What is a cashback credit card?

What is a Cashback Credit Card?

Some things in life sound too good to be true, and getting cash back for purchases may seem like one of those deals. But an increasing number of credit cards, called cashback cards, offer clients money back when they charge what they buy.

Many people are familiar with the concept of credit card rewards, when lenders give clients a little something back—points, airline miles—as an incentive for using their card.

In the case of cashback cards, that reward is, well, cash.

How Does a Cash Back Credit Card Program Work?

Cashback credit cards reward clients based on their spending, providing a credit that is a small percentage of the total purchase.

If a cashback card provides 1% back, for instance, the cardholder would generally earn 1 cent on every dollar spent, or $1 for every $100 they charge to their card. If, over the course of the year, a person charges $10,000 in purchases to their cashback credit card, they’d earn $100 in cash back for that time period.

Unlike sale items, when an item is discounted at the time of purchase—meaning, of course, the shopper pays a cheaper price—cashback cards work more like a rebate. The customer buys something at the posted rate and gets money back at a later date.

The average American had a credit card balance of $5,315 in 2020, according to Experian. Assuming that full balance is eligible for cash back, it would earn $53.15 with a credit card providing 1% cash back and $106.30 for one giving 2% cash back.

Do All Cashback Credit Cards Work the Same Way?

Yes and no. While all cashback cards typically use the same model—money back based on a percentage of total purchases—the differences are typically in the details.

Things like the rate of cashback earnings, interest rate, the process for redeeming cash back, and so on vary by card and lender. Some lenders may even offer several cashback credit card products with different rates and benefits.

As such, before signing up for a cashback credit card, it’s smart to spend some time researching and comparing cashback cards to find the one that best suits your needs.

What to Look for in a Cashback Card

There are a number of considerations when choosing a cashback credit card that will determine just how profitable the card will be for a specific person.

Because people have different spending habits and financial preferences, the best type of credit card will ultimately depend on the individual. Here are some things to consider.

Rate of Cash Back

Not all cashback credit cards offer the same rate of return, so it’s best to comparison-shop. Though differences in percentages may sound negligible, getting 2% instead of 1% means double the cash back—and those small amounts can add up over time.

Some credit cards also provide different rates of cash back depending on the spending category or how much money the cardholder charges in a year. For example, some credit cards may provide a higher percentage on expenditures such as gas, travel, or groceries and a different rate for other types of purchases.

Tiered cashback cards may provide a higher (or even lower) rate when annual purchases exceed various thresholds.

Some credit cards also offer higher introductory cashback rates.

How a person chooses to redeem cash back may also determine the final payout. A travel rewards card, for example, may provide a higher rate of return for cardholders who redeem the money they earn on flights, and a lesser amount for those who redeem their rewards on statement credits or other purchases.

It can be difficult to tell at a glance how much the cashback percentage rate may actually net an individual, especially when considering categorized and tiered rewards. But when comparison-shopping for a cashback credit card, it is worth crunching some numbers to get an idea.

One way to estimate how much in cashback rewards a card will actually end up earning is to apply the posted cashback rates to previous credit card statements or to the spending allocations within an individual’s annual budget.

Annual Fees

Though some cashback credit cards have no annual fee, others do. It’s a good idea to factor in any annual fee when estimating the cashback rewards based on your spending habits. Calculating the returns on fee vs. no-fee cards can help to assess whether it’s worth shelling out extra.

If a bank charges $99 for a cashback card earning 2%, the bank fees would essentially cancel out the $100 in cash back earned on the first $5,000 in annual spending.

Someone who charged $7,500 annually would net $51 with the 2% cashback card, and $75 with a no-fee 1% cashback card. But if they charged $20,000 annually, the $99/2% cashback credit card would net $301, while the no-fee card would only earn $200 in cash back.

APR

The nearly half of Americans who carry a balance on their credit cards each month will want to pay close attention to a credit card’s annual percentage rate. This is the amount of interest cardholders will have to pay if they do not pay off their credit card balance in full each month.

The average credit card APR was 14.65% in late 2020, according to the Federal Reserve—a rate that can quickly cancel out any cashback benefits.

Recommended: What is a Good APR?

Redemption Terms

A good question to ask a lender before signing up for a cashback credit card is “Where can I get cash back?” The terms of redemption can vary across credit card products.

