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Q: Is it hard to get a personal loan?

The difficulty in acquiring a personal loan varies based on the type and size of the loan and which type of lender you borrow from.

Q: Is it hard to get a personal loan from a bank?

Banks sometimes have more stringent qualification requirements than private lenders for personal loans, but it varies.

Q: What disqualifies you from getting a personal loan?

A bad credit score, no income, or not being an official resident of the U.S. could disqualify you from taking out a personal loan.

Jan

2024

Is It Hard to Get a Personal Loan? Here’s What You Should Know

By Jamie Cattanach | Debt Payoff, Financial Independence, personal_loan | Comments Off

Getting a personal loan is typically a simple process but many lenders require at least a good credit rating and a stable income for approval. Banks tend to have stricter qualification requirements than private lenders. The type of personal loan you get — secured or unsecured — can also have an impact on how hard the loan is to get.

Once approved, a personal loan offers a lot of flexibility — you can use the funds for a wide variety of expenses, from planned home repairs to unexpected medical bills. Unlike loans with a specified purpose, like an auto loan or mortgage, personal loan funds can be used for virtually any type of expenditure.

Here’s what you need to know about personal loans and how to increase the chances that you’ll qualify.

Types of Personal Loans

A personal loan is essentially a lump sum of money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, or installments. Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Repayment terms can range from two to seven years.

While there are many different types of personal loans, they can be broken down into two main categories: secured and unsecured. Here’s how the two types of personal loans work:

• Secured personal loans are backed by collateral owned by the borrower such as a savings account or a physical asset of value. If the loan goes into default, the lender has the right to seize the collateral, which lessens the lender’s risk.

• Unsecured personal loans do not require collateral. The lender advances the money based simply on an applicant’s creditworthiness and promise to repay. Because unsecured personal loans are riskier for the lender, they tend to come with higher interest rates and more stringent eligibility requirements.

💡 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.

Getting a Personal Loan From a Bank

In addition to the type of personal loan you choose, the lender you borrow from can have an effect on how hard the loan is to get. For many borrowers, their bank is an obvious first choice when the time comes to take out a personal loan.

Banks sometimes offer lower interest rates than other lenders, particularly if you’re already an account holder at that bank. However, they may also have steeper eligibility requirements, such as a higher minimum credit score. Compared to an online lender, banks tend to have a more time-consuming application process, and the loan may take longer to disburse.

Still, the convenience of utilizing the bank you’re already familiar with and the comfort of in-person customer service may be worth the trade-off for qualified borrowers.

Getting a Personal Loan From a Private Lender

A private online lender is a non-institutional lender that is not tied to any major bank or corporation. Online lenders are less regulated than banks, allowing faster application processes and more lenient eligibility requirements. However, some online lenders will have higher interest rates and fees compared to traditional banks, so it’s key to shop around. One of the biggest advantages of a private online lender is convenience. You can complete the entire process online and funding is typically available within the week.

Is It Harder to Get a Personal Loan From a Bank or Private Lender?

Generally speaking, it may be more difficult to get a personal loan from a bank than a private lender — but your best bet is to shop around and compare a variety of personal loan options, then see where you’ll get the best interest rate.

Here are the basic differences between getting a personal loan from a bank versus a private lender at a glance:

Bank	Private Lender
Interest rates may be lower, though eligibility requirements may be more stringent	Interest rates may be higher, but eligibility requirements may be more lenient
You could get lower rates or easier qualification requirements if you have an existing relationship with the bank	Some private lenders market personal loans specifically to borrowers with poor or fair credit — though at potentially high interest rates
You may have the option to visit the bank in person for a face-to-face customer service interaction	The entire process may be done online
Loans typically take longer to process and you may have to visit a branch in person to finalize the paperwork	Funds might be disbursed the same day or within a day or two

Is It Easier to Get a Small Personal Loan?

Generally, yes. Loan size is another important factor that goes into how hard it is to get a personal loan. It’s much less risky for a lender to offer $1,000 than $50,000, so the eligibility requirements may be less stringent — and interest rates may be lower — for a smaller loan than for a larger loan.

That said, there are exceptions to this rule. Payday loans are a perfect example. Payday lenders offer small loans with a very short repayment timeline, yet often have interest rates as high as 400% APR (annual percentage rate). Even for a smaller personal loan, it’s generally less expensive to look for an installment loan that’s paid back on a monthly basis over a longer term.

Recommended: How Much of a Personal Loan Can I Get?

What Disqualifies You From Getting a Personal Loan?

There are some financial markers that can disqualify you from getting a personal loan, even with the most lenient lenders. Here are a few to watch out for.

