Jun
18
2025
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How Much Money Should Be in Your Emergency Fund?

By | Budgeting & Goals, Growing Wealth, money | No Comments

You have probably heard about the importance of having an emergency fund, typically one that holds at least three to six months’ worth of living expenses in a secure but easily accessible way. However, that figure may vary depending on such factors as your age, your cost of living, how many dependents you have, and your health status. And the best place to keep your fund may differ, too, depending on your personal preferences and financial style.

While the amount of money you keep in an emergency fund may not match what, say, a sibling or best friend socks away, there is no denying the value and importance of having this kind of account. An emergency fund can be one of the best ways to ensure that you don’t rely on high-interest credit cards if you’re low on cash and the unexpected happens.

To help you figure out how much you should keep in an emergency fund, read on.

Most experts recommend that you have at least three to six months’ worth of basic living expenses in the bank.

This amount can seem daunting, but remember, you aren’t expected to have it set aside in one lump sum. You will save up to reach this goal. And if you can’t accumulate that amount, know that something (anything) is better than nothing. Don’t feel defeated and not save at all. If you can put away $1,000 over the course of a year, do it.

One clarification: You may hear the terms emergency fund vs. a cash cushion used interchangeably, but they are actually not identical. The words “cash cushion” are often used to describe a smaller sum kept in your checking account as a hedge against overdrafting.

💡 Try this: Use SoFi’s emergency fund calculator to estimate how much you should aim to save.

3 Ways to Calculate Your Emergency Fund

Once you’re convinced of the value of an emergency fund, it’s time to drill down into how much to save. Here are a few methods to help you calculate your target amount:

  • Three to Six Months of Living Expenses: Conventional wisdom says you should have between three and six months’ worth of living expenses set aside for an emergency. To calculate your expenses, you might create a line-item budget to see how much money you have coming in and going out. List your take-home pay and all your necessary monthly expenses, such as:
    • Rent or mortgage
    • Insurance (health, car, home, etc.)
    • Healthcare costs
    • Utilities (electricity, water, gas)
    • Phone
    • Car payments and transportation
    • Student loan payments
    • Credit card debt payments
  • After you track your expenses, deduct that amount from your take-home pay and then see what is left. This is where you’ll need to figure out how much you can realistically set aside each week or pay period for your emergency fund. Aim to accrue your goal amount in a year, if possible.
  • Cover Your Insurance Deductibles: Another method for saving is to look at your insurance deductibles for your medical, dental, household, and car policies. Although it’s no fun, imagine having some kind of accident and needing to pay a couple or even all of those deductibles at once. Make sure you have enough in the bank to cover that amount.
  • Analyze Potential Unemployment Benefits: You might also see what unemployment would pay you per month if you were to lose your job. See how that compares to your living expenses, calculate the shortfall monthly, and work toward saving, say, six times that amount.

Example of Calculating an Emergency Fund Amount

So what does that look like in dollars and cents?

If you typically spend $4,000 a month on housing, food, utilities, and debt payments, between $12,000 and $24,000 would be enough for an emergency fund.

However, if your monthly living expenses are $10,000, then $30,000 to $60,000 would be enough for an emergency fund in your situation. Some experts would say even more could be ideal.

Factors That Determine How Much to Save for Your Emergency Fund

factors to consider when determining how much to save for emergencies

When considering, “How much emergency funds do I need?” you have already learned that three to six months’ worth of living expenses is a good baseline. That said, there are certain situations that may require a bit more saving, perhaps six months’ or a year’s worth. Some factors to consider:

  • Health: If you or a member of your immediate family has a medical condition, you probably will want to stash a bit more in your emergency fund. You might have additional doctors’ or lab expenses or prescription costs. Or you could be in a situation where your insurance company isn’t paying quickly or at all. Your emergency fund could help you pay the bills.
  • Amount of Debt: If you have a fair amount of debt, it can be a good thing to have extra cash in your emergency fund. Let’s say you have student loan debt, car payments, a mortgage, and credit card debt, as many Americans do. An unexpected expense or loss of work could mean you can’t make all those payments, triggering late and overdraft fees. An emergency fund is protection against that scenario.
  • Cost of Living: It’s no secret that inflation has been extremely high lately. An emergency fund can help make ends meet if a big bill hits when your budget is stretched thin.
  • Also, if you live in an area with a high cost of living, you may be more vulnerable and need extra emergency funds. For instance, a huge rent increase could make it hard to afford your monthly bills until you recalibrate. An emergency fund could help if a major rent hike comes your way.
  • Job Security: There are no guarantees in life or work, and downsizing is a frequent occurrence these days. An emergency fund can provide backup in a worst-case scenario. Also, if you are a freelance or seasonal worker, your income could be unpredictable vs. those with full-time jobs, so you might want to stow more money in your emergency fund.
  • Children or Dependents: Do you have children or dependents? Then you are probably more vulnerable to having emergency expenses. A kid might have, say, more dental bills than expected. An older relative who relies on you might need you to take time off work unpaid to care for them, or they might have significant healthcare expenses.
  • Having Financial Support: If you don’t have close friends or relatives who might lend you money in an emergency, then it’s even more important to plump up your emergency fund.
  • Your Age: Usually, saving goals vary by age, and so should the amount of cash in your emergency fund. If you’re retired or reaching retirement age, you may want to keep more in your emergency fund, since your medical expenses will likely rise over time and your income might well decrease.

