ rates and terms is a smart move before the application process actually begins.

Here are some things to look for when researching lenders:

•   How much do they lend on personal loans? If the amount you need to borrow doesn’t fall within the range offered by the lender, you may need to look elsewhere.

•   Do they charge any fees or penalties? Some lenders charge an origination fee equal to a percentage of the loan amount to process your application. Some personal loans also have a prepayment penalty if you pay off your loan ahead of schedule.

•   How are fees and penalties charged? Some lenders may roll any fees into the loan amount, which increases the total amount you’ll owe. Other lenders may deduct the fee amounts from the loan proceeds, so the amount you receive will be lower than the actual amount of the loan.

•   Can I get prequalified so I’ll know what interest rate they might offer me? Prequalification involves the lender doing a soft pull on your credit report, which will not affect your credit score. This step will give the lender a sneak peek at your financial history so they can give you an estimated interest rate. Going through this process with multiple lenders is one way to compare rates and terms you may qualify for.

•   What if I can’t make my loan payments due to financial hardship? Missed or late payments could result in late fees, affect your credit score, or lead to your account being sent to collections. Some lenders may offer protections for borrowers who have lost their job or are having difficulty making their payments for other reasons.

Applying for a Loan

When you’ve selected a lender, it’s time to submit the actual application. For an unsecured personal loan, lenders typically require:

•   A photo ID

•   Proof of address

•   Proof of income or employment

Each lender has different requirements, though, so it’s important to carefully read and follow the lender’s application instructions. At this stage, the lender will usually do a hard credit check, which can have a small and temporary negative affect on your credit score.

Waiting for Approval

Once you’ve submitted the application and all required documents, it’s time to play the waiting game. Rest easy, though, because some personal loan approvals happen quickly — sometimes in just a day. More complicated applications could take a week or more.

Personal loans can range anywhere from $1,000 to $100,000, depending on the lender. Once you apply and are approved for the loan, you’ll receive the amount of money you were approved for in a lump sum, minus any origination fees that some lenders may charge. You then start paying back that money in installments which are set by the specific terms of your loan.

Types of Personal Loans

There are a variety of different types of personal loans. Factors like how much money you plan to borrow, your credit and financial history, and how much debt you already have will influence which type of personal loan is right for you. Here’s a look at some common personal loan options.

Unsecured vs Secured Personal Loans

An unsecured personal loan is the most common type of personal loan. Unsecured means the loan is not backed by collateral, like a house or car. The approval and interest rate you receive on an unsecured personal loan is mostly based on your creditworthiness.

Secured personal loans require an asset to be pledged to “secure” the loan. Think of a house when it comes to a mortgage loan, or a car when it comes to a car loan. If you fail to repay your loan, the lender can then seize the collateral.

Some banks offer secured personal loans that allow you to borrow against the equity of your car, personal savings, or other assets. Since secured loans are backed by an asset that the lender can seize if you default on the loan, they generally have a lower interest rate than an unsecured personal loan.

Here’s a look at some pros and cons of unsecured and secured personal loans:

	Unsecured Personal Loans	Secured Personal Loans
Advantages	Funds may be disbursed the same day or within a week Interest rates are typically lower compared to credit cards No collateral required	Interest rates are typically lower compared to unsecured personal loans Can be a good way to improve credit if payments are regular and on time Tend to have a longer repayment period
Disadvantages	May need to meet minimum credit score requirements for approval Interest rates may be higher compared to secured personal loans Credit score may be negatively affected if borrower defaults	Collateral is required Lender can seize the collateral if borrower defaults Application and approval process may involves more steps

Fixed-Rate vs Variable-Rate Personal Loans

Most personal loans are typically fixed-rate loans, meaning your rate and monthly payment stay the same (or are fixed) for the life of the loan. Fixed-rate loans can make sense if you’re looking for something with consistent payments each month. A fixed-rate loan is also worth considering if you are concerned about rising interest rates on longer-term personal loans.

As the name suggests, the interest rate on a variable-rate loan can fluctuate over the life of the loan. Interest rates on this type of loan are tied to benchmark rates or indexes. Based on how the benchmark rate or index changes, the interest rate on a variable-rate loan will also change, directly affecting your monthly payment.

Generally, variable-rate loans carry lower annual percentage rates (APRs) and some have limits on how much the interest rate can rise or lower over a specific period, or even over the life of the loan. A variable-rate loan could be a good choice if you are taking out a small amount of money with a short repayment term.