Bad Credit

While the minimum required credit score for each lender will vary, many personal loan lenders require at least a good credit score — particularly for an unsecured personal loan. If you have very poor credit, or no credit whatsoever, you may find yourself ineligible to borrow.

Lack of Stable Income

Another important factor lenders look at is your cash flow. Without a regular source of cash inflow, the lender has no reason to think you’ll be able to repay your loan — and so a lack of consistent income can disqualify you from borrowing.

Not a US Resident

If you’re applying for personal loans in the U.S., you’ll need to be able to prove residency in order to qualify.

Lack of Documentation

Finally, all of these factors will need to be proven and accounted for with paperwork, so a lack of official documentation could also disqualify you.

How to Get a Personal Loan With Bad Credit

If you’re finding it hard to get a personal loan, there are some steps you can take to improve your chances of approval. Here are some to consider.

Prequalify With Multiple Lenders

Every lender has different eligibility requirements. As a result, it’s worth shopping around and comparing as many lenders as you can through prequalification. Prequalification allows you to check your chances of eligibility and predicted rates without impacting your credit (lenders only do a soft credit check).

Consider Adding a Cosigner

If, through the prequalification process, you find that you don’t meet most lender’s requirements, or you’re seeing exorbitantly high rates, you might check to see if cosigners are accepted.

Cosigners are family members or friends with strong credit who sign the loan agreement along with you and agree to pay back the loan if you’re unable to. This lowers the risk to the lender and could help you get approved and/or qualify a better rate.

Include All Sources of Income

Many lenders allow you to include non-employment income sources on your personal loan application, such as alimony, child support, retirement, and Social Security payments. Lenders are looking for borrowers who can comfortably make loan payments, so a higher income can make it easier to get approved for a personal loan.

Add Collateral

Some lenders offer secured personal loans, which can be easier to get with less-than-ideal credit. A secured loan can also help you qualify for a lower rate. Banks and credit unions typically let borrowers use investment or bank accounts as collateral; online lenders tend to offer personal loans secured by cars.

Just keep in mind: If you fail to repay a secured loan, the lender can take your collateral. On top of that, your credit will be adversely affected. You’ll want to weigh the benefits of getting the loan against the risk of losing the account or vehicle.

💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

The Takeaway

You can use a personal loan for a range of purposes, such as to cover emergency expenses, to pay for a large expense or vacation, or to consolidate high-interest debt. Personal loans aren’t hard to get but you usually need good credit and a reliable source of income to qualify. The better your financial situation, generally the lower the interest rate will be.

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

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

FAQ

Is it hard to get a personal loan?

Personal loans aren’t necessarily hard to get but you typically need good credit and reliable income to qualify. Secured personal loans (which require pledging something you own like a savings account or vehicle) are generally easier to qualify for than unsecured personal loans

Is it hard to get a personal loan from a bank?

Banks tend to have more stringent qualification requirements for personal loans than private online lenders. Getting a personal loan from a bank can be a good move if you have good to excellent credit, an existing relationship with a bank, and time for a longer approval process.

What disqualifies you from getting a personal loan?

You will be disqualified for a personal loan if you do not meet a lender’s specific eligibility requirements. You may get denied if your credit score is too low, your existing debt load is too high, or your income is not high enough to cover the loan payments.

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.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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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Jan

2024

CD Ladder: What It Is, Examples, and How to Build One

By Jamie Cattanach | Budgeting & Goals, Financial Independence, money | Comments Off

When it comes to saving for your best financial future, you’ve got lots of options — including CD ladders.

A CD ladder, or certificate of deposit ladder, is a financial strategy that involves purchasing certificates of deposit with staggered maturity dates. It allows you to access the best aspects of CDs (namely, a relatively high yield at a relatively low risk rate) while avoiding the main downside of CDs (having your money locked away for a long period of time). It can help you access cash when and if needed without paying early withdrawal penalties.

Setting up a CD ladder up can require a bit of strategizing and shopping around to get the right arrangement for needs. Here, you’ll take a closer look at:

• What is a CD ladder?

• How does a CD ladder work?

• How do you create a CD ladder?

• What are alternatives to a CD ladder?

What Is a CD Ladder?

In order to fully understand CD ladders, first know that a certificate of deposit, or CD, is a kind of savings vehicle. You put down a lump sum — such as $500 or $5,000 — for a set amount of time (typically between six months and a few years) in exchange for a guaranteed growth rate (i.e., interest).

Generally speaking, the highest interest rates require large deposits put down for a long period of time. Your money gets locked up, and you’ll usually pay a penalty for early withdrawal.

That’s where a CD ladder comes in. It can help you feel secure that you can access your money when needed, without having to pay a penalty. You invest your money in a variety of CDs with different maturity dates. Generally, each rung, or individual CD, will mature one year later than the previous one.

