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A personal loan is a type of loan offered by many banks, credit unions, and online lenders, and there are an array of options to suit different needs. Personal loans typically don’t place restrictions on how you use the funds, which means they can be a useful source of cash for anything from medical bills to wedding costs to home renovation expenses.

Deciding which kind of personal loan best suits your needs can depend on such factors as how much money you plan to borrow, how soon you plan to pay it back, your creditworthiness and income, and how much debt you already have. To make the best selection, delve into the different types of personal loans available.

Unsecured Personal Loan

A common type of personal loan is an unsecured personal loan. This means there’s no collateral required to back up the loan, which can make them riskier for lenders. Approval and interest rates for unsecured personal loans are generally based on a person’s income and credit score, but other factors may apply. In terms of how your credit score impacts a loan, you can expect higher credit scores to merit more favorable (or lower) interest rates.

Secured Personal Loan

Unlike an unsecured loan, there is some sort of collateral backing up a secured personal loan. For example, think of it working in the same way a home mortgage does — if the borrower does not make payments, the bank or lender can seize the asset (in this case, the home) that was used to secure the loan.

In terms of accessing this kind of personal loan, collateral could include such assets as:

•  Cash in the bank

•  Real estate

•  Jewelry, art, antiques

•  A car or boat

•  Stocks, bonds, insurance policies

Since secured loans involve collateral, lenders often view them as less risky than their unsecured counterparts. This can mean that secured personal loans might offer a lower interest rate than a comparable unsecured loan.

Here’s a comparison of some of the features of unsecured and secured personal loans:

Recommended: Choosing Between a Secured and Unsecured Personal Loan

Fixed Rate Loan

A personal loan with a fixed interest rate will have the same interest rate for the life of the loan. This means you’ll have the same fixed payment each month and, based on your scheduled payments, can know upfront how much interest you’ll pay over the life of the loan. This can help people budget appropriately as they put funds towards the common uses for personal loans, such as a major dental bill or travel plans.

Variable Rate Loan

 
On the other hand, the interest rate on a variable rate loan may change over the life of the loan, fluctuating based on the prevailing short-term interest rates. Typically, the starting interest rate on a variable rate loan will be lower than on a fixed rate loan, but the interest rate is likely to change as time passes. Variable rate loans are generally tied to well-known indexes.

If you’re trying to decide on a variable- or fixed-rate personal loan, this summary might be helpful (you might also consider crunching the numbers using a personal loan calculator):

Debt Consolidation Loan

This type of personal loan refinances existing debts into one new loan. Ideally, the interest rate on this new debt consolidation loan would be lower than the interest rate on the outstanding debt. This would allow you to spend less in interest over the life of the loan.

With a debt consolidation loan, you may only have to manage one single monthly payment versus, say, paying multiple credit card bills. This streamlining of monthly debt payments can be another major perk of this type of loan.

Cosigned Loan

If you’re struggling to get approved for a personal loan on your own, there are circumstances in which you can apply for a loan with a cosigner. A cosigner is someone who helps you qualify for the loan but does not have ownership over the loan. In the event that you are unable to make payments on the loan, your cosigner would, however, be responsible.

Co-borrowers and co-applicants are other terms you might hear if you’re interested in borrowing a personal loan with the assistance of a friend or family member.

•  A co-borrower essentially takes out the loan with you. Unlike a cosigner, your co-borrower’s name will also be on the loan, so they’d be equally responsible for making sure payments are made on time.

•  A co-applicant is the person applying for a loan with you. When the loan application is approved, the co-applicant becomes the co-borrower.

Recommended: Typical Personal Loan Requirements

Personal Line of Credit

Slightly different from a personal loan, a personal line of credit functions similarly to a credit card. It’s revolving credit, which typically means there is a maximum credit limit, a required monthly minimum payment, and when the debt is paid off, money can be withdrawn again.

The funds in a personal line of credit are generally accessed by writing checks, using a card, or by making transfers into another account.

Interest rates on a personal line of credit may be lower than the interest rates on a credit card. Like personal loans, there are typically both unsecured and secured personal lines of credit available.

Credit Card Cash Advance

Some credit cards offer the option to borrow cash against the card’s total cash advance limit. Doing so is called taking a credit card cash advance. The available cash advance amount may be different than the total available credit for purchases — that information is typically included on each credit card statement.

Depending on the credit card company’s policy, there are a few ways to secure a cash advance: You could use your credit card at an ATM to withdraw money, borrow a cash advance from a credit union or bank, or request a cash advance from the credit card company directly.