In some cases, cardholders may see an annual one-time credit for the full amount earned. Other cards allow cardholders to redeem their cash back at any time.

Tips for Getting the Most Out of a Cashback Card

While signing up for—and using—a cashback credit card is the first step to getting money back on everyday purchases, there are some ways to optimize the returns.

Pay Off Your (Whole) Credit Card Bill on Time

With few exceptions, credit card charges are not subject to interest until after the statement payment due date. But after that payment becomes due, extra interest and fees can quickly add up—erasing any cashback benefits.

Optimize Redemptions

When it comes to redeeming cash back, it’s worth seeking the biggest bang for your buck.

If a card offers different rates of cash back depending on how rewards are redeemed, being strategic when cashing out can result in a greater windfall.

Consider Extra Fees

Though a cashback credit card can make it tempting to charge everything you buy, that’s not always the most cost-effective strategy.

Though it’s generally an exception, some merchants impose surcharges for using a credit card or may provide discounts for paying in cash. In such cases, it’s a good idea to crunch the numbers to ensure the extra fees don’t actually cost more than the cashback reward.

The Takeaway

Free money may be hard to come by—but not if you use a cashback credit card. When choosing a card, It’s best to look at the rate of cash back, any annual fee a card may charge, and the APR if you carry a balance.

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1See Rewards Details at SoFi.com/card/rewards.


*See Pricing, Terms & Conditions at SoFi.com/card/terms

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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How to Make a Monthly Budget

Some good news about budgeting: According to a 2020 Debt.com survey, as many as 80 percent of Americans are now doing some form of budgeting. The top reasons for using a budget, according to the survey, include increasing wealth and savings and managing debt.

While not everyone loves the idea of budgeting, taking a moment to assess and prioritize your spending can yield some real rewards. Even a basic monthly budget can help you reach your financial goals, whether it’s to have a financial cushion, put a downpayment on a new home, go on your dream vacation, or all of the above.

The most common reason cited for not budgeting in Debt.com’s survey was making too little money. But the truth is that you don’t have to make a lot to benefit from having a budget. Indeed, budgeting can be particularly helpful when money is tight.

Whether you’re brand new to budgeting or looking to improve your budgeting skills, read on. Below are some simple steps that can help you keep better tabs on your cash flow and improve your financial life.

Gathering All of Your Financial Information

While estimating your income and monthly costs can work in a pinch, to make your budget as complete (and accurate) as possible, you’ll want to start by gathering up at least three months worth of financial documents and receipts.

Here are some documents that may be helpful:

•   Pay stubs
•   Bank statements
•   Credit card statements
•   Rent/Mortgage bill
•   HOA
•   Electricity bill
•   Water bill
•   Internet bill
•   Cable bill
•   Childcare/School Tuition statements
•   Monthly public transportation passes
•   Recurring healthcare costs like deductibles or prescriptions
•   Student loan statements
•   Insurance statements

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Figuring Out Your Monthly Take-Home Income

Although you may be able to rattle off your annual income without thinking, when creating a budget you’ll want to look more closely at your pay stub to determine your take-home pay. That’s how much is left after all of the deductions (such as federal, state, and local taxes, retirement savings, and insurance) are taken out.

If you’re self-employed, you’ll need to subtract your self-employment income tax before calculating your net monthly income.

Determining your take-home pay is important because if you use your annual income to make your budget, you might end up thinking that you have more money available to you every month than actually shows up in your checking account.

If you’re budgeting with another person, you’ll also want to tally up that person’s take-home pay as well. It’s a good idea to also include any additional household income, such as that from investments or social security.
All together, these will give you a good idea of how much actual cash you have to budget with each month.

Tallying Up Monthly Expenses

Once you’ve nailed down how much money you’re bringing in each month, it’s time to look at how much money you’re sending out into the world each month. This is where all the paperwork you gathered can really come in handy.

A simple way to start is to write down how much you’re paying for all your fixed (or recurring) monthly bills, such as rent/mortgage, car payments, insurance, health care expenses, utilities, subscriptions.

Once you’ve got your regular bills accounted for, you can look at variable expenses, such as groceries, entertainment, and other discretionary expenses. With variable expenses, it’s helpful to look back at your bank statement, as well as receipts from the previous few weeks or months, and calculate an average.