Then, as each CD matures and you’re able to access your money (plus the interest you’ve earned), you can reinvest it in another CD with the longest of the terms you’ve chosen. This means you’ll continue to earn money on your investment for double the term of the longest-term CD you took out initially.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

Example of a CD Ladder

Let’s say you have $15,000 to invest. You decide to set up a CD ladder with five rungs.

Here’s what that might look like:

• $3,000 to a one-year CD

• $3,000 to a two-year CD

• $3,000 to a three-year CD

• $3,000 to a four-year CD

• $3,000 to a five-year CD

Once the one-year CD comes to fruition, you’d reinvest that $3,000, plus whatever interest it earned, into a new five-year CD — and follow the pattern for each CD as it comes due. In this way, you can continue the ladder for a grand total of 10 years, reaping and reinvesting once annually.

Of course, if rates shift or your financial situation changes and you need cash, you have a built-in backup plan. By creating a ladder, you know at least once a year, you will have the opportunity to invest your money in a different vehicle or use it for, say, an emergency or a goal you’ve been saving towards.

Keep in mind, too, that you don’t have to equally distribute your full investment among the rungs. You could invest different amounts at each level if that better suited your needs.

And you don’t need to open all of your CDs at the same bank, either. You can shop around among banks and credit unions to find the best interest rates at different levels and thereby maximize your yield.

All in all, CD ladders offer investors additional flexibility in their approach while still creating a low-risk earning strategy. Win-win!

How to Build a CD Ladder

Building a CD ladder is pretty easy. Here are the key steps:

Gather Your Funds

Save up a chunk of money that you can afford to have locked up for at least a few months or a year. If you already have the money set aside, you’re ready to move onto the next step.

Choose the Length of Time That Will Suit You

As noted above, you might decide to buy CDs with different maturity terms, or you might prefer to buy a number of ones with the same term over time, as you accrue more savings.

Research Your Options

Shop around for the best rates and terms at financial institutions you feel comfortable with. Remember, you don’t have to stick with one bank. You could buy a six-month CD from one bank offering a great rate, and a one-year one from a different bank that has a terrific APY.

Buy Your CDs

You’re now ready to distribute your savings among a series of CD ladder “rungs,” starting with a short-term maturity date and ending with a long-term maturity rate. (Many investors use five rungs, but you could use more or less if you wanted to.)

Manage Your CD Ladder

As the CDs mature, you can determine whether to withdraw the funds or invest again.

Here’s an example of what a CD ladder might look like:

Amount	Term	Interest Rate	Bank
$500	6 months	5.50%	BMO Alto
$1,500	12 months	5.51%	CIBC Bank USA
$2,000	18 months	5.65%	Hyperion Bank
$3,000	24 months	5.39%	Digital Federal Union

Recommended: Guide to Catching up on Late Payments

Benefits of CD Laddering

There are several benefits of CD ladders, including:

• They allow you to make the most of your CD investment without locking away all the money for a long term.

• They increase investor flexibility since you get to decide what amount you put in each CD and how long each term along the ladder is.

• You may be able to take advantage of better interest rates since you’ll be reinvesting on a yearly basis, as opposed to having your money locked away at a certain rate for the long term.

• Overall, CDs are a safe, FDIC-insured investment strategy, though their earning potential is also relatively low.

Drawbacks of CD Laddering

On the other hand, there are some downsides to CD laddering that are worth mentioning:

• Even the best CDs have relatively low interest rates — so low that they may not even keep up with inflation.

• You may be missing out on an opportunity to invest your money into the stock market, where it could stand to earn exponentially more than it would in a CD — though, of course, the stock market is a much riskier investment strategy.

• If rates fall during the course of your CD ladder, you might wind up reinvesting your money into a CD with an even lower rate.

Alternatives to CD Ladders

Is CD laddering not sounding quite right for your needs? Here are some alternatives that might better suit your needs.

• Putting your money into a high-yield savings account, which may offer a similar (though potentially slightly less lucrative) low-risk growth potential. The upside here: It doesn’t keep your money locked up for a long period of time.

• Investing your money in the stock market, which is considerably riskier but may offer higher returns than CDs over the long run.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

The Takeaway

CD laddering is one useful strategy for investing your money over time, allowing you to take advantage of the best parts of CDs while avoiding some of their biggest downsides (like locking away your money for years). The laddering effect, which involves staggering the CDs’ maturity dates, can give you access to some of your money every year and allow you to possibly reap a higher interest rate if the market is rising.

That said, CD ladders aren’t for everyone. High-yield bank accounts are another option to consider.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Is laddering CDs worth it?

As with any financial decision, only you can decide if laddering CDs is the right approach for your needs. If you have a lower risk tolerance and a decent amount of money to invest, it may be a strategy worth considering to earn steady interest and have regularly scheduled access to your funds.