Where Should You Keep an Emergency Fund?

A smart place to put an emergency fund is in a separate bank account, one where you won’t need regular access. A separate account can prevent you from spending it and you know exactly how much there is should you have to draw from it.

You likely want to open an account where you can maximize the amount you earn, but not risk losing your initial deposit. A high-yield savings account — ideally one with no monthly fees — can be a great choice.

The Takeaway

Having an emergency fund is an important element of your financial fitness. It’s a cushion of money socked away, to use if you have unexpected, urgent bills or face a loss of income. The amount you should save will vary depending on a variety of personal factors, but typically three to six months’ worth of living expenses is a good figure to aim for. Whatever the amount you want to have in your emergency fund, it’s important to start saving, little by little, so you can enjoy the peace of mind that this account can bring.

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

How often should I review and update my emergency fund?

It’s wise to review your plan at least once a year. Also take a look when you have a significant change in status, such as getting married, having a child, changing jobs or getting a raise, buying a home, and so forth. You want to be sure the amount in the fund is keeping up with your potential needs.

How do I balance saving for an emergency fund with other financial goals?

It can be wise to put 20% of your take-home pay toward savings, according to the popular 50/30/20 budget rule. Of that 20%, you should definitely put some cash into your emergency fund, since that is a short-term, high-priority goal. Even if you only save $20 or $25 a month toward your emergency fund, saving consistently is a solid financial move.

Can you have too much in an emergency fund?

It’s wise to have at least three to six months’ worth of basic living expenses in an emergency fund. Depending on your specific situation, you might even want twice that. However, since emergency funds are usually held in savings accounts, which don’t earn all that much interest, you might look elsewhere if you have more than that sum to invest and grow.

More from the emergency fund series:

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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.

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Jun
18
2025
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Typical Personal Loan Requirements Needed for Approval

By | Budgeting & Goals, personal_loan | No Comments

Personal loans can be used for almost any purpose. In fact, they are one of the most flexible ways to borrow money, without the high interest rates that credit cards charge. So, what’s stopping people from borrowing money for a yacht and cruising away to the Mediterranean, never to return? Simple: They need to meet the lender’s personal loan requirements.

Personal loan qualifications vary by lender — there is no universal list. However, there are certain red and green flags that lenders commonly look for in a borrower’s credit history. They are compiled here to help you prepare before you apply.

Key Points

•   Personal loans can be used for various purposes and offer flexibility without high interest rates.

•   Lenders may consider credit score, collateral, proof of income and employment, debt-to-income ratio, and origination fees when approving personal loans.

•   A higher credit score can increase the likelihood of loan approval and favorable interest rates.

•   Collateral may be required for secured loans, while unsecured loans don’t need collateral but can have higher interest rates.

•   Proof of income and employment is necessary to ensure the borrower’s ability to repay the loan.

1. Credit Score

One of the key metrics lenders look at when evaluating an applicant for any loan is credit score. There’s no universal minimum credit score for personal loans. However, in general, the higher the credit score, the more likely lenders are to approve a loan and give the borrower a more favorable interest rate. The lower your interest rate, the less money you’ll pay over time. Many lenders consider a score of 670 or above to indicate solid creditworthiness.

If your credit score is lower, you might still qualify for a personal loans for bad credit, but the terms may not be as favorable. Some lenders specialize in working with borrowers with lower credit scores, although you might face higher interest rates or stricter repayment terms.

If you apply for prequalification, many lenders will run a soft credit check (which doesn’t affect your credit score) in order to see if you’re a good candidate for a personal loan. As the process moves forward, and an applicant actually applies for a personal loan, lenders will usually do a hard credit check (that is, a deep dive into your credit history). A hard credit check may knock several points off your credit score and can continue to impact your score for a few months.

Most lenders review your credit history as well as your credit score, plus other financial factors like your income, to create a holistic view of your financial situation.

💡 Quick Tip: SoFi lets you view your rate for a personal loan online in 60 seconds, without affecting your credit score.

2. Collateral

There are two types of personal loans: collateralized and uncollateralized. Collateral is something of value that is used as security for repayment of a loan. In the event of default, the bank or lender may be able to seize the property from the borrower.

When a loan requires collateral, it’s referred to as a “secured loan.” When it does not, it is called an “unsecured loan.” From a lender’s perspective, unsecured personal loans are riskier. Therefore, the requirements for secured and unsecured loans are typically different.

Typically, when people talk about personal loans, they’re referring to unsecured personal loans. Because these loans aren’t backed by collateral, they may have higher interest rates or be harder to qualify for than secured personal loans. Some lenders and banks require collateral for personal loans. Anything from cars to property can be used as collateral, and can be seized in the event that you fail to make your loan payments.

It’s a tradeoff that’s worth weighing before you apply for a personal loan. If you put your property on the line, you could lose it. But taking that risk may qualify you for a lower interest rate.

On the flip side, using collateral on a personal loan can come with hidden costs. For example, some lenders may require you to have additional insurance in the event the collateralized property is damaged.

Awarded Best Personal Loan by NerdWallet.
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3. Proof of Income and Employment

Most lenders will want to be sure that you are gainfully employed and have sufficient income to repay the loan. Proof of income and employment can be required by many lenders to verify how you will repay the loan. This is one way they can determine the likelihood that you’ll pay it back. Plus it can affect things like the interest rate or payback term you’re offered.