If you tend not to save receipts, it can be useful to actually track your spending (by carrying a notebook, using a app, or collecting receipts and recording them later) for a week or more in order to better assess your daily spending.

Below are some sample budget categories and expenses that you may want to include:

Housing
•   Rent
•   Utilities
•   HOA
•   Maintenance costs
•   Home/renter’s insurance

Transportation
•   Gas
•   Tolls
•   Maintenance costs
•   Car Loan
•   Public transportation tickets or passes
•   Taxis or ride shares
•   Parking pass
•   Insurance payments

Children
•   Childcare expenses
•   After-school care costs
•   Tuition
•   Tutoring
•   Babysitting

Education
•   Tuition
•   Books
•   Student loans
•   Student fees

Food
•   Groceries
•   Take-out
•   Eating out

Financial
•   Bank fees
•   Service fees
•   Credit card payments
•   Life insurance
•   Disability insurance
•   Retirement fund
•   Investments
•   Emergency fund

Healthcare
•   Doctor appointment co-pays
•   Prescription costs
•   Over-the-counter medication costs

Entertainment
•   Movie tickets
•   Special events
•   Concerts
•   Streaming media services
•   Books
•   Nonbusiness travel

Pets
•   Pet insurance
•   Food and treats
•   Flea and tick preventative
•   Medications
•   Vet bills

Shopping/Personal Care
•   Clothing
•   Shoes
•   Accessories
•   Toiletries/Cosmetics
•   Haircuts/styling
•   Shaves/Manicures
•   Gym membership

When it comes to expenses that only occur in certain months, such as tuition for summer camp, you can divide the total by 12 in order to figure out how much you should be saving each month to cover these seasonal costs.

Once you have a list of all your monthly expenses, you may be alerted to trends you might not have noticed before (like $75 a month on morning coffees).

You’ll also be able to add it all up to see what your overall average monthly spending is. Ideally, this number is less than the amount of take-home pay you calculated above.

Planning and Creating a Budget

Now that you’ve got a grip on how much money you have coming in, and how much is going out, it’s time to actually create a plan for how you want to spend your money–in other words a budget–rather than spending haphazardly.

You can create a budget using pen and paper or a spreadsheet on your computer. There are also a number of budgeting apps, such as SoFi Relay, that can simplify the process.

There are several different ways to approach spending targets and savings goals in your budget.

One commonly recommended guideline it the 50/20/30 budget, which breaks up your spending and saving like this:

•  50 percent on “needs” or essential expenses (such as housing, utilities, auto payments, insurance, repairs, healthcare, childcare, minimum payments on debts, and education).
•  30 percent on “wants” or discretionary expenses (e.g., shopping, entertainment, personal care, travel).
•  20 percent towards savings (such as an emergency fund, paying more than the minimum on debts, retirement, and other savings).

These percentages are guidelines, however, and you may decide to re-jigger them based on your financial situation, current expenses, and goals.

If the cost of housing is high in your area, for example, you may need to allot more to the “needs” bucket. Or, if you have a big expense or a trip you want to take in six months, you may want to bump up savings, at least temporarily.

If you find that your spending is currently higher than your income, or doesn’t allow for monthly savings or debt reduction, you may need to find places where you can cut back.

It’s often simplest to do this in the “wants” category. For example, you might decide you can cook more and eat out less often, ditch that pricy cable bill, use the library instead of buying digital and audio books, or cut back on clothing purchases.

Once you’ve set up your spending and saving targets, you’ll want to track your progress, either by manually tracking your spending or using an app. Along the way, you may find that you have to adjust your spending to stay better aligned with your budget, or you might find that you need to adjust your budget to make it work better for you.

The Takeaway

A budget can help you achieve your financial goals, whether it’s knocking down debt, saving up for something fun, or funding your retirement.

While the process may sound intimidating, budgeting is really just a matter of figuring out what your current income and expenses are, seeing how they line up (or don’t), and then deciding how you may want to shift your spending in order to reach your goals.

It can also be helpful to remember that even if you have a budget, it will only be useful if you periodically track and update it to reflect any changes in your income, expenses, or financial goals.

If you need help tracking your spending, a checking and savings account with SoFi might be a great choice for you. With SoFi Checking and Savings, you can easily see your weekly spending (and make sure you’re on track with your budget) in your dashboard in the app.

Ready to take your budget to the next level? Find out more about how SoFi Checking and Savings can help you track your spending and budget effectively.