Can you lose money in a CD?

CDs are a very low-risk investment vehicle. The funds in them are FDIC-insured up to the standard $250,000 per depositor, per account ownership category, per insured institution, which means the FDIC will refund your money up to that amount should the bank you opened the CD with fail. That said, there are some kinds of CDs which are not FDIC-insured, so you’ll want to make sure to double-check before you sign any paperwork.

When would you use a CD ladder?

A CD ladder can be a good investment strategy when you have a nice sum of money available (say, $500 to a few thousand or more), have a low risk tolerance, and can afford to lock up your money for a period of time, from six months to several years. It is best used when rates are relatively high, especially since you can shop around for the best rate at each “rung” on your ladder.

Photo credit: iStock/Antonbr Anton

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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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Jan

2024

Loan Modification vs Loan Refinancing: The Differences and Similarities

By Janet Schaaf | Debt Payoff, Financial Independence, Home Ownership, personal_loan | Comments Off

Both a loan modification and a loan refinance can lower your monthly payments and help you save money. However, they are not the same thing. Depending on your circumstances, one strategy will make more sense than the other.

If you’re behind on your mortgage payments due to a financial hardship, for example, you might seek out a loan modification. A modification alters the terms of your current loan and can help you avoid default or foreclosure.

If, on the other hand, you’re up to date on your loan payments and looking to save money, you might opt to refinance. This involves taking out a new loan (ideally with better rates and terms) and using it to pay off your existing loan.

Here’s a closer look at loan modification vs. refinance, how each lending option works, and when to choose one or the other.

What Is a Loan Modification?

A loan modification changes the terms of a loan to make the monthly payments more affordable. It’s a strategy that most commonly comes into play with mortgages. A home loan modification is a change in the way the home mortgage loan is structured, primarily to provide some financial relief for struggling homeowners.

Unlike refinancing a mortgage, which pays off the current home loan and replaces it with a new one, a loan modification changes the terms and conditions of the current home loan. These changes might include:

• A new repayment timetable. A loan modification may extend the term of the loan, allowing the borrower to have more time to pay off the loan.

• A lower interest rate. Loan modifications may allow borrowers to lower the interest rates on an existing loan. A lower interest rate can reduce a borrower’s monthly payment.

• Switching from an adjustable rate to a fixed rate. If you currently have an adjustable-rate loan, a loan modification might allow you to change it to a fixed-rate loan. A fixed-rate loan may be easier to manage, since it offers consistent monthly payments over the life of the loan.

A loan modification can be hard to qualify for, as lenders are under no obligation to change the terms and conditions of a loan, even if the borrower is behind on payments. A lender will typically request documents to show financial hardship, such as hardship letters, bank statements, tax returns, and proof of income.

While loan modifications are most common for secured loans, like home mortgages, it’s also possible to get student loan modifications and even personal loan modifications.

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

What Is Refinancing a Loan?

A loan refinance doesn’t just restructure the terms of an existing loan — it replaces the current loan with a new loan that typically has a different interest rate, a longer or shorter term, or both. You’ll need to apply for a new loan, typically with a new lender. Once approved, you use the new loan to pay off the old loan. Moving forward, you only make payments on the new loan.

Refinancing a loan can make sense if you can:

• Qualify for a lower interest rate. The classic reason to refi any type of loan is to lower your interest rate. With home loans, however, you’ll want to consider fees and closing costs involved in a mortgage refinance, since they can eat into any savings you might get with the lower rate.

• Extend the repayment terms. Having a longer period of time to pay off a loan generally lowers the monthly payment and can relieve a borrower’s financial stress. Just keep in mind that extending the term of a loan generally increases the amount of interest you pay, increasing the total cost of the loan.

• Shorten the loan repayment time. While refinancing a loan to a shorter repayment term may increase the monthly loan payments, it can reduce the overall cost of the loan by allowing you to pay off the debt faster. This can result in a significant cost savings.

Recommended: What Are Personal Loans Used For?

Refinance vs Loan Modification: Pros and Cons

Loan refinance is typically something a borrower chooses to do, whereas loan modification is generally something a borrower needs to do, often as a last resort.

Here’s a look at the pros and cons of each option.

Loan Modification		Refinancing
Pros	Cons	Pros	Cons
Avoid loan default and foreclosure	Could negatively impact credit	May be able to lower interest rate	You’ll need solid credit and income
Lower your monthly payment	Cash out is not an option	May be able to shorten or lengthen your loan term	Closing costs may lower overall savings
Avoid closing costs	Lenders not required to grant modification	May be able to turn home equity into cash	You could reset the clock on your loan

Benefits of Loan Modification

While a loan modification is rarely a borrower’s first choice, it comes with some advantages. Here are a few to consider.