Here are some pros and cons of variable-rate personal loans and fixed-rate personal loans. Choosing between variable vs. fixed rates will come down to personal preference and what you are approved for.

	Variable-Rate Personal Loans	Fixed-Rate Personal Loans
Advantages	Loans often start out with a lower interest rate compared to fixed-rate loans If benchmark rate goes down, interest rate on the loan also goes down Flexible	Monthly payments are consistent Can avoid rising interest rates Easy to understand
Disadvantages	If benchmark rises, the cost of the loan also rises Borrowers have a greater risk of defaulting on loan if the interest rate increases significantly As interest rates change, so will the monthly payment	Won’t be able to take advantage of changes in interest rates Interest rates tend to be higher compared to variable-rate loans May pay more over time if you took out your loan when interest rates were high

Small vs Large Personal Loans

Just as personal loans are taken out for a variety of reasons, the dollar amount borrowed can vary, too.

A small personal loan, which is generally for $3,000 or less, typically has a lower APR than other types of short-term debt, such as payday loans. Many banks and other financial institutions have limits on the minimum amount they’ll lend. Some credit unions may offer alternatives to payday loans in an effort to help their members save money and avoid being stuck in a cycle of debt.

A large personal loan might be used to pay for major expenses such as home repair or remodeling, medical expenses, or an expensive life event, such as a wedding. Some lenders offer personal loans up to $100,000.

It’s important to keep in mind your ability to repay the loan when deciding how much to borrow. Here’s how small and large loans compare:

	Small Personal Loan	Large Personal Loans
Advantages	Can use the money for a wide variety of purposes Interest rates are typically lower compared to credit cards Usually has better terms than payday loans	Can use the money for a wide variety of purposes Greater ability to combine multiple credit card balances into one balance Can be a good way to improve credit if payments are regular and on time
Disadvantages	Can often get a better interest rate with a larger loan No grace period Lenders may limit how much you can borrow	The larger the loan, the more debt you’re taking on Increases your debt-to-income ratio Lenders may limit how much you can borrow

What Personal Loan Lenders Look at in Your Application

When you apply for a loan, the lender typically considers your credit score, debt-to-income (DTI) ratio, and other factors.

Credit Score

A person’s credit score shows lenders what the theoretical likelihood of that person paying back a loan would be. Generally, the lower a person’s credit score, the more of a risk they are assumed to be. Conversely, the higher a person’s credit score, the lower a risk they are assumed to be — and the more likely they are to be approved for lower interest rates and higher loan amounts.

Debt-to-Income Ratio

Your DTI is a percentage that tells lenders how much money you spend on monthly debt payments versus how much money you have coming into your household. You can calculate your DTI by adding up your monthly minimum debt payments and dividing it by your monthly pretax income.

Lenders generally want to see a DTI of 35% to 40% or less but may make exceptions if you have good credit.

Credit History

Lenders will review your credit report for anything that might stand out as a risk for them. If there are a high number of inquiries on your credit report or if there were multiple debt accounts opened in a short time period, that might indicate high risk to a lender. Borrowers who are considered high risk may find it more difficult to get a loan and could pay higher interest rates.

Deciding If a Personal Loan Is Right for You

Not sure whether a personal loan makes sense for your situation? Here are some questions to ask yourself:

•   Do I need the money quickly? If you do, then a personal loan might be a smart move.

•   Can I afford the monthly payments? Before you take on any debt, it’s important to set a realistic plan on how you’ll repay what you owe.

•   Do I already have a high amount of debt? Taking out a personal loan when you have significant debt can put a serious dent in your budget and savings goals. It can also increase your DTI, which lenders look at when reviewing your loan application.

•   Do I have a “bad” credit score? If your credit score isn’t so great — FICO defines “bad” as 579 or below — then you may want to wait on taking out a loan and instead work on your credit.

•   Does a personal loan offer the lowest interest rate of all the options available? It’s a good idea to shop around for the rate and terms that best fit your needs before you apply with a lender.

Recommended: Personal Loan Calculator

Alternatives to Personal Loans

There may be times when you need help covering a big expense, but taking out a personal loan isn’t the best choice. Fortunately, there are alternative funding options. Here are a few you may want to explore:

Credit Cards

Like personal loans, credit cards offer a line of credit that can be used for a wide range of purposes. You may want to consider using a credit card if you have a smaller expense that you can pay off quickly.

Home Equity Line of Credit

If you own your home and have at least 20% equity, you may be able to get a home equity line of credit (HELOC). This option could be a smart move if you need to borrow a large amount of money or plan on having ongoing expenses, like those with a remodeling project.