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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.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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 Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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How to evaluate your personal finances

How to Evaluate Your Personal Finances

We all want to improve our money-management habits, but sometimes the path on how to achieve this goal is a little unclear.

If someone is looking to take their financial health to the next level, they can follow these seven steps to gain control of their spending and money.

Tips for Evaluating Your Personal Finances

1. Determine Your Net Worth

A net worth gives an overarching view of someone’s personal finances. Sitting down and taking time to calculate their net worth each year can help consumers adjust their financial plans as needed. A net worth takes into account everything someone owns and everything that they owe.

To calculate a net worth, take out a pen and paper (or computer document) and make a list with two sides. On one side, they will list the assets that they own. On the other side, they will list liabilities or debts, which is what they owe. Then they’ll subtract their liabilities from their assets.

Assets can include money in savings, checking, investing, or retirement accounts; real estate like one’s home; cars; as well as stakes in businesses; or valuable personal goods like jewelry or art. Liabilities can include student loans, automobile debt, mortgages, or credit card balances.

If someone finds that their assets are greater than their liabilities, that means they have a “positive” net worth. On the flip side, if they owe more than they own, they have a “negative” net worth. If the net worth is negative, they shouldn’t feel bad. They just need to adjust their financial plans in a way that will help them work towards paying off debt and then working to build up more assets.

2. Plan a Budget

One way consumers can improve their financial health is by following a budget that takes their financial goals into account. A budget is a plan that someone can follow that will help determine how much money they spend each month.

Budgeting properly can lead to saving money each month to invest or put towards a large financial goal, like a down payment. A budget should illustrate how much someone makes and how they spend their money.

Budgets come in handy if someone needs help guiding how they spend their money. While some expenses are fixed — like rent — others can be tempting to overspend on — like entertainment, eating out or daily lattes — without a budget in place.

To create a budget, start by gathering all bills and pay stubs. Alternatively, there are now many mobile apps, such as SoFi Relay(R), which can keep track of your spending and income. Such apps can analyze your financial trends for you and will be easily accessible in your pocket always, but make sure to research the mobile app’s safety and security features since they’ll be holding your personal information.

Subtract any expenses from income to discover how much room if left in a budget. From there, it gets easier to determine what consistent expenses to cut and how much to spend on variable expenses (like clothing or travel). Don’t forget to budget for less visible expenses like saving for retirement, an emergency fund or paying down debt.

Recommended: Are you financially healthy? Take this 2 minute quiz.💊

3. Evaluate Housing Costs

After creating a budget, housing costs are likely top of mind since they tend to be one of our largest monthly expenses. Taking a hard look at how much your rent or mortgage payments are taking a bite out of your monthly budget can be helpful.

A general rule of thumb in personal finance is that you shouldn’t spend more than 30% of income on housing costs. This allows individuals to be able to afford other discretionary costs.

If someone is spending more than that on housing, they may want to consider finding a more affordable option so they can make room in their budget to pay down student loan debt or to work towards other financial goals.

4. Determine Your Debt to Income Ratio

Speaking of debt, determining a debt to income ratio can give consumers a better idea of their financial health. A debt-to-income ratio takes monthly debt payments and divides them by gross monthly income.

Lenders often use a debt-to-income ratio to determine if a borrower will be able to make their monthly payments. If someone is planning on buying a home or taking out an auto loan, they’ll want to keep their debt-to-income ratio on the lower side. Working debt payments into a budget is a good way to stay on track towards lowering this ratio.

5. Refine Your Investment Strategy

Investing can be intimidating, which is why it’s important to gain a clear understanding of how it can help you work towards financial goals in a comfortable way. Investing inherently carries some risky because there’s a chance of losing some money rather than simply saving money in an FDIC-insured savings account.

However, those who stash cash away in savings accounts should remember that the value of their money is actually depreciating due to inflation, the tendency for the price of goods to rise over time.

Investments like securities and mutual funds aren’t federally insured and losing the principal amount invested is possible. It’s also possible to profit off investments, and diversifying investments can help mitigate risk. By spreading investments across multiple assets, if one investment loses money it can sting a bit less because a more successful investment may very well make up for that loss.

Recommended: Why Portfolio Diversification Matters

Diversification can’t guarantee success and if the market drops as a whole, all of a consumer’s investments can suffer as a result, but it can improve the chances of not losing a lot of money or all of it at once.