• Avoid default and foreclosure. Getting a loan modification can help you avoid defaulting on your mortgage and potentially losing your home as a result of missing mortgage payments.

• Change the loan’s terms. It may be possible to increase the length of your loan, which would lower your monthly payment. Or, if the original interest rate was variable, you might be able to switch to a fixed rate, which could result in savings over the life of the loan.

• Avoid closing costs. Unlike a loan refinance, a loan modification allows you to keep the same loan. This helps you avoid having to pay closing costs (or other fees) that come with getting a new loan.

Drawbacks of Loan Modification

Since loan modification is generally an effort to prevent foreclosure on the borrower’s home, there are some drawbacks to be aware of.

• It could have a negative effect on your credit. A loan modification on a credit report is typically a negative entry and could lower your credit score. However, having a foreclosure — or even missed payments — can be more detrimental to a person’s overall creditworthiness.

• Tapping home equity for cash is not an option. Unlike refinancing, a loan modification cannot be used to tap home equity for an extra lump sum of cash (called a cash-out refi). If your monthly payments are lower after modification, though, you may have more funds to pay other expenses each month.

• There is a hardship requirement. It’s typically necessary to prove financial hardship to qualify for loan modification. Lenders may want to see that your extenuating financial circumstances are involuntary and that you’ve made an effort to address them, or have a plan to do so, before considering loan modification.

Recommended: Guide to Mortgage Relief Programs

Benefits of Refinancing a Loan

For borrowers with a strong financial foundation, refinancing a mortgage or other type of loan comes with a number of benefits. Here are some to consider.

• You may be able to get a lower interest rate. If your credit and income is strong, you may be able to qualify for an interest rate that is lower than your current loan, which could mean a savings over the life of the loan.

• You may be able to shorten or extend the term of the loan. A shorter loan term can mean higher monthly payments but is likely to result in an overall savings. A longer loan term generally means lower monthly payments, but may increase your costs.

• You may be able to pull cash out of your home. If you opt for a cash-out refinance, you can turn some of your equity in your home into cash that you can use however you want. With this type of refinance, the new loan is for a greater amount than what is owed, the old loan is paid off, and the excess cash can be used for things like home renovations or credit card consolidation.

💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Drawbacks of Refinancing a Loan

Refinancing a loan also comes with some disadvantages. Here are some to keep in mind.

• You’ll need strong credit and income. Lenders who offer refinancing typically want to see that you are in a solid financial position before they issue you a new loan. If your situation has improved since you originally financed, you could qualify for better rates and terms.

• Closing costs can be steep. When refinancing a mortgage, you typically need to pay closing costs. Before choosing a mortgage refi, you’ll want to look closely at any closing costs a lender charges, and whether those costs are paid in cash or rolled into the new mortgage loan. Consider how quickly you’ll be able to recoup those costs to determine if the refinance is worth it.

• You could set yourself back on loan payoff. When you refinance a loan, you can choose a new loan term. If you’re already five years into a 30-year mortgage and you refinance for a new 30-year loan, for example, you’ll be in debt five years longer than you originally planned. And if you don’t get a lower interest rate, extending your term can increase your costs.

Is It Better to Refinance or Get a Loan Modification?

It all depends on your situation. If you have solid credit and are current on your loan payments, you’ll likely want to choose refinancing over loan modification. To qualify for a refinance, you’ll need to have a loan in good standing and prove that you make enough money to absorb the new payments.

If you’re behind on your loan payments and trying to avoid negative consequences (like loan default or foreclosure on your home), your best option is likely going to be loan modification. Provided the lender is willing, you may be able to change the rate or terms of your loan to make repayment more manageable. This may be more agreeable to a lender than having to take expensive legal action against you.

Alternatives to Refinancing and Loan Modification

If you’re having trouble making your mortgage payments or just looking for a way to save money on a debt, here are some other options to consider besides refinancing and loan modification.

Mortgage Forbearance

For borrowers facing short-term financial challenges, a mortgage forbearance may be an option to consider.

Lenders may grant a term of forbearance — typically three to six months, with the possibility of extending the term — during which the borrower doesn’t make loan payments or makes reduced payments. During that time, the lender also agrees not to pursue foreclosure.

As with a loan modification, proof of hardship is typically required. A lender’s definition of hardship may include divorce, job loss, natural disasters, costs associated with medical emergencies, and more.

During a period of forbearance, interest will continue to accrue, and the borrower will still be responsible for expenses such as homeowners insurance and property taxes.

At the end of the forbearance period, the borrower may have to repay any missed payments in addition to accrued interest. Some lenders may work with the borrower to set up a repayment plan rather than requiring one lump repayment.