401(k) Loan

If you have a financial emergency or want to pay off high-interest debt — and no other option is available — then you may want to consider borrowing from your 401(k). Keep in mind that you may face taxes and penalties when you withdraw the money, so be sure you understand how your plan works and what it allows.


💡 Quick Tip: While HELOCs may require an appraisal before you get approved, a SoFi home improvement loan does not. That means you can get approved and funded the same day.^*

The Takeaway

Personal loans can offer flexibility when you’re looking for funds for a variety of uses, and typically have lower interest rates than credit cards. Depending on your financial needs and financial circumstances, there may be a personal loan that fits. Comparing multiple lenders is a good way to make sure you’re getting a personal loan that works for you.

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

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

How do personal loan payments work?

Personal loans are typically repaid in monthly installments. When you take out a personal loan, you agree to repay the borrowed amount plus interest over a set period, usually through equal monthly payments. Each payment consists of a portion that goes towards reducing the principal balance and another portion that covers the interest charges. The loan agreement will specify the amount of each payment, the duration of the loan, and the interest rate.

What are the risks of a personal loan?

Personal loans come with certain risks that borrowers should be aware of. One risk is defaulting on the loan, which can lead to late fees, damage to your credit score, and even legal action from the lender. Another risk is needing to take on additional debt if you borrow more than you can afford to repay. In addition, personal loans may have higher interest rates compared to secured loans like mortgages or auto loans. It’s important to carefully consider your financial situation and ability to repay before taking on a personal loan.

What are the disadvantages of a personal loan?

Personal loans have a few potential disadvantages to consider. One is that they tend to have higher interest rates compared to loans secured by collateral. Personal loans may also have origination fees or other associated costs. Another potential disadvantage is that, should you miss payments or default on the loan, it could have a negative impact on your credit score.

Is a personal loan bad for your credit score?

A personal loan itself is not inherently bad for your credit score. In fact, when managed responsibly, a personal loan can have a positive impact on your credit. Making timely payments and paying off the loan as agreed can demonstrate your ability to handle debt responsibly, which can improve your credit profile. However, if you miss payments or default on the loan, it can have a negative affect on your credit. It’s important to borrow within your means, make payments on time, and consider the impact on your credit score before taking on a personal loan.

Does personal loan money go to your bank account?

Yes, when you are approved for a personal loan, the funds are typically deposited directly into your bank account. This allows you to have immediate access to the loan amount. The specific timeline for receiving the money may vary depending on the lender and the loan application process.

Do you get money right away from a personal loan?

The timing of receiving money from a personal loan can vary depending on the lender and their processes. Typically, you receive the money within five to seven business days of approval, and some lenders even offer same-day funding.

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^* Same-Day Personal Loan Funding: 82% of typical SoFi Personal Loan applications, excluding Direct Pay Personal Loans and Personal Loan refinance, from January 1, 2022 to January 1, 2023 that were signed before 7pm ET on a business day were funded the same day.

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

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

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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In financial circles, assets make the world go round. The goal is to accumulate the most valuable assets to create and sustain long-term wealth.

That lifelong process starts with education, and that, in turn, begins with a key tenet of wealth building: knowing all about underlying assets and what role they play in portfolio management.

What is an Underlying Asset?

An underlying asset is the foundational security, or investment vehicle, on which derivatives operate. Underlying assets can be individual securities (like stocks or bonds) or groups of securities (like in an index fund).

A derivative represents a financial contract between two or more parties based on the current or future value of an underlying asset. Derivatives can take many forms, with trading in widely used markets like futures, equity options, swaps, and warrants. These are high-risk, high-reward vehicles where investors bet on the future value of an underlying asset, and they are often used as hedges against other investments (which seeks to reduce investment risk) or as speculative instruments that pay off down the road (which can heighten investment risk.)

That’s where underlying assets come into play. To make the most optimal derivative bets, investors aim to either hedge risk or enhance it, by making speculative moves in higher-risk areas like options and futures. The underlying assets that enable those bets are critical to the derivatives investment process.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

How Underlying Assets Work

To illustrate how underlying assets work in the derivatives market, let’s use options trading as an example.

An option is a financial derivative that gives the contract owner the right to buy or sell an underlying security at a specific time and at a specific price. When an option is exercised by the contract holder, that simply means the holder has exercised the rights to buy or sell an underlying asset and now owns (or sells out of) the underlying asset.

Options come in two specific categories: puts and calls.