Like most personal loan requirements, “proof of income” can mean different things for different lenders. Some lenders require a signed letter from your employer, while others need pay stubs or W2s.

If you are self-employed and want a personal loan, you might need to submit a copy of your tax returns or provide bank deposit information. If you’re considering applying for a personal loan while unemployed, you’ll want to carefully weigh the pros and cons before moving forward.

4. Debt-to-Income Ratio

Another important personal loan qualification is debt-to-income ratio (DTI). DTI compares your gross monthly income to the monthly payments you make on your debt. Generally, the lower your DTI, the more desirable you are as a borrower for any lender. Financial experts typically advise keeping your DTI under 30%; 10% or lower is considered ideal.

For example, someone earning $120,000 per year might seem like they’re doing great. That’s $10,000 in gross income per month. But let’s say they’re actually having a tough time making ends meet because they’re paying $6,000 per month toward their credit card and student loan debt. Their DTI is 60%, which is considered high — and might make them less desirable to lenders.

Conversely, someone with a lower income, say $60,000 per year, might get better terms on their personal loan offer if they are only paying $500 a month toward student loans. In this scenario, they are earning $5,000 per month and paying $500 per month toward debt, which makes their DTI 10%.

Recommended: Can You Use Your Spouse’s Income for a Personal Loan?

5. Origination Fee

This one is a personal loan requirement rather than a qualification. Some lenders charge a one-time “origination fee,” which is intended to cover the cost of processing the loan. Origination fees vary by lender and the borrower’s financial situation. Some lenders charge a flat fee for personal loans, while others charge a percentage of the total loan amount. These fees usually range from 1% to 10%, but they can go as high as 10%.

This can be a considerable sum of money, depending on the loan size. Note that you can typically roll this cost into your loan’s total or pay it out of your loan’s principal.

How to Qualify for a Personal Loan

Savvy consumers know that they may have work to do before applying for a personal loan. Some tasks are relatively quick, like pulling together financial documents. Other things take more time, like practicing good financial habits over the long term so that your credit score is at its best. Once you have your financial ducks in a row, you can feel more confident that you’ll get your personal loan approved.

Below are a few things to keep in mind if you’re considering applying for a personal loan.

Maintain a Stable Income

Lenders typically prefer a borrower with a stable income. If you plan to apply for a personal loan, it may not be the time to change careers.

If there are other ways to boost your income in the meantime, it may help your chances of qualifying and getting favorable loan terms. Whether that means asking for a raise or picking up part-time work, increasing your cash inflow can make you a more desirable borrower in the eyes of a lender — although not all income is considered eligible.

Get a Cosigner or Co-Borrower

A cosigner is someone who agrees to pay the loan if you default. A personal loan co-borrower is someone who may reside with you and takes the loan out with you — their name is on the loan, and you both have an obligation to repay it. Either may improve your chances of qualifying for a personal loan, as lenders view both as an extra layer of repayment security.

Before deciding to bring someone else into the equation, check with your lender if a cosigner or co-borrower is allowed. Then carefully consider the potential drawbacks for both parties involved. For instance, a cosigner might see a decrease in their credit score if you fail to make a payment. And a co-borrower would have to pay the loan themselves if you default.

Monitor Your Credit Score

If your credit history is less than ideal, you may want to monitor your credit score to learn what actions (or inaction) might hurt it. You can request your credit report for free from each of the three major credit reporting agencies — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com.

Check your credit history for errors, such as fraud, misreporting, or a card accidentally opened in your name. If necessary, file a dispute online asking the credit bureaus to remove the errors. But keep in mind that fixing issues on your credit report could take time.

Do your best to pay every bill on time, and try to reduce how much debt you’re carrying relative to your credit limits. For instance, pay down outstanding debt as much as you can. It may also help to pay your credit card bill in full each month.

Applying for a Personal Loan

Often it’s better to save for a big expense, even if it takes a few months or years. However, if that’s not possible, a personal loan can be a better option than charging the expense to a credit card.

When applying for a personal loan, start by figuring out how much you’d like to borrow. (A personal loan calculator can help you decide.) You’ll also want to check your credit, and get prequalified with multiple lenders. Once you choose a lender, you’ll submit your application. This is when you’ll need your financial documents, such as pay stubs, tax returns, and bank statements.

And then hopefully the next and final step is getting approved for a personal loan.

Recommended: Pros and Cons of Personal Loans

how to apply for a personal loan

How to Get a Personal Loan

Wondering where you can get a personal loan? They’re available from banks, credit unions, and online lenders. If you’d like to do business with a particular bank, you might start your inquiries there. Existing customers may get better interest rates or receive their funds sooner.

You can also shop around online to check going rates and terms. With online lenders, it’s easy to compare offers. Plus the entire application process is digital.

Recommended: What Is a Personal Loan?

The Takeaway

Qualifications for a personal loan typically include a credit score of 670 or more, proof of income, and a debt-to-income ratio below 30%. Some lenders require collateral to secure your loan; if you default, the lender can seize your property. Lenders may also charge an origination fee of 1% to 10%. Before you apply for a personal loan, maintain a stable income, monitor your credit score, and get a cosigner with excellent credit if necessary. The application process is usually straightforward if you have your financial documentation ready.

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 can be used as collateral for a personal loan?