Cash advances typically have some of the highest interest rates around, higher still than your regular annual percentage rate (APR). There are often additional credit card fees associated with a cash advance transaction. Check your credit card disclosure terms for full details before taking a cash advance.

Payday Loan

Payday loans are short-term, high-interest loans that are designed to be repaid on the borrower’s next payday. They are often for small amounts of cash and can involve triple-digit interest rates. An example: A $15 finance charge on a loan of $100 that’s due in two weeks has an annual interest rate of 391% if not paid on time. In other words, it can be wise to proceed with extreme caution when accessing cash this way since the amount owed could skyrocket.

Credit Builder Loan

As the name suggests, credit builder loans are a kind of loan that can help a person with no or low credit to positively impact their standing. Unlike most loans which give you funds at the start of the loan, a credit builder loan provides the cash at the end of the loan term. Here’s how they usually work:

•  The lender puts the loan’s money into a separate account, such as a savings account or a certificate of deposit (CD).

•  The borrower makes regular payments to the lender, which over time pays off the loan’s principal plus interest.

•  After the loan has been paid off, the money is released to the borrower.

These payments can be reported to the credit bureaus. If the loan is managed responsibly, this activity can help build the borrower’s credit score.

Medical Loan

A medical loan is usually an unsecured loan that can be applied to medical expenses, such as out-of-pocket costs, copays, hospital bills, and the fees for emergency and elective procedures, among others. You can often find them through banks and online lenders, and they may offer features that make them appropriate for those recovering from health issues, such a period of 0% interest.

The Takeaway

Personal loans can offer a source of cash to be used in a variety of ways. There are various kinds of loans available, such as secured and unsecured, variable and fixed interest rate, and more. Doing research on these different sources of funding can help you make an educated decision about whether a personal loan is right for you and, if so, which type suits your needs best.

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

FAQ

How many types of personal loans are there?

There are many different types of personal loans. Some popular options include secured vs. unsecured (meaning no collateral is needed) loans; fixed vs. variable rate loans; and personal loans designed for specific purposes, such as a debt consolidation, medical, or credit builder loan.

How much is a $20,000 loan for 5 years?

The cost of a $20,000 loan for five years will depend on a variety of factors, such as the interest rate and whether it’s fixed or variable. As an example, a personal loan of $20,000 for 5 years at a fixed rate of 8% would have a monthly payment of $472 for a total repayment of $23,584, meaning you’d pay $3,584 in interest over the life of the loan.

What is the largest personal loan I can get?

How large a personal loan you can get will usually depend on your credit score, income, and debt-to-income (DTI) ratio. Many lenders offer personal loans at up to $40,000–$50,000, but some may approve loans for up to $100,000 if a prospective borrower qualifies.

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

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As anyone who has ever watched their bank account balance decline after paying bills knows, owing money is no fun. But debt often serves an important function in people’s lives, putting things that can cost tens of thousands of dollars or more — like a college degree or a starter home — within reach.

Such cases aren’t quite the same as racking up a high credit card balance on restaurant meals and shopping trips, underscoring that when it comes to owing money, there can be good debt and bad debt.

What Is Debt Exactly?

It’s a simple four-letter word, yet debt is often not as straightforward as it may appear. Carrying a credit card balance? That’s debt. Have a student loan or a car lease? Also debt.

When individuals owe money, they generally have to pay back more than the amount they borrowed. Most debt is subject to interest, the borrowing cost that is applied based on a percentage of money owed. Interest accrues over time, so the longer consumers take to pay off debt, the more it may cost them.

Across people and households, debts add up. According to the Federal Reserve Bank of New York, by the third quarter of 2024, total household debt climbed to $17.94 trillion. Housing debt — specifically mortgages and mortgage refinancing — accounted for the majority of money owed, $12.59 trillion. Non-housing debt, such as credit card balances and school and car loans, accounted for the rest.

For individuals, average debt amounted to $105,056 in the fall of 2024, according to the credit reporting company Experian. While student loan debt was down, shrinking by 9.2% from the year before — many other debts, including amounts owed on credit cards, car loans, home equity lines of credit (HELOCs), and mortgages, all increased from the year before, according to Experian.

Recommended: Free Credit Score Monitoring

Good Debt vs Bad Debt

When you have debt, not only do you have to repay the money borrowed, but you also usually incur ongoing costs — specifically interest — which increase the amount you have to pay back.

While incurring more debt probably isn’t the most attractive proposition, there are occasions when taking on debt can be necessary or even beneficial in the long term. This is where good debt vs. bad debt comes in.

