What Are P2P Transfers & How to Use Them
P2P payments, aka peer-to-peer transfers, are a great way to use digital technology to send money to other people or receive funds from them. With a money transfer app or perhaps one from your financial institution, you can send a friend your half of the dinner bill, gas money, or other payments, quickly and easily from your mobile device. Chances are, you can also buy items (say, on Instagram or a website) using one of these apps.
To move money via P2P, all you need to do is to download one of the transfer apps, like Venmo or PayPal, and connect your bank account, debit card, or credit card to it. Or your financial institution may offer their own app that you could enable. Either way, once you are set up, you are just a few clicks away from being able to send money.
Here’s a closer look at exactly how these apps work, including:
• What is a P2P money transfer?
• How does a P2P payment work?
• How long does a P2P transfer take?
• Are P2P payments safe?
• What are some alternatives to P2P payments?
What Is a P2P Payment?
With a P2P payment, you can send money to a friend with just a few clicks on your mobile device. This replaces the need to get cash at an ATM or write out a personal check, options that aren’t always quick or convenient.
For traditional P2P apps, both parties need to have an account with the transfer service in order to make the transaction. For example, if you want to use Venmo to repay a friend for the salad they bought you at lunchtime, that person would also need to have a Venmo account to receive that payment.
Typically, a P2P account is attached to your bank account online. Some P2P platforms, however, allow customers to link their P2P accounts to a debit card or even a credit card, though it may involve additional fees.
Many commercial banks are also getting in on the online money transfer game, offering services like Zelle to make it easier for customers to transfer money to one another instantaneously.
Recommended: How to Transfer Money From One Bank to Another
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How does a P2P payment work? Here’s a closer look at what goes on when you use a P2P payment app.
Overview of the P2P Transfer Process
Say that you want to send money P2P to your sister for your mother’s birthday present. Depending on the type of P2P service you use, you’ll follow some variation of these basic steps.
• Creating a P2P Account. You will need to download a P2P app and then sign up for an account. In order to send money to your sister, you’ll both need to have an account with the same money transfer service.
• Linking your bank account to your P2P account. Some P2P services have the ability to hold funds, but they generally must be linked to a primary bank account, credit card, or debit card in order to be fully operational. This is how the account will pull any funds needed to make a payment.
To link your checking account, you may need your checking and routing number (which appear at the bottom of a check). Some P2P transfer services may only need your bank log-in information. Others may allow you to set up extra verification measures.
• Searching for a user to transfer funds to. To send money to your sister, you’ll need to find her on the P2P platform. You can typically search by username, email address, or a phone number. In most cases you will be able to add her account as a contact or “friend” in your account.
• Initiating a transfer. The next step in how a P2P payment works is getting the money moving. Your sister can request a payment from you, or you can initiate the payment yourself. This requires choosing the option to send funds, entering a dollar amount, and then clicking submit. If you’ve enabled additional security measures on your account, you may need to enter a PIN that gets texted to you as well.
You may be prompted to choose whether you are making a purchase or sending money to a friend or family member. This can impact whether fees get assessed and what kind of protection you receive for the transaction.
You may have the option to add a description or “memo” to your transaction. Some P2P services may require this information so that they can charge a fee for business-related transactions. Others offer the option to act as a personal ledger should you need it in the future.
• Waiting for the transfer to complete. Now the funds are in motion via a P2P bank transfer. When money is sent from one customer to another, it moves in the form of an electronic package safeguarded with multiple layers of data encryption. This makes it hard for hackers to access the data (like your bank account number) within the transfer while it is in motion. Similarly, data encryption keeps your money and account information safe. Once the data set reaches its destination, it is decoded and deposited as currency.
• Transferring the funds into the payee’s bank account. When a P2P transfer is completed, the funds may be deposited directly into your sister’s bank account. Or they may go into an account created for her by the P2P service. Funds received into P2P user accounts can then be transferred into traditional bank accounts at little to no cost. (You are likely to pay a fee if you want the funds transferred ASAP versus in a couple of days.)
Your sister will likely receive some combination of email, text, and/or in-app notifications that the funds have arrived. If she decides to leave the money in her P2P account, she can use that account balance the next time she needs to pay someone or purchase something from a business that accepts P2P transactions.
How Long Do P2P Transfers Take?
The general rule of thumb for P2P transfer services is to allow one to three business days for a transfer to complete (although some seem instantaneous; timing varies). That’s because standard bank transfers use the ACH (or Automated Clearing House) system, which can take a day or two to complete.
When it comes time to move funds from the app to, say, a checking account, some apps may charge a small fee, often around 1.75% of the overall transfer amount.