Just about any assets you own can be used for collateral on a personal loan. That includes your home, car, savings account, investments, and jewelry or collectibles.

How do I know if I will qualify for a loan?

To “preview” the loan terms you qualify for, you can get prequalified online for a personal loan. You’ll see the loan amount you’re approved for, plus your interest rate, any fees, and repayment term. Prequalification requires a soft credit check only, which won’t hurt your credit score.

Can you get a personal loan without income proof?

Yes, it is possible to get a personal loan without income proof. However, it will be more difficult to qualify, since your credit score and history will have to be exemplary enough to compensate for the lack of income proof. Also, keep in mind that a stable income is more important to lenders than a high salary. If you have a modest income and excellent credit, you may still qualify for favorable loan terms.

What disqualifies you from getting a personal loan?

There are a number of factors that could disqualify you from taking out a personal loan. Examples include a bad credit score or no income, among other considerations.

Do all personal loans require proof of income?

Generally speaking, most lenders require proof of income, though some may offer unsecured loans without verifying your income. Secured loan lenders might issue a loan without looking at your income or credit history.

What type of personal loan is easiest to get approved for?

One of the easiest types of personal loan to get approved for is a “no credit check” loan. As the name suggests, these loans offer quick cash to borrowers without requiring a credit check. However, they can have major drawbacks, such as short repayment periods and sky-high interest rates.

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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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 .

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Jun
13
2025

Which Credit Bureau Is Used Most for Auto Loans?

By | ALR, Budgeting & Goals | Comments Off on Which Credit Bureau Is Used Most for Auto Loans?

Your credit score has a major impact on what kind of loan auto lenders will offer you. Equifax®, Experian®, and TransUnion® are the three major credit reporting bureaus that sell credit report data to auto lenders and dealers.

Auto lenders may rely more on Equifax and Experian for credit report insights, but TransUnion also sells consumer data to a number of automotive lenders. Credit scoring models — such as FICO® Auto Score 9 — generate a credit score based on the debt and payment information in a consumer’s credit report.

Some lenders may offer subprime auto loans based on a borrower’s FICO Score or VantageScore® 4.0. Below, we highlight the most common credit scoring models used in auto lending.

Key Points

•   Equifax and Experian are the most commonly used credit bureaus by auto lenders.

•   FICO Auto Scores are widely utilized in auto lending decisions.

•   VantageScore models, particularly versions 3.0 and 4.0, are also popular among auto lenders.

•   The credit bureau selection can depend on the lender’s preferences, the specific credit scoring models they use, and the nature of the auto loan being offered.

•   By knowing which bureau’s report will be reviewed, whether that’s for an auto loan or auto refinance, borrowers can check for accuracy and address any issues beforehand.

What Is a Credit Bureau?

At the most basic level, credit bureaus are companies that collect data from financial lenders and creditors. They compile this data into your credit history and provide that information to potential lenders in the form of a credit report. This information typically includes factors like how much debt you currently owe and whether or not you have a history of making on-time payments.

Which credit bureau is most used for auto loans? There are three nationwide credit reporting bureaus in the United States: Equifax, Experian, and TransUnion. Despite a common misconception, the credit bureaus, also known as credit reporting agencies, do not make lending decisions themselves. Rather, lenders use the reports provided by the credit bureaus to determine your creditworthiness, and each may have its own criteria for deciding when to approve or deny a loan.

The bureaus also give you the chance to look at your own report so you can understand your credit and correct any errors. You can request a free credit report from each bureau at least once per year.

Recommended: How to Check Your Credit Score for Free

Do Credit Scores Differ Between Credit Bureaus?

Your credit score may differ from bureau to bureau. That’s because it’s up to lenders and creditors to decide which information they report and who they report it to. While most lenders will report to all three credit bureaus, they aren’t required to and not everyone will.

When you apply for a new loan or new revolving credit, your lender may perform a credit check, usually with just one of the main credit bureaus. Credit inquiries like these are recorded in your credit report and can lower your credit score in the short term. However, they may only show up with the bureau the lender used for the hard credit check. This can be another source of discrepancy between different credit scores.

Your score is based on your credit history as compiled by the three major credit reporting bureaus. Each credit bureau will also have a slightly different credit scoring system, and those methodologies change over time as the bureaus try to make their scores more accurate. Multiple credit scoring models exist, but the credit scores auto lenders use most when making lending decisions are base or industry-specific FICO Scores.

Which Credit Bureaus Are Used Most for Auto Loans?

Equifax and Experian are the most commonly used credit bureaus by auto lenders. They offer services that are directed specifically at the auto industry, and each gets a portion of their revenue from the industry.

Though perhaps not as popular, TransUnion may also be used by auto lenders when they’re making their loan decisions.

Ultimately, it may not matter much which score your auto lender uses. Generally speaking, your credit report and score will be very similar no matter which bureau you go to.

However, if one of your credit reports is frozen — perhaps you’ve experienced identity theft recently and wish to prevent fraudsters from opening accounts in your name — it can be useful to find out which report your dealer uses. That way, you can unfreeze your report if the dealer needs to see it.

Why Is Your FICO Score Important?

Auto lenders may use your FICO Score, which is generated by the Fair Isaac Corporation, when making loan decisions. FICO gathers data from each of the major credit reporting bureaus to create a base FICO Score from 300 to 850, which is widely used by many lenders. Auto lenders may also rely on industry-specific FICO Auto Scores ranging from 250 to 900 or VantageScore credit scores ranging from 300 to 850 when making loan decisions.