• Put options allow the options owner to sell an underlying asset (like a stock or commodity) at a certain price and by a certain date (known as the expiration date.)

• Call options enable the owner to buy an underlying asset (like a stock or a commodity) at a certain price and at a certain date.

The underlying asset comes into play when that options contract is initiated.

Example of an Underlying Asset in Play

Let’s say for example that an investor opts to buy Microsoft (MSFT) at an options strike price (the price you can buy the shares) of $275 per share. The stock is currently trading at $325 per share. The contract is struck on September 1 and the options contract expiration date is November 30.

Now that the contract is up and running, the performance of the underlying asset (Microsoft stock) will define the success or failure of the options investment.

In this scenario, the options owner now has the “option” (hence the name) to buy 100 shares of Microsoft at $275 per share on or before November 30. If the underlying stock, which is now trading at $300, remains above the $275 strike price, the options owner can exercise the contract and make a profit on the investment.

If, for example, MSFT slides to $280 per share in the options contract timeframe, the call options owner can exercise the purchase of Microsoft at $275 per share, $5 below the current value of the stock (i.e., the underlying asset.) With each contract representing 100 shares of stock, the profits can add up on the call option investment.

If on the other hand, Microsoft stock falls below the $275 per share level, and the November 30 deadline has come and gone, the options owner loses money, as the underlying asset is valued at less than $275, although that’s the price the options owner has to pay for the stock by the expiration date.

That scenario represents the power of the underlying asset. The derivatives investment depends entirely on the performance of the underlying asset, with abundant risk for derivative speculators who’ve bet on the underlying asset moving in a certain direction over a certain period of time.

5 Different Types of Underlying Assets

Underlying assets come in myriad forms in the derivatives trading market, with certain assets being more equal than others.

Here’s a snapshot.

1. Stocks

One of the most widely used underlying assets are stocks, which is only natural given the pervasiveness of stocks in the investment world.

Derivatives traders rely on common and preferred stocks as benchmark assets when making market moves. Since stocks are so widely traded, it gives derivatives investors more options to speculate, hedge, and generally leverage stocks as an underlying asset.

2. Bonds and Fixed Income Instruments

Bonds, typified by Treasury, municipal, and corporate bonds among others, are also used as derivative instruments. Since bond prices do fluctuate on general economic and market conditions, derivative investors may try to leverage bonds as an underlying asset as both bond interest rates and price fluctuate.

3. Index Funds

Derivative traders also use funds as underlying assets, especially exchange-traded funds (ETFs), which are widely traded in intra-day trading sessions. Besides being highly liquid and fairly easy to trade, exchange-traded funds are tradeable on major global exchanges at any point during the trading day.

That’s not the case with mutual funds, which can only be traded after the day’s trading session comes to a close. The distinction is important to derivative traders, who have more opportunities for market movement with ETFs than they might with mutual funds.

ETFs also cover a wide variety of investment market sectors, like stocks, bonds, commodities, international and emerging markets, and business sector funds (such as manufacturing, health care, finance, and more recently, cryptocurrencies). That availability gives derivatives investors even more flexibility, which is a characteristic investors typically seek with underlying assets.

4. Currencies

Global currencies like the dollar or yen, among many others, are also frequently deployed by derivative investors as underlying assets. A primary reason is the typically fast-moving foreign currency (FX) market, where prices can change rapidly based on geopolitical, economic, and market conditions.

Currencies usually trade fast and often, which may make for a volatile market — and derivative investors tend to steer cash toward underlying assets that demonstrate volatility, as quick market movements allow for quick money-making opportunities. Given that they move so quickly, currencies can also move in the wrong direction quickly, which is why investment experts generally advise individual investors to shy away from markets where investment risk is abundant.

5. Commodities

Common global commodities like gold, silver, platinum, and oil and gas, are also underlying assets that are widely used by derivatives investors.

Historically, commodities are one of the most volatile and fast-moving investment markets. Like currencies, commodities are often highly desirable for derivative traders, but high volatility may lead to significant investment losses in the derivatives market if the investor lacks the experience and acumen needed to trade against underlying assets.

The Takeaway

Underlying assets used in derivative deals can come with high risk — and trading against those assets require a comprehensive knowledge of trading, leverage, hedging and speculation.

Those attributes are typically aligned with high-end investment firms, hedge firms, and other institutional investors. They’re not typically associated with regular people looking to save for retirement and build household wealth. Regular investors will likely be looking to balance risk and return to help save for the future.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/MixMedia

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SoFi Invest®

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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