6. Determine Your Risk Tolerance

To determine which saving and investment products are a good fit, consumers need to understand what their risk tolerance is. For example, if someone is young and has 35 years of working left before they retire, they may feel more comfortable making a riskier investment, such as stocks, that can lead to bigger gains down the road.

Those who are 60 may feel differently and may want to go for a safer bet, such as in the bond market. Generally, if someone is pursuing a short term goal, it’s better not to choose a risky investment as the chances of profiting during a short period of time are not gauranteed.

Consumers can familiarize themselves with their investment options to help determine which they’ll be most comfortable with. There are plenty of investment products to choose from like:

•  Stocks
•  Mutual funds
•  Corporate and municipal bonds
•  Annuities
•  Exchange-traded funds (ETFs)
•  Money market funds
•  U.S. Treasury securities

Before making any type of investment, it’s also important to understand what kinds of fees are associated with holding the investment or buying or selling as part of the investment strategy (like when investing in the stock market).

Having a solid investing strategy can make it easier to save for retirement or college and to make hard earned money grow.

7. Set Financial Goals

Once someone has evaluated their personal finances, they’ll have the insight they need to set clear financial goals.

After considering what they want their money to help them achieve (pay for a wedding, vanquish credit card debt, retire early, etc.), they can create a financial plan for reaching those goals by listing their goals by which are most important to them.

They can then put together a timeline, like a monthly savings plan, that will help them meet those goals.

The Takeaway

From mortgages, tuition bills, utility costs to taxes, modern life throws at individuals all sorts of financial obligations that they need to juggle. This has made evaluating one’s personal finances to often be a tricky task.

Individuals can, however, wrestle control over their financial future by tracking spending habits, changing them if necessary, and making thoughtful, realistic budgets.

If overspending is getting in the way of reaching important financial goals, SoFi Relay can help make staying on track easier. Users can work one-on-one with a financial planner to set goals for their money and track their financial habits to make sure they’re on their way to achieving those goals. It also offers free credit monitoring in a way that won’t impact your credit score.

Sign up for SoFi Relay today.


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.

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1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Advisory services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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Getting a Personal Loan with a Co-Applicant

Applying for a personal loan can be a little scary. After all, lenders don’t hand out cash willy-nilly, even when they’re being paid interest.

When applying for a personal loan, you will normally need to show that you have a good credit score and a high enough income to ensure that you’ll be able to handle your monthly payments (among other requirements). It’s good to note that loan qualifying criteria around minimum credit score required and sufficient income may vary between lenders and even loan programs. It is recommended that you do your research to discover which loan program offers the best fit for you.

Luckily, if your credit score isn’t quite perfect or you’re still waiting on that raise, you may be able to leverage a co-borrower to help get the personal loan you want with the repayment terms you need.

Even if you haven’t heard of a loan co-borrower before, you may have already used one. If you, for example, had your Aunt Mavis sign on as a co-borrower with you for a private student loan or as a guarantor for your first post-college apartment, you have seen the power of the co-borrower to help get your loan or lease approved.

Co-borrowers can help you secure a personal loan when your credit or income doesn’t quite match a lender’s requirements. Having a co-borrower might even help you get a more favorable interest rate on your personal loan. Here’s what to know about using a co-borrower to help secure a personal loan.

What Is a Personal Loan, Anyway?

Before we dive into tips on using a co-borrower, let’s take a step back: What is a personal loan and why might you want one?

A personal loan is an installment loan that is typically an unsecured loan. With an unsecured personal loan, you borrow from a lender with the agreement to pay it back, plus interest, in a set amount of time.

Unlike mortgages and auto loans, personal loans aren’t necessarily tied to a physical asset you put down as collateral, which is what “unsecured” means. However, personal loans can be offered as secured loans, so check the details when rate shopping.

Unsecured personal loans tend to carry slightly higher interest rates than secured loans. After all, the lender doesn’t have a secured asset to seize if you default!

Even though unsecured personal loans typically carry higher interest rates than other, secured loans or credit cards, they can be a useful financial tool to help you consolidate existing debts, fund major personal projects, and more.

And when you apply with a co-applicant (who, if you’re approved, would become your co-borrower), you may significantly increase your chances of qualifying, as well as achieving a lower interest rate or more generous loan repayment period.