No matter which credit scoring model is used, your credit score is generally a numerical representation of your credit history. The higher your score, the more likely creditors are to offer you a new loan or auto loan refinance with favorable terms, interest rate, and costs.

A lower interest rate can save you thousands of dollars over the life of the loan. A ‘good’ base FICO Score or industry-specific FICO Auto Score is generally considered to be in the 670–739 range (740 to 799 is ‘very good,’ and above that is ‘exceptional’). A poor score is anything less than 580.

Here are some factors to consider:

•   You can get auto loan financing with a good or bad credit score

•   Borrowers with bad credit may qualify for subprime auto loans

•   You may refinance a car loan with bad credit

•   Borrowers with prime credit may qualify for good interest rates

•   Your credit score may plunge if you lose your vehicle to car repossession

•   Surrendering your car via voluntary repossession can also damage your credit

•   It’s possible to reinstate your car loan after repossession

•   Getting a car loan after bankruptcy can be difficult at best

Recommended: Pros and Cons of Car Refinancing

What Is the Difference Between Your FICO Score and Other Credit Scores?

Theoretically, your FICO Score and your other credit scores could be the same, but they aren’t always.

Your FICO Score is based on a credit scoring model developed by the Fair Isaac Corporation, whereas your VantageScore is based on a credit scoring model developed by VantageScore Solutions, LLC. Multiple credit scoring models exist under the FICO and VantageScore brand names, and each model uses unique algorithms for generating credit scores.

The three major credit bureaus founded VantageScore in 2006 and have their own proprietary scoring systems predating VantageScore. As mentioned earlier, your credit score is generally a numerical representation of your credit history. FICO offers many different scores, including score models that work with each reporting bureau’s database.

Equifax provides generic credit scores ranging from 280 to 850 for educational purposes, not for creditors to assess a consumer’s creditworthiness. Lenders generally rely on FICO or VantageScore when making credit decisions, and lenders are free to choose which score they want to use.

Recommended: Register a Car Without a License

How Can You Build Your Credit History?

You may build your credit history by applying for consumer loans and making payments as necessary. When you get an auto loan, for example, the lender may report the status of your auto loan to at least one of the major credit bureaus each month.

Lenders are not required to report a customer’s loan account details to any of the credit bureaus, but many of them do so voluntarily. Getting approved for credit and maintaining open credit accounts over time can build your credit history.

Any active loan accounts in your name may appear on your credit report. A closed credit account may eventually be removed from your credit report within 10 years.

Recommended: What Is a Finance Charge?

The Takeaway

Equifax and Experian are the credit bureaus most commonly used by auto lenders. Yet, it ultimately may not make that much difference which bureau your auto lender uses.

As a consumer, it may be more important for you to make sure your credit is as healthy as possible by paying off debt and making payments on time. That way, no matter what bureau a lender uses, you’ll have the best chance to get an auto loan or a refinance car loan that works for you.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.


With refinancing, you could save big by lowering your interest or lowering your monthly payments.

FAQ

What is a credit bureau?

Credit bureaus are companies that collect data from lenders and creditors. There are three nationwide credit reporting bureaus: Equifax, Experian, and TransUnion. Each compiles your credit history by gathering data from lenders and creditors.

What is the difference between credit bureaus?

Each credit reporting bureau may gather slightly different data from different lenders, and each may have a different algorithm for calculating your credit score. Multiple credit scoring models exist, but base or industry-specific FICO Scores are the credit scores auto lenders use most when making lending decisions. Credit scores are based on information contained within your credit report as compiled by the credit bureaus.

Why are there multiple credit bureaus?

There are multiple credit bureaus because different companies collect, update, and analyze credit information independently. Each bureau may gather data from different lenders, leading to slight variations in credit reports and scores. Having multiple bureaus promotes competition, encourages accuracy, and provides lenders with a broader view of a borrower’s creditworthiness.

Which credit bureaus are used the most for car loans?

Auto lenders most frequently use Equifax and Experian, but TransUnion also sells credit report data to auto lenders.

Photo credit: iStock/ljubaphoto

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Jun
13
2025

Is an Auto Loan Secured or Unsecured?

By | ALR, Budgeting & Goals | Comments Off on Is an Auto Loan Secured or Unsecured?

You might think of a car loan as one that uses the vehicle as collateral — in other words, a secured loan. Another option exists: an unsecured loan when the vehicle isn’t put up as collateral. This is a significantly different type of loan structure.

A car loan can either be secured with collateral or unsecured without collateral, and both options can provide you with financing to buy a car. So, what exactly are the differences between an auto loan that’s secured or unsecured, and which is better? Below, we highlight the pros and cons of a secured vs. unsecured auto loan to help you determine which one is right for you.

Key Points

•   Typically, auto loans are secured by the vehicle being financed, meaning the lender can repossess the car if the borrower defaults on the loan.

•   Some lenders offer unsecured auto loans, which don’t require collateral but often come with higher interest rates due to increased risk for the lender.

•   Secured loans generally offer lower interest rates and longer repayment terms compared to unsecured loans, as the collateral reduces the lender’s risk.

•   Since unsecured loans lack collateral, lenders place greater emphasis on the borrower’s credit history and income to assess repayment ability.