Mortgage Recasting

With a mortgage recast, you make a lump sum payment toward the principal balance of the loan. The lender will then recast, or re-amortize, your remaining loan repayment schedule. Since the principal amount is smaller after the lump-sum payment is made, each monthly payment for the remaining life of the loan will be smaller, even though your interest rate and term remain the same.

Making Extra Principal Payments

With any type of loan, you may be able to lower your borrowing costs by occasionally (or regularly) making extra payments towards principal. This can help you pay back what you borrowed ahead of schedule and reduce your costs.

Before you prepay any type of loan, however, you’ll want to make sure the lender does not charge a prepayment penalty, since that might wipe out any savings. You’ll also want to make sure that the lender applies any extra payments you make directly towards principal (and not towards future monthly payments).

The Takeaway

Loan modification vs loan refinancing…which one wins?

It depends on your financial situation. If you’re dealing with financial challenges and at risk of home foreclosure, you may want to look into a loan modification, which could be easier to qualify for than loan refinancing.

If you’re interested in getting a lower interest rate or lowering your monthly debt payment, refinancing likely makes more sense. A refinance may also make sense if you’re looking to tap your home equity to access extra cash. With a cash-out refi, you replace your current mortgage with a new, larger loan and receive the excess amount in cash.

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

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

FAQ

What are the disadvantages of loan modification?

A loan modification typically comes with a hardship requirement. A lender may ask to see proof that your financial circumstances are involuntary and that you’ve made an effort to address them before considering loan modification.

A loan modification can also have a temporary negative effect on your credit.

Is a loan modification bad for your credit?

A lender may report a loan modification to the credit bureaus as a type of settlement or adjustment to the loan’s terms, which could negatively impact on your credit. However, the effect will likely be less (and shorter in duration) than the impact a series of late or missed payments or a foreclosure on your home would have.

Photo credit: iStock/AlexSecret

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Jan

2024

Guarantor vs Cosigner: What Are the Differences?

By Jamie Cattanach | Financial Independence, personal_loan | Comments Off

Adding either a guarantor or cosigner to a loan can increase your odds of approval. But while these supportive roles are similar, they are not exactly the same.

Both a guarantor and a cosigner agree to cover a borrower’s debt if the borrower fails to repay what they owe. The key difference is that a cosigner is responsible for the loan right away, whereas a guarantor isn’t responsible for repayment unless the borrower fully defaults on the loan.

Whether you’re looking for a cosigner or guarantor, or thinking of acting as one or the other, there are some key differences both parties need to understand. Here’s a closer look at guarantors versus cosigners.

Key Points

• A guarantor only becomes responsible for a loan if the borrower defaults, while a cosigner is liable for missed payments immediately upon agreement.

• Choosing between a guarantor and cosigner can affect loan approval chances, interest rates, and the financial responsibilities for both parties involved.

• Credit impacts differ between the two roles; a cosigner’s responsibility appears on their credit report right away, unlike a guarantor’s, which only appears if the borrower defaults.

• Being a guarantor or cosigner can help borrowers secure better loan terms, but both roles carry potential risks to credit scores and financial stability.

• It’s crucial for borrowers to discuss expectations and financial responsibilities with their guarantor or cosigner before entering an agreement to avoid strain on relationships.

Is a Guarantor the Same Thing as a Cosigner?

The short answer: No.

Guarantors and cosigners fulfill similar roles: They help make it possible for a primary applicant with poor or limited credit to be approved for a loan by agreeing to take responsibility for the loan should the primary borrower become unable to pay. (These terms can also come into play when someone without a strong credit or income history is looking to rent an apartment.)

But there are some key differences between a guarantor and a cosigner. The biggest is how soon each individual becomes responsible for the borrower’s debt. A cosigner is responsible for every payment that a borrower misses. A guarantor, on the other hand, only assumes responsibility if the borrower falls into default on the loan.

Acting as cosigner versus a guarantor also impacts your credit in different ways. In addition, which role you take on affects how much access you have to information about the loan.

💡 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 a Guarantor?

A loan guarantor is someone who promises to pay a borrower’s debt if the borrower defaults on their loan obligation. This reduces the lender’s risk and, as a result, they might offer guarantor loans to applicants who wouldn’t qualify on their own.

Unlike a cosigner, a guarantor isn’t responsible for every payment that a borrower misses. They only need to step up when the primary borrower has defaulted on the loan. A default means a borrower has failed to repay the funds according to the initial agreement. With most consumer loans, this typically involves missing multiple payments for several weeks or months in a row.

Simply becoming a guarantor will generally not impact your credit reports and credit scores. But if the loan falls into default, leaving you responsible for all outstanding payments, it will be added to your credit report. If you fail to repay the money owed, your credit rating could be negatively impacted.