What Is a Co-Applicant?

A co-applicant is an additional person who applies for a loan with you in order to help you qualify. Similar terms are “co-borrower” or “co-signer” (we’ll get into the differences below) and by having one, you may be able to secure better interest rates and repayment terms.

Whether a co-borrower or co-signer, the additional person’s credit score and financial history is considered along with yours when applying for a loan. That can be a big help if your own credit history is less than perfect, or if you’re young and haven’t had very much time to build up a robust credit score quite yet.

Differences Between a Co-signer and a Co-borrower?

Both co-signers and co-borrowers are considered co-applicants at first, but they serve different purposes. Whether you need a co-signer or co-borrower usually depends on your individual circumstances. Each type of co-applicant has specific requirements and potential benefits.

A co-borrower essentially takes on the loan with you. Their name will be on the loan with yours, making them equally responsible for paying back the loan. Co-borrowers are frequently used in situations where the loan received has benefits for both of you, whether through a business arrangement or a family arrangement.

An example: You and your partner want to take out a personal loan in order to renovate the garage into a nursery for a baby on the way. You may want to apply as co-borrowers for a loan to pay for the contractor. Because both partners’ incomes and credit scores are considered in approving the loan, this may increase your chances of approval and possibly even lower the interest rates you’re offered.

A co-signer, on the other hand, is someone who helps you qualify for a loan, but isn’t your partner on the loan, as in the case of a co-borrower. A co-signer typically is only responsible for making the loan payments if you are unable to make them, but has no usage or ownership rights. However, credit for both co-borrowers and co-signers will be negatively impacted if the main borrower misses payments.

For example, private student loans are often taken out with parents or other family members as co-signers, since most recent high school graduates haven’t built up a significant credit history.

Adding in mom’s or dad’s credit history may help these students qualify for the student loans they need to get started on their college journey, but it does mean putting their parents’ credit reputation on the line if they default.

Considerations when Applying for a Personal Loan With a Co-applicant

The biggest challenge you might face in securing a co-applicant for a personal loan is finding someone willing to sign on the dotted line. After all, if you find yourself unable to repay the lender, your co-borrower will be on the hook for payment.

That’s why many people who are looking for a co-applicant start with parents, siblings, and other family members who they feel comfortable asking. Blood runs thicker than water, after all, and your close family have likely been supporting you in one way or another since birth.

It is recommended that you have a heartfelt, upfront conversation about the responsibilities that come with being a co-borrower and be ready to present your potential ally with your plan for repayment. For instance, a co-borrower is likely to see a negative impact on their credit score if they fail to make a payment. Since a co-applicant becomes a co-borrower once a loan is funded, you’re in this together, so if paying back the loan does not go according to plan, you both would be equally affected.

If you’re looking for a co-applicant, you might already know exactly who you’ll ask. If it is a loan to benefit your family, such as making home improvements, it likely makes sense for your partner or spouse to serve in the position.

As with a co-signer, make sure to talk openly and clearly about the responsibilities that come with being a co-borrower, including the responsibility for making payments.

After you’ve found your co-applicant, make sure to research which personal loans accept co-applicants. Some lenders accept co-borrowers but not co-signers, and some lenders accept both. SoFi does not accept co-signers for personal loans, but will accept co-borrowers.

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When Does It Make Sense to Take Out a Personal Loan?

Given the risks that both you and your co-applicant assume in taking out a personal loan, you may wonder if this move is ever financially savvy.

After all, the conventional wisdom is to avoid debt at all costs, and unsecured personal loans tend to carry higher interest rates than loans for which you put down collateral, like a mortgage.

However, personal loans can be a sound financial tactic, for example, for the purpose of debt consolidation. That’s when you pay off multiple existing debts with one larger loan, which can simplify bill repayment and save on interest.

For instance, if you’re making payments on two or three credit cards with different interest rates and different due dates, it might be difficult to keep track of everything—let alone get ahead.

However, taking out one personal loan large enough to pay those debts off, generally means only one monthly payment and one interest rate, which could possibly save you money in the long run as well as making your life a little easier. Personal loans can also help you fund home improvements or even cover unexpected medical bills.

If you qualify to borrow money through a personal loan with SoFi, there are no prepayment penalties or origination fees. And as a SoFi member, you’ll have access to member benefits like career counseling and community events.