•   If a borrower defaults on a secured auto loan, the lender has the right to repossess the vehicle to recover the outstanding debt.

What Is a Secured Auto Loan?

When wondering is auto loan secured or unsecured, there are basic differences to know. First, a secured auto loan is financing that helps a borrower buy a new or used car while giving the lender a security interest in the financed vehicle. Lenders may repossess the vehicle as collateral if the borrower fails to make required payments on the secured car loan.

The security interest is a lien that holds the vehicle as collateral until the car loan is paid off in full. Lenders — or the lienholder of your secured auto loan — may hold the car title until you pay off the debt.

What Is an Unsecured Auto Loan?

An unsecured auto loan is financing that helps you buy a car without giving the lender a security interest in the vehicle. Borrowers can use this type of loan — usually a personal loan — to buy a new or used car without pledging any assets as collateral.

Lenders may offer a higher annual percentage rate (APR) for unsecured car loans because the loan is not secured with collateral, which means the lender may not seize your car in the event of default.

Are Auto Loans Secured or Unsecured?

Most auto loans are secured by the financed vehicle, but lenders may also offer unsecured auto loans, though they are much less common.

As mentioned, with a secured auto loan, if you fail to make your payments, the lender has the right to repossess the car to recover their losses. This setup reduces the lender’s risk, which often results in lower interest rates compared to unsecured loans. Because the vehicle backs the loan, lenders are generally more willing to approve financing, even for borrowers with less-than-perfect credit.

Secured vs Unsecured Car Loans

When deciding between secured vs. unsecured loans, it’s important to consider the pros and cons of each:

Pros

 Cons
Secured Auto Loans Because there’s collateral involved, it may be easier to get loan approval due to reduced risk for the lender. If you default on payments, you may lose the vehicle.
Because of the lender’s reduced risk, your interest rate will likely be lower than with an unsecured loan. You’ll need to have your credit checked, and your score must meet lender guidelines. Late payments can negatively affect your score.
Lower interest rates can mean lower monthly payments. The value of the vehicle must be verified as high enough to support the loan amount.
Unsecured Auto Loans No vehicle assessment is needed and, if you default on payments, the car is not directly at risk. If your credit score doesn’t meet the lender’s standards, the loan may get denied or you may receive a higher interest rate.
The loan helps you buy a new or used car without giving the lender a security interest in the vehicle. Unsecured loans typically come with higher interest rates than secured loans.

When deciding between secured vs. unsecured loans, it’s important to consider the pros and cons of each:Here are some of the factors that a lender may consider when deciding whether to approve or deny your secured or unsecured car loan application:

•   Proof of identity

•   Annual income

•   Credit history

•   Credit check results

•   Debt-to-income ratio

Here’s a rundown on some of the car loan requirements:

Income

Lenders may check to make sure you have enough income to afford a car loan, and what “enough” means can vary by financial institution. Ways that lenders may verify your annual income include asking for pay stubs, bank statements, or tax returns.

Recommended: No Income Verification Loans

Credit History

Because past payment history can predict a person’s future actions, lenders may want to see that borrowers have a pattern of meeting their financial obligations. As such, a review of your credit history is typically part of the loan approval process for a vehicle.

Credit Check Results

Results of your credit check can play a key role in determining what interest rate you’re offered. Borrowers with excellent credit may qualify for a 0% APR car loan secured by the financed vehicle.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) calculates the percentage of your pretax income that goes toward your monthly debt payments. Lenders like to see low DTIs — generally below 36% — because a low DTI reduces their levels of risk, while a higher one can indicate that a borrower is carrying too much debt for their gross income.

How Can I Get an Unsecured Auto Loan?

Here are the steps you may take to get an unsecured car loan:

1. Shop Around for Unsecured Car Loans

With an unsecured loan, seek out lenders that will loan on a car without requiring collateral. Lenders may offer this type of financing as a signature loan or unsecured personal loan.

2. Fill Out and Submit Your Loan Application

You can fill out and submit your unsecured loan application with the lender of your choice. Good credit scores are especially important for unsecured loans because the lender generally makes approval decisions based on the applicant’s financial record and situation. The interest rate may also depend on the individual’s credit score.

3. Receive Your Loan

Loan approval is never guaranteed, but lenders may approve your unsecured car loan if you meet the lender’s underwriting standards. Just like with secured loans, a lender may want to assess whether you have enough income to make the payments. You may get approved for tens of thousands of dollars in financing if you have excellent credit and a DTI below 36%.

4. Find and Buy a Car

You can find and buy a car using an unsecured loan. The loan can help you buy a new or used car from a dealership or private seller.

Recommended: What Happens to a Car Loan When Someone Dies?

Car Financing Options

When shopping for an auto loan, it’s important to assess your options. You’ll want to set your budget before you head out shopping, and it’s also a good idea to check your credit in advance so you have a good sense of where you stand and what your odds of qualification are. This could give you a sense of whether you may need a cosigner.

You may shop for car loans from multiple sources. Getting prequalified or preapproved can help you compare rates. Once you have an auto loan offer in hand, it is critical to read the fine print before you commit. Specifically, keep an eye out for your interest rate, the length of a car loan, any fees and penalties, and other key aspects of the agreement before moving forward.

If you already have a car loan and are looking to reduce your monthly payments, consider auto refinancing. If you’ve got a more challenging situation, such as an upside-down auto loan where the loan amount is higher than the value of the car, it can take more research to find the right lender.