Though the idea of good vs. bad debt might seem complicated (and is often subject to some misconceptions), as a rule of thumb, the difference between good debt and bad debt usually has to do with the long-term results of borrowing.

Good debt is seen as money owed on expenditures that can build an individual’s finances over time, such as taking out student loans in order to increase one’s earning potential, or a mortgage on a house that is expected to appreciate in value.

Bad debt is money owed for expenses that pose no long-term value to a person’s financial standing, or that may even decrease in value by the time the loan is paid off. This can include credit card debt and car loans.

While owing money may not feel great, debt can serve some helpful functions. For starters, your credit score is used by lenders to determine eligibility and risk level when it comes to borrowing money.

Your credit score is based on your history of taking on and paying off debt, and helps to inform a lender about how risky a loan may be to issue. Your credit score can play an important role in determining not only whether a credit card or loan application will be approved but also how much interest you will be charged.

With no credit history at all, it may be harder for a lender to assess a loan application. Meanwhile, a solid track record of paying off good debt on time can help inspire confidence.

While there are no guarantees, good debt can also mean short-term pain for long-term gain. That’s because if paid back responsibly, good debt can be an investment in one’s future financial well-being, with the results ultimately outweighing the cost of borrowing.

Conversely, with bad debt, the costs of borrowing add up and may surpass the value of a loan.

What Is Considered Good Debt?

Mortgages

Like other lending products, mortgages are subject to annual interest on the principal amount owed.

In the United States, the average rate of a 30-year fixed-rate mortgage was averaging 6.95% nationally in January 2025, according to the Federal Reserve Bank of St. Louis. That’s up from January 2024, when the average rate for a 30-year fixed-rate mortgage was 6.69%.

Meanwhile, data from the Federal Housing Finance Agency showed that home prices grew 4.5% from October 2023 to October 2024.

This illustrates how the potential appreciation of a home might outweigh the cost of financing. But it’s best to not assume that taking on a mortgage to buy a house will increase wealth. Things like neighborhood decline, periods of financial uncertainty, and the individual condition of a home could reduce the value of a given property.

Personal loans or home equity loans used to improve the condition of a home may also increase its value, and in such instances may also be considered “good” debt.

Recommended: Should I Sell My House Now or Wait?

Student Loans

Forty-three percent of Americans who attended college incurred some kind of education debt, with the average federal student loan debt in the U.S. coming in around $37,850, according to the office of Federal Student Aid.

Cumulative income gains may eclipse the cost of a student loan over time. But higher education may be linked with greater earnings, and cumulative income gains might eclipse the cost of a student loan over time.

According to the U.S. Bureau of Labor Statistics, the median weekly earnings for a bachelor’s degree holder are $1,541, which is more than $625 greater than the median weekly pay of someone with a high school diploma.

But just as taking out a mortgage is not a sure-fire way to boost net worth, student debt is not always guaranteed to result in greater earnings. The type of degree earned and area of focus, unemployment rates, and other factors will also influence an individual’s earnings.

Recommended: Staying Motivated When Paying Off Debt

What Is Considered Bad Debt?

Credit Card Debt

Credit cards can be useful financial tools if used responsibly. They may even provide cash back or other rewards. And because interest is generally not charged on purchases until the statement becomes due, using a credit card to pay for everyday purchases need not be costly if the balance on the card is paid before the billing cycle ends.

However, credit cards are often subject to high interest rates. According to the Federal Reserve Bank of St. Louis, the average annual interest rate for credit cards is 21.47% — but some charge rates even higher.

Credit card interest adds up, making that takeout dinner or pair of jeans far more costly than the amount shown on its price tag if a balance is carried over. For example, if you were to charge $500 in takeout food to a credit card with a 20% APR but only pay the $10 minimum each month, it would take nine years to pay off the full balance. The total amount paid — including interest — would be $1,084. That’s more than double the cost of those takeout meals!

If you’re paying down credit card debt, consider enlisting the help of a budget app from SoFi. You can use it to get spending breakdowns, credit score monitoring, and more — at no cost.

Car Loans

The dollar value of your car may not be what you think it is. Cars famously start to lose value the second you drive them off the lot. A new vehicle loses 20% or more of its value in the first year of ownership, according to Kelley Blue Book. After five years, a car purchased for $40,000 will be worth $16,000, a decrease in value of 60%.

But a car may also be necessary for getting around. For some individuals, owning a car can also help them earn or boost income, reducing or negating depreciation.