Being a guarantor for a rental property is similar to being a guarantor on a loan — it involves you vouching for the tenant. If the tenant is unable to meet their obligations under the tenancy agreement, you (the guarantor) will be legally bound to cover the overdue rent or any damage to the property.

As a guarantor, you have the responsibility of repaying the debt, but you don’t have any legal right to the loaned money, anything purchased with the loan proceeds, or to live in the dwelling if you’re acting as a guarantor on a lease.

What Is a Cosigner?

A cosigner is someone who applies for a loan with someone who may not qualify on their own and takes equal responsibility for the account. For example, many parents act as cosigners on their children’s student loans, since young people tend not to have long and robust credit histories.

Unlike a guarantor, a cosigner’s liability begins right away. Cosigners are responsible for any payments that the borrower misses. If the borrower defaults, the cosigner is also responsible for the full amount of the loan.

The debt account and payment history will appear on both the primary borrower’s credit report, as well as the cosigner’s credit report. And, depending on how the primary borrower manages the account, the loan could help or hurt both the primary borrower’s and the cosigner’s credit scores.

If the primary borrower defaults on the loan, lenders and collections agencies can try to collect the debt directly from the cosigner.

Although the cosigner is legally obligated to make payments if the borrower can’t, they have no rights to the loan proceeds.

A cosigner is not the same thing as a co-borrower in that they don’t have any claim on the loaned asset. Also, unlike a co-borrower, a cosigner’s intention is to boost the creditworthiness of the borrower, not to jointly repay the debt.

Guarantor vs Cosigner: The Similarities

Both guarantors and cosigners pledge their financial responsibility for the debt to strengthen the primary borrower’s application. And, in both cases, they may become responsible for repaying the debt.

Another thing guarantors and cosigners have in common is that they do not have any right to the loaned money, or assets purchased with the money (one exception: the cosigner on a lease may be entitled to live on-site).

Guarantor vs Cosigner: The Differences

The main difference between a guarantor and a cosigner is the level of legal liability for the debt.

A cosigner is responsible for repayment of the debt as soon as the agreement is final and can request to have loan statements sent to them, so they’ll know right away if any payments have been missed. A guarantor, by contrast, is only responsible for repayment of the debt if the primary borrower defaults on the loan and will only be notified at that point.

There are also differences in terms of credit impacts. A cosigner will have the loan added to their credit report and any positive or negative payment information that the lender shares with the consumer credit bureaus can have a positive or negative impact on their credit. Becoming a guarantor, on the other hand, will not have an impact on your credit unless the primary borrower defaults on the loan.

Cosigner	Guarantor	Guarantor
When financial responsibility begins	Right away	Only when/if the primary borrower defaults
Credit impact	Loan appears on credit report	Loan will not appear on credit report unless the borrower defaults
Right to loan proceeds?	No	No
Access to loan information	Can request monthly statements at any time	No access to statements

Recommended: Guide to Unsecured Personal Loans

Personal Guarantor vs Cosigner: Pros and Cons

If you are the primary borrower and deciding between a guarantor and cosigner, the choice may come down to which kinds of loans are available (guarantor loans can be harder to find than loans allowing a cosigner) and what kind of agreement you’re entering into. If you’re signing a lease with a roommate, that person should be a cosigner rather than a guarantor.

If you’re thinking of acting as a guarantor versus a cosigner, here’s a look at the benefits and drawbacks of each.

Pros and Cons of Being a Guarantor

Pros:

• Helps a borrower obtain a loan more easily

• Can help a borrower get approved for a larger loan amount or more favorable rates and terms than they would be able to get on their own

• Helps a borrower build credit and learn how to manage credit responsibly

Cons:

• Your credit score could be impacted if the borrower defaults on the loan

• You’ll be liable for the full debt if the borrower defaults on the loan

• Should the borrower default, your ability to obtain another loan for a different use may be limited

Pros and Cons of Being a Cosigner

Pros:

• Helps a borrower obtain a loan more easily

• Can help a borrower get approved for a larger loan amount or more favorable rates and terms than they would be able to get on their own.

• Helps a borrower build credit and learn how to manage credit responsibly

Cons:

• Your credit could take a hit if the borrower pays late or misses payments and the lender reports the delinquency to the credit bureaus

• You will need to make any payments the primarily borrower misses

• If need to apply for credit for yourself, the lender may deny you because your current debt levels are too high

Do Guarantors Get Credit Checked?

Yes — as part of the application process, the lender will carry out a credit check on you. However, this is normally a “soft” credit check which will not be visible to other companies and won’t impact your credit score. Generally, a guarantor will need a robust credit and income history to make up for the applicant’s shortcomings.