Recommended: Can Car Loan Companies Garnish Your Wages?

The Takeaway

Auto loans can be divided into two broad types: secured, where the vehicle is put up as collateral, and unsecured, where a borrower’s credit history and financial situation are primarily considered when a lender makes an approval decision. Although the borrowing processes are similar in many ways, there are key differences between secured vs. unsecured auto loans.

If you want to change your current loan, an auto loan refinance may allow you to lower your interest rate, shorten or lengthen your term, or switch from an unsecured loan to a secured loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.


With refinancing, you could save big by lowering your interest or lowering your monthly payments.

FAQ

What is a secured car loan?

A secured car loan is a type of financing that helps a borrower buy a new or used car while giving the lender a security interest in the financed vehicle. The security interest is a lien that holds the vehicle as collateral until the car loan is paid off in full. Lenders or the lienholder of your secured auto loan may hold the car title until you pay off the debt. Lenders may seize the vehicle as collateral if the borrower defaults on the secured car loan.

What is an unsecured car loan?

An unsecured car loan is financing that helps you buy a car without giving the lender a security interest in the vehicle. Borrowers can use this type of loan to buy a new or used car without pledging any assets as collateral. Lenders may not seize your vehicle if you default on an unsecured car loan.

Are secured car loans better than unsecured car loans?

Your personal preferences may dictate whether a secured car loan or unsecured car loan is right for you. You may qualify for a lower interest rate on a secured car loan, but the lender may repossess your vehicle if you default. An unsecured car loan gives the lender no right to repossess the vehicle if the borrower defaults on the loan.

Photo credit: iStock/Halfpoint

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

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 .

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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Jun
13
2025

Can You Refinance a Car Loan With the Same Lender?

By | ALR, Budgeting & Goals | Comments Off on Can You Refinance a Car Loan With the Same Lender?

While you can refinance your car with the same lender, there’s more to the decision-making process than just picking the lender that currently has all of your account information.

If your lender does offer auto refinance loans, you shouldn’t just assume they are necessarily the best option out there. Different lenders offer different rates, loan terms, and fees, so it’s important to shop around. Below, learn more about how refinancing works with the same lender and when it makes sense to explore elsewhere.

Key Points

•   Refinancing a car loan can lead to a lower interest rate, reduced monthly payments, faster loan payoff, or removal of a cosigner.

•   Comparing offers from multiple lenders can be a smart step in securing the best interest rate, terms, and fees.

•   Refinancing with the same lender is feasible and might be simpler, but it’s not always the optimal choice or best deal.

•   Before refinancing, consider rates, terms, fees, other loan details, and potential prepayment penalties.

•   Refinancing can save significant amounts of money, making it a valuable option for those looking to optimize their car loan.

What Does It Mean to Refinance a Car?

Refinancing a car means replacing your current auto loan with a new one, ideally with a more favorable interest rate or better terms. Rather than making payments on your old loan, you’ll pay it off with the new loan and start making payments on that.

Why Would You Want to Refinance?

There are many reasons to refinance your car, including:

•   Lowering your interest rate. This is one of the best reasons to refinance. A lower interest rate can both lower your monthly payments and reduce the amount you pay in interest overall, assuming you keep your loan term the same or shorter.

•   Paying off your loan faster. This involves shortening your loan term. If you secure a lower interest rate and shorten your loan term, you’ll not only pay off your loan faster, but you’ll also save money in interest in the long run. However, your monthly payment might go up.

•   Reducing your monthly payments. If you refinance your car and choose a longer loan term, your monthly payments most likely will decrease. While this typically means you’ll pay more in interest over the life of the loan, sometimes reducing payments is necessary to keep you afloat during hard financial times.

•   Removing a cosigner. If you took out your original auto loan with a cosigner, you can choose to remove them by refinancing, assuming you can qualify for the new loan on your own.

Is It Possible to Refinance With the Same Lender?

If you’re thinking of refinancing, you may be wondering if you can do so with the same lender. In most cases, the answer is yes — but that doesn’t mean it’s automatically the right decision for you.

When you first start thinking about refinancing your auto loan, it’s natural to consider your current lender, especially if you’ve had a positive experience. Not all auto lenders offer refinancing, though. Most do, but it’s a good idea to double-check that this option is available before you do more digging.

Can you refinance your auto loan with the same bank? Absolutely. Is it always the best loan offer available? Not necessarily. And you won’t know for sure unless you shop around.

Recommended: Business Auto Loans: How to Get Financing

When Does It Make Sense to Refinance?

There are many pros and cons to auto refinancing. Here are some of the most common situations in which it makes sense to refinance:

You Now Qualify for a Lower Interest Rate

If interest rates go down or you have built your credit score, you could save money with a lower rate. Refinancing may be right for you if you qualify for an interest rate that’s lower than your current auto loan rate.

You Have a Helpful Cosigner

If your credit score isn’t very high, refinancing with a cosigner could also help you pay less in interest. Refinancing may be right for you if you have a creditworthy cosigner who can help you qualify for an auto refi loan that’s more favorable than what you currently have.

Likewise, you may have signed your original auto loan with a cosigner and now you want to remove them from the loan. If you can qualify on your own, refinancing your car will allow you to do so.