The Takeaway

Both good debt and bad debt can be stressful — and both types of debt can be more costly than they need to be if you don’t keep tabs on what you owe and pay back loans efficiently. A digital tracker could be the remedy.

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

FAQ

What is the difference between good debt and bad debt?

Debt that allows you to build finances over time or increase your earning potential can be considered good debt. On the other hand, if debt doesn’t increase your net worth, has no long-term value to your financial standing, and you don’t have the money to pay for it, then it qualifies as bad debt.

What are some examples of bad debt?

Credit card debt and car loans are two common types of bad debt.

What is an example of good debt?

Taking out a student loan or a mortgage on a house that’s expected to increase in value are two examples of good debt.

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


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

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

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

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If you’re considering buying a fixer-upper, you’re likely doing so, at least in part, because purchasing a home continues to be expensive. Post-pandemic, prices are still climbing, with a 4.7% uptick in November 2024 versus a year earlier. Adding to the high cost of homeownership is the fact that mortgage rates went from historic lows a few years ago to an average of 7.08% for a 30-year loan as of January 2025.

These economic factors are among the reasons why many people are drawn to fixer-uppers. They hope to find a lower-priced house that can be rehabbed, giving them a piece of the American Dream for less. Are you among their ranks? Here, learn more so you can make an informed buying decision.

Defining a Fixer-Upper

What exactly is a fixer-upper? It’s a home that’s in need of significant work. In many cases, these are older houses with much deferred maintenance or simply a lot of dated, well-worn features.

A fixer-upper might be a home from 100 years ago with an insufficient electrical and heating system, as well as a roof in need of replacement. Or it could be an apartment with a very old kitchen and bathrooms needing an overhaul. These residences might be livable, but they require an infusion of cash and work to make them comfortable by today’s standards.

Initial Purchase Price vs. Renovation Costs

If you’re thinking about buying a fixer-upper, it’s important to look carefully at the initial purchase price versus renovation costs. Granted, the price of the home is likely to be cheaper than that of a brand new home. The Federal Reserve Bank of St. Louis, for instance, found that the median price for an existing home was $388,000 vs. $420,800 for a new home in the most recent year reviewed, so buying an older home can already save you cash.

However, pricing renovation costs can be tricky. Among your considerations:

•  You will have to finance both the purchase of the property and the renovations. You may need to get a home loan and then access additional funds for the renovation.

•  Whether you are planning on doing the work yourself or hiring professionals, issues can often be uncovered as you go. Perhaps a bathroom you thought was fine as-is actually has deteriorating plumbing. Or maybe in the kitchen, the parts you need to repair the aging refrigerator are no longer available. These kinds of discoveries can blow your budget.

•  The location of your home will likely impact prices. Those in a small town, for instance, will probably pay less to get the work done than someone who lives in a pricey suburb of, say, San Francisco or New York.

•  You are likely aware that supply-chain issues can impact your renovation. As the saying goes, time is money. These kinds of delays can throw a wrench in your plans and lead you to spend more as you find ways to finish the job.

•  Don’t forget to think about whether you can stay on-premises during the remodeling process or if you will need to find temporary housing as your property is renovated.

As you contemplate these factors, it’s wise to do a full home inspection of a fixer-upper property, walk through with a contractor or two if you are planning on delegating the work, and draw up a budget to see how renovation costs will add to the initial purchase price.

Evaluating Renovation Expenses

Here’s a closer look at three common fixer-upper remodeling projects, with current costs.

Kitchen Remodel Costs

According to Angi, the home improvement site, the average cost of a kitchen remodel in 2025 is almost $27,000, but there’s a huge range of prices possible, including up to twice that amount or more.

The three elements that contribute most to the cost are the countertops, cabinets, and flooring. The more you lean into custom and luxury options, the higher the price will go. Also, the size of the kitchen will count as well, with bigger being more expensive, and the degree of dilapidation can matter, too.

Bathroom Renovation Costs

The average bathroom renovation ranges from $6,000 for smaller-scale fixes, such as primarily cosmetic updates, to $30,000 for a complete gut do-over, with the average price tag coming in at $12,115 in 2025, according to Angi. A big expense can be moving the plumbing lines. If you can keep the layout as-is, you could save up to 50%.

Roof Replacement Costs

A roof should typically last two to three decades on a home — or longer, if you choose the right material. The average cost for replacing a roof is about $9,511, but that will vary with the size of the home and the material you choose.

For instance, if you opt for a premium product, like natural slate, you’ll find that the average costs for a 1,500-square-foot roof can be $45,000 in 2025.