Plus, we make it easy to find out if you (and your co-applicant) prequalify online. You’ll fill out a bit of personal information and SoFi will run a soft credit check (which doesn’t impact your credit score1). It takes just minutes to see what you may qualify to borrow and what your interest rate could be.

Ready to apply for a personal loan with a co-applicant? Learn more about the potential benefits of a personal loan with SoFi.


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.

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

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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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Using a Loan to Pay Off Credit Cards: FAQ

Imagine this: Your friends text you, let’s go skiing! And you want to say yes. Who wouldn’t want to glide down a mountain and enjoy an apres ski in a cozy lodge? And no worries, you say, I’ll just put it on the card! Or this: Your best friend plans a destination wedding to France.

Of course you’re going to RSVP yes—you couldn’t miss out on witnessing such a momentous day. And hey, when you use your credit card you’ll earn a few rewards.

Or even this: Your little sister needs a dress for prom, and asks if you’ll cover the cost. It’s a once-in-a-lifetime experience, you think as you hand over your card.

It’s easy to say yes in the moment, offer up your credit card, and think about the cost later. But the shock and stress of looking at your credit card statement after a month of spending can be overwhelming. And when your spending goes unchecked or your balance doesn’t diminish, credit card debt can rack up quickly.

When used responsibly, credit cards can provide the opportunity to do things like build credit and earn rewards points or cash back that can be used for other purchases. When used with abandon, however, careless spending on credit cards can lead to debt—which may feel insurmountable.

It’s no secret that credit card debt is a problem that plagues many Americans. According to the Federal Reserve, consumer debt in 2019 exceeded $4 trillion , over $1 trillion of which is credit card debt.

Nearly 55% of Americans who have a credit card are in credit card debt. The average credit card balance during the first quarter of 2019 was $6,028 , according to Experian. That balance can grow quickly, considering that annual percentage rates (APRs) for credit cards can be quite high (the average APR has hovered around 17% for some time).

Common Ways to Deal with Credit Card Debt

If you’re currently dealing with or have dealt with credit card debt in the past, you know how hard it can be to dig yourself out of the hole. While it can feel like an impossible problem to solve, there are strategies and resources available which may put you on a path toward eliminating your credit card debt once and for all.

When taking action on your credit card debt, it is generally recommended to put a plan in place. There are plenty of strategies that are touted for their ability to help you crush debt. Creating a debt reduction plan might provide the structure you need to meet your goal of debt repayment.

For some, the avalanche method, which organizes debts based on interest rate so the debt with the highest interest rate is targeted first, may make the most sense. For others, the built in reward of the snowball method, which targets debts with the smallest amount first may be preferred.

Regardless of the method you choose, it’s considered best practice when using these programs to try and stick with the debt repayment plan you’ve developed unless you see a compelling reason to switch. It can also be an opportunity to check in with your spending to determine what habits have gotten you into debt. You may find you’ll need to make a few changes to your spending habits to truly eliminate credit card debt from your life.

Beyond aggressively making payments on your debt, there may be other strategies worth considering. For some, it may be helpful to find a way to consolidate your credit card debt into better repayment terms.

One option for this is to use a balance transfer credit card. In concept, these are pretty straightforward. Basically, you open a new no- or low-interest credit card and transfer the balance of your existing credit card to it. You’re then able to pay off your debt with a lower interest rate as long as the balance is repaid within the given timeframe.

This, in theory, could put you on the path to pay off your credit cards in a more timely manner because you may not face high interest payments. But the low interest rate on balance transfer credit cards is usually only offered for an introductory period, commonly anywhere between six and 18 months. After that period expires, the rates usually increase.

If you can pay off the balance transfer card before the low initial rate expires, it could be an avenue worth pursuing. However, balance transfers often come with a fee—usually 3% to 5% of the total amount you’re transferring.

If it’s a large debt, you may end up paying a hefty fee, which may make this option a less attractive method. Another option is borrowing a personal loan for credit card debt consolidation. While it may seem counterintuitive to take out a new debt to help get out of an old debt, it could be worth considering.

FAQs: Paying Off Credit Card Debt with an installment Loan

For some, paying off credit card debt with a personal loan (which is an installment loan) might be a helpful strategy for getting out of credit card debt. Here are some commonly asked questions about debt consolidation loans:

Why use a personal loan to pay off credit cards?