You Want to Lower Your Monthly Payment

You might be able to get a longer loan term by refinancing. This means you’ll be making payments longer, but your monthly payment will be less. Keep in mind that by extending your term, you may end up paying more in interest over the life of the loan. However, if you need a lower payment, refinancing may be right for you in order to make ends meet.

Your Car Is Aging or Has High Mileage

Many lenders restrict your ability to refinance a car loan once the vehicle reaches a certain age or mileage mark. If your car is close to 10 years old or is approaching 100,000 miles, then it might be time to crunch the numbers to see if one last refinance makes sense. Refinancing a car with high mileage is possible and may be right for you depending on your personal circumstances.

Recommended: Tips for Buying a High Mileage Car

Is It Easier To Refinance With Your Current Lender?

When you apply to refinance your auto loan, you’ll need to submit documents related to your current loan, including the loan agreement.

If you’re applying to refinance through your current lender, it will probably already have that paperwork on hand. But while it may seem easier to let your current lender handle this step on its own, you should still find and review that information yourself before you apply to refinance. That way you can check the contract for prepayment penalties and your exact payoff amount.

It’s also important to check your current interest rate to figure out whether or not you’re getting a better offer with a refinance.

Even if it does seem easier to refinance with a lender you’re already working with, it’s crucial to rate-shop and make sure you’re meeting your financial goals. If you find a better deal elsewhere, it may not be that much harder to switch. Most lenders create an easy, streamlined application process.

In summary, it can be easier to get a refinancing loan from the lender you already know. But “easier” doesn’t automatically mean it’s better.

How to Refinance With the Same Lender

How exactly to refinance an auto loan may differ slightly when you’re applying with the same lender. Here are the steps for how you may refinance with the same lender:

•   Gather the required documentation. Even if you have a history of making your car payments on time, you’ll still probably need to provide proof of income. This could be recent paystubs or a tax return.

•   Confirm and update your personal information, including your address and how much you spend on housing each month. The lender likely has other details about your current loan and vehicle. Nonetheless, it will probably pull a credit report to see where you stand today. Your credit score may drop by a few points temporarily if the lender conducts a hard pull inquiry into your credit report.

•   Receive a loan offer based on your personal information and your vehicle information. The offer may include an interest rate, any fees, and the length of the loan term. Review all of these details and compare this offer to offers from other lenders to see which is the best option for you.

Why You May Want To Refinance With a Different Lender

Lenders all vary when it comes to rates, loan terms, and fees, so it’s always best to shop around in order to find the best auto refinance deal for your situation. While refinancing with the same lender may be easier, if you can save hundreds or thousands by going elsewhere, that may be worth your time and effort in the short term.

How To Refinance With a Different Lender

Even if you were interested in refinancing with your current car loan provider, you might find a better deal elsewhere and decide to change lenders. Here are the steps on how you may refinance with a different lender:

•   Submit the required documentation. In addition to the financial and income verification you need to apply with your existing lender, a new lender will likely need information about your vehicle and current loan.

•   Submit details about your vehicle. This includes the make, model, and year. You must also disclose the vehicle’s mileage and supply the lender with the vehicle identification number (VIN).

•   Provide the current loan balance and lender’s contact information. The application may also require you to submit proof of auto insurance.

•   Check your credit. The lender may check your credit report. This can result in a small, temporary drop in your credit score. But if there are multiple credit inquiries for the same kind of loan within a short period of time on your record, they’ll typically be counted as just one, since the credit score agencies understand that you’ve been shopping to find the best rates.

•   Get prequalified, if possible. Some lenders may allow you to prequalify for a loan, which won’t typically result in a credit drop. But note that the offers you see that way aren’t guaranteed, especially if your financial situation changes before you actually apply for the loan.

•   Apply for and accept the loan. Once you’ve selected the loan you want to apply for, the process will be similar to that when you apply with the same lender, except that when you’ve received and accepted the loan terms, your new lender will transfer the funds to pay off your old loan and your new payments will begin.

The Takeaway

It is generally possible to refinance your auto loan with your current lender. It may even be a bit easier than filling out an application with a new lender. However, it doesn’t mean that it’s financially the best option for you. In order to find the best auto refinance loan, it’s best to shop around to find the best rates and terms for your particular situation.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.


With SoFi’s marketplace, you can quickly shop and explore options to refinance your vehicle.

FAQ

Is it better to refinance with the current lender?

No, it’s not necessarily better to refinance with your current lender, even if the process is easier. In addition to considering refinancing with your current lender, compare online auto loan refinancing rates with multiple lenders. Once you look at a few different offers side by side, you can likely see which one best helps you meet your goals, whether it’s saving on your interest rate or lowering your monthly payments.

When does it make sense to refinance with the same lender?

It makes sense to refinance with the same lender when that lender extends the best offer among multiple lenders. That may be the case — and maybe your current lender can even offer you a loyalty rate discount on top of expediting the application process. But if you get a better offer from another lender, you may be better off switching.

When does it make sense to refinance with a different lender?

Depending on your financial situation and goals, if another lender offers you a lower interest rate or lower monthly payments, then it may make sense to accept that refinance offer. There are some pitfalls to watch out for, however. Make sure there are no hefty upfront fees that could reduce your potential savings. Also confirm that there’s no prepayment penalty in case you want to pay off your loan early.

Photo credit: iStock/Altayb

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

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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.


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.

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 .

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