Recommended: How to Buy Homeowners Insurance

Hidden Costs in Fixer Uppers

It’s crucial to add up all the costs of potential renovations before you buy a fixer-upper house. You don’t want the dream of owning your own home to cloud your judgment about the work that’s needed. If you don’t do a deep dive on pricing before you buy, you may end up in your own version of The Money Pit movie.

Consider the following:

•  Assess the upfront cost of the home, and add up all potential material and labor needs — think both big and small, like plumbers, electricians, carpenters, all the way down to any new doorknobs you’ll buy along the way. Then, subtract that from the home’s renovated market value. Would this still be a profitable venture and a wise investment?

•  Keep in mind that the impact of inflation can push prices higher than what you believe they will cost during the time you are renovating.

•  It’s important to allow room in your budget and your timeline for overages. It’s not uncommon for home renovations to cost more and take longer than anticipated. It’s wise to have a cushion in your budget, at least 10% but preferably 20% to 25% to cover additional costs. Add wiggle room in your timing, too.

•  Lastly, as noted above, think about whether you will be able to occupy the home as it’s renovated. If you’ll be without heat or air conditioning, bathrooms, and/or a functional kitchen, you may have to pay to live elsewhere for a period of time.

Recommended: How Do Home Improvement Loans Work?

Financing Your Fixer Upper

These considerations can seem overwhelming, but remember, your goal is to bring out your home’s maximum potential, whether for you to enjoy or to capitalize on via a future sale.

You have a few options for how to finance the renovation of a fixer-upper:

•  You could put less money down and take out a larger mortgage. This would allow you to have some cash on hand to pay for the remodeling.

•  You can buy the house and then take out a home improvement loan, which is a kind of personal loan used to finance your home projects. You get a lump sum and pay it back over time with interest,

•  An alternative to a personal loan would be to purchase the fixer-upper and then apply for a home equity line of credit, or HELOC. These are revolving lines of credit that may offer attractive terms (low interest, long repayment). However, keep in mind you are using your home’s equity as collateral. You typically need 15% to 20% equity in your home to qualify.

•  Another option is a home equity loan vs. a HELOC. The difference is that a home equity loan typically distributes a lump sum of money, which is repaid in installments over a period of time.

Recommended: Home Equity Loan or Personal Loan: Knowing Your Options

DIY vs Professional Renovations

If you are considering buying a fixer-upper, a key decision is whether to do the work yourself or hire professionals to complete the job. Making that decision involves keeping the following in mind:

•  Timing: It’s important to look at the timeline of your project. Would you have the bandwidth to get the work done yourself? Or, thinking about the other option, can you find a qualified professional who is available to start when needed?

•  Skill level: Be honest. Are you confident that you have the skills needed to get the job completed and in a way that you’ll be happy with? Can you tackle retiling a bathroom or adding a home addition? Renovations aren’t for novices, and errors can be costly and possibly dangerous.

•  Budget: As you budget after buying a house, do you have money to hire professionals? If you don’t have deep pockets, you may feel your only option is to DIY the project. But, as noted above, there are ways to access funding to get the job done right, such as different types of home improvement loans, if hiring out winds up being the best decision.

Recommended: How to Apply for a Personal Loan

The Takeaway

As home prices continue to rise, a fixer-upper can offer good value for some home shoppers, whether they want to renovate the home themselves or hire professionals to complete the work. However, it’s important to evaluate your costs upfront to make sure you can handle both the purchase of the property and then financing the updates to make your renovation dreams come true.

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

FAQ

What should I avoid when buying a fixer-upper?

When buying a fixer-upper, don’t be blinded by the property’s potential or guesstimate costs. It’s important to have a full inspection and be aware of such big-ticket expenses as structural damage, outdated plumbing and electrical systems, and any environmental issues (such as mold).

Is it cheaper to build or to buy a fixer-upper?

While a fixer-upper is typically cheaper than a home that’s ready for move-in, it’s hard to generalize whether it’s cheaper to build or buy a fixer-upper. Constructing a simple house in an area where land and labor are affordable could be a wise move, while building in a pricier area on, say, a challenging sloped lot could ratchet up expenses. Similarly, some fixer-uppers require little investment to make them livable, while others require a long and in-depth overhaul. Doing your research and running the numbers can usually provide guidance.

What is the most expensive part of remodeling a house?

Typically, the most expensive part of remodeling a house is renovating the kitchen and bathrooms. These rooms often require pricey appliances and fixtures, custom cabinetry, and the work of plumbers and electricians.

Photo credit: Stocksy/Karina Sharpe

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

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