If you have a lot of high-interest credit cards, you can rack up debt much more quickly if you don’t pay off the entire monthly balance, which ultimately might hold you back from building a solid financial future.

Carrying a balance from month to month means you’re not only paying for the upfront cost of your purchases, you may also be paying a hefty fee in interest. On average, households with a revolving balance of credit card debt paid $1,141 in interest.

If you’re in this situation, using an unsecured personal loan to pay off credit card debt can be an avenue worth exploring.

Ways to use a loan to pay off credit card debt

Instead of owing money on multiple credit cards, some people take the total amount owed among all their cards, consolidate that debt into a single loan amount to pay off the credit cards. That is what’s known as an installment loan known as a personal loan.

By doing this, you would then start making payments toward one single personal loan instead of payments to multiple cards. The hope would be that the interest rate on the personal loans would be lower than any combined interest rates on any credit cards you might have.

Is using a personal loan to pay off credit cards the right option for you?

Whether consolidating your credit card debt through a personal loan is right for you is based on different factors.

For instance, what are the balances and terms on your current credit card debt vs the terms you could obtain on a new debt consolidation loan? Try utilizing a debt calculator to help you gather some estimated numbers. If you qualify for a lower interest rate, paying off credit debt with a personal loan has a number of potential advantages. For one thing, consolidating or refinancing debt can help simplify your payment plan, turning multiple bills into one.

Taking out a personal loan to pay off debt can be one way to take advantage of better financing terms such as lower interest rates, which could help save you money in the long run.

Benefits of Taking Out a Personal Loan to Pay Off Credit Cards

Debt consolidation loans can be particularly useful for consolidating debt on multiple credit cards that may have less than favorable terms, and it’s easy to see why. Debt consolidation loans can potentially help you streamline your finances. Making a lower fixed payment on a single loan every month may also help reduce the chances of missing payments.

It is worth noting that some credit card interest rates can vary based on factors such as the type of transaction, purchase, or cash advance, whether the rate is fixed or variable, qualifying criteria, and more.

According to Bankrate.com the average interest rate on a variable credit card is running around 17% and sometimes reaching as high as 29.9% APR if you miss payments. One tool to help you understand how much interest you might be paying is our Credit Card Interest Calculator.

Personal loans, on the other hand, can typically be found at a lower interest rate. A lower interest rate could potentially reduce the amount of interest the borrower is required to repay over the life of the loan.

Depending on your circumstances, a percentage point or two off could make enough of an impact on your interest payments to place you on the path to paying off your credit cards in a more timely manner.

When you take out a personal loan it can be used for almost anything that’s a personal expense, such as general consumer/household purpose, home renovations, and debt consolidation; theoretically, you could use a personal loan to pay for anything from a wedding to an elephant (although good luck finding a low APR on that one).

Potential Considerations Before Taking Out a Loan to Consolidate Credit Card Debt

When considering a personal loan, one way to start could be by making a chart of your debts and their respective interest rates, and calculate how long it could take you to become debt-free.

Also, consider whether you have explored all options in determining how best to position your outstanding debt into better financing terms.

Once you’ve done the initial legwork, a good next step is to compare that credit card repayment plan with a personal loan, and see which is better for your budget.

Check the math and review the loan terms and interest rate to confirm you’d actually end up with a preferable repayment plan. For instance, a lower monthly payment might seem great, but if it ultimately extends the length of your repayment, depending on the rate and term, you might end up paying more in interest than you realize.

Consider your current and future financing terms: whether it’s simply peace of mind in the form of one monthly bill, or saving the maximum amount of money, what works best for one person may not be great for you. If you’re still in doubt about how to best get ahead of your debt, consider asking for help from a professional.

Those professionals could offer some valuable insight to help you create a personalized plan that can help you find the best path toward your financial goals, like living in a debt-free future.

Taking an intentional step toward tackling your debt can be challenging, but with a little creativity and discipline, you can work on managing your debt without letting it slow your financial plans for the future.

With SoFi, you may qualify to consolidate your high interest debt into one single unsecured personal loan, with loan amounts up to $100,000 and fixed interest rates with no origination fees or prepayment penalties.

Ready to consolidate credit card debt? Find out if you prequalify for a SoFi personal loan, and at what rates, in just a few minutes.
 


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 .

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

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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