When Is a Cosigner or a Guarantor a Good Option?

Recruiting a cosigner or guarantor can be a good option if you have low credit scores or a limited credit history and are looking to get a personal loan, student loan, mortgage, auto loan, or other type of credit. This can not only help you qualify for the loan but also give you access to better rates and terms than you could get on your own.

Taking out a loan with a guarantor or cosigner — and making regular on-time payments on that loan — can help you build your credit. This can help you qualify for more types of loans and better rates in the future without a cosigner or guarantor.

Just keep in mind that if you ask a trusted friend or family member to act as a cosigner or guarantor and you fail to make timely payments, you could put a significant strain on your relationship. You will also be putting that person in a difficult financial position.

💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

Questions to Ask a Guarantor or Cosigner

One of the weightiest parts of deciding to use a cosigner or guarantor is having to ask someone to do you this favor, which is a big one. It’s important that there’s mutual trust in the relationship between the borrower and cosigner or guarantor, since their actions can have an impact on each other’s finances.

Some questions to ask your cosigner or guarantor before entering an agreement include:

• Do you have a good credit score and solid financial standing?

• Are you willing to take on this legal and financial responsibility?

• What will our long-term agreement be if I, as the primary borrower, fail to make repayments and force you into the legal obligation to do so?

Personal Loans That Allow You to Use a Cosigner or Guarantor

Not all lending institutions allow you to apply for a personal loan with a cosigner or a guarantor. Some only allow co-borrowers. If you aren’t able to qualify based on your own creditworthiness, you may consider asking the lender if they’ll allow a cosigner or guarantor.

Getting a personal loan with a cosigner or guarantor can make it much easier to qualify for a loan because, in the eyes of the lender, a second person agreeing to take on responsibility for the loan lessens the risk of lending to you.

The Takeaway

Guarantors and cosigners fulfill similar roles for a loan applicant, strengthening the application by taking on some level of financial responsibility for the loan.

A cosigner takes on responsibility for your payments right away, while a guarantor won’t get involved in the loan unless you end up missing several payments and are considered in loan default.

Either option can help you qualify for a personal loan with lower interest rates and better terms than you might be able to get on your own.

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

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

Photo credit: iStock/FreshSplash

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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Jan

2024

Flex Loans: Benefits and Drawbacks

By Sarah Li Cain | Financial Independence, personal_loan, Terminology | Comments Off

If you’re looking to borrow money quickly and without going through a lengthy application process, flex loans can be an appealing option. A flex loan is a line of credit that is unsecured (meaning no collateral is required). It allows you to withdraw funds as needed up to a predetermined limit. As you pay down the balance, you can continue to borrow from the credit line, similar to a credit card.

While flex loans are usually easier to qualify for than more traditional lending products, they typically come with higher annual percentage rates (APRs) and fees. Here’s what you need to know about flex loans, including how they work, how much you can borrow, and the pros and cons of using a flex loan for fast cash.

Key Points

• Flex loans provide quick access to funds through a revolving line of credit, allowing borrowers to withdraw and repay money as needed without collateral.

• Higher annual percentage rates (APRs) and fees are common with flex loans, making them more expensive than traditional loans, especially if not managed carefully.

• Approval for flex loans often doesn’t require a credit check, making them accessible to individuals with poor or limited credit histories.

• While flex loans can help with emergencies, they can lead to excessive debt if borrowers continually draw from the line of credit without a repayment plan.

• Alternatives to flex loans include credit cards, personal lines of credit, and loans with a guarantor, which may offer lower interest rates and better terms.

What Is a Flex Loan?

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

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

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

💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

How Do Flex Loans Work?

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

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

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

How Much Can You Get With a Flex Loan?

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

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

Will a Flex Loan Hurt My Credit?

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

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

Benefits of Flex Loans

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

Application Process

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

Access to Funds

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

Credit Score

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

Requirements

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

Flexible Payment Terms

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

Dangers of Flex Loans

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

Interest Rates

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

Minimum Payments

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

Excessive Debt

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

When Should You Take Out a Flex Loan?

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

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

When to Apply for a Flex Loan

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

Alternatives to Flex Loans

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

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

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

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

💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

The Takeaway

Before taking out any type of loan, you’ll want to consider the benefits versus the costs. If you need cash for an emergency, it can be a good idea to look at all your borrowing options before settling on a flex loan due to the high interest rates and fees associated with these loans. Shopping around is a good way to see what you may qualify for and help you find a lender you feel comfortable working with.

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

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

FAQ

What is a flex loan?

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

How much can you get with a flex loan?

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

Will a flex loan hurt my credit?

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

Photo credit: iStock/PeopleImages

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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