Are P2P Money Transfers Safe?
Many people wonder, Are mobile payment apps safe? Any time your bank account, credit, or debit card information is online, there is a chance that someone can get a hold of it, and P2Ps are no different. While all major money transfer companies encrypt your financial information, no P2P system can say it’s totally impervious to hacks and scams.
There are also additional measures you can take to make sure that your account remains secure. For example, you may be able to set up two-factor authentication, which might involve typing in a unique pin number that is texted to your phone for each transaction. Or you might elect to receive notifications each time there’s a transaction posted on your account, enabling you to spot financial fraud right away if it were to happen.
You may also want to take care when you type in a recipient’s email address, phone number, or name. A typo could lead to the money going to the wrong person.
How Do Peer-to-Peer Transfer Companies Make Money?
P2P transactions are largely offered for free to consumers, which may beg the question of how the companies that offer these services stay in business. Here are two major ways that P2P money transfer apps may generate income.
Account Fees
Typically, you can make P2P payments from a linked bank account or straight from the P2P account for free. If you want an instant transfer or you are transferring money using a credit card or from depositing checks into your P2P account, there may be a fee involved.
Business Fees
P2P platforms aren’t just for consumers — they are used by businesses as well. Compared to the free transactions that standard user profiles offer, business profiles are generally subject to a seller transaction fee for each customer purchase made with a P2P money transfer app. Venmo, for instance, charges a fee of 1.9%, plus 10 cents for each transaction.
What Are the Benefits of P2P Money Transfers?
There are three main benefits to using online money transfer services.
• They’re fast. Depending on the service, P2P money transfers can happen very quickly. They can take anywhere from just a few seconds to a couple of business days.
• They’re cheap. When exchanging money between friends and family, P2P money transfers are often free. There may be a small fee, however, if you want an instant bank transfer, are using a credit card instead of a bank account, are making a transfer above a certain dollar amount, are conducting a high volume of transfers, or are using the service for a business transaction.
• They’re easy. P2P transfers eliminate the need to make trips to the ATM or a local bank branch to get cash. They also eliminate the need to get out your checkbook, write a check, and then mail it to someone. For a P2P transfer, all you likely need is a mobile device, the app, and cell service or WiFi.
Alternatives to P2P Money Transfers
What if a P2P money transfer isn’t available or doesn’t suit your needs? Try these options instead to move money.
Sending a Check
You can go old-school and write a paper check. You fill out the necessary details and hand or mail the check to the person you are paying. Typically, no fee is involved, although you may have to pay for a new checkbook when you run low and order more checks.
Money Orders
Money orders are in some ways similar to a check, but you don’t write them from a bank account. Instead, you purchase them (essentially pre-paying for the amount you are sending) at the post office, businesses like Western Union or Moneygram, or from certain retailers.
Typically, you will pay a small fee. For example, the United States Post Office will issue money orders up to and including $1,000. Those that are for amounts up to $500 will be assessed a $1.75 fee; for ones that are $500.01 to $1,000, $2.40 will be charged. Once you have a money order, you can either give it to the recipient in person or mail it. You can also typically track a money order to see when it’s cashed.
Using Online Bill Payment Services
Many financial institutions offer ways for their customers to pay bills electronically. A key feature of mobile banking, this service can be a simple way to send funds from your checking account, regardless of where you are or what time it is. You may be able to set up recurring payments as well for bills you receive regularly.
Wire Transfers
Wire transfers are another way to send funds electronically using a network of financial institutions and transfer agencies that operate globally. Typically, you will access a wire transfer via your bank, its website, or its app. You’ll need to have your payee’s banking details and will likely pay a fee to wire money.
For instance, domestic wire transfers can charge a fee of anywhere from $15 to $50, and they can be processed in a few hours or within a day. International wire transfers can cost more (with both the sender and recipient possibly paying fees) and can take longer, typically two days.
Recommended: What Is an E-Check (Electronic Check)?
The Takeaway
Peer-to-Peer (or P2P) payment apps facilitate mobile money transactions. You can use them in place of cash or writing a check when you want to give friends or family money, whether it’s to cover your portion of a dinner bill or split the cost of a vacation rental. Some businesses also accept this form of payment.
All you need to make a P2P transfer is a mobile device, an internet connection, and your P2P app, which you must link to your bank account or credit card.
Customers with a SoFi online bank account can send money to any person, anywhere, even if that person doesn’t have a SoFi Checking and Savings account. If the person does happen to be a member of SoFi, the transfer will happen instantaneously. That’s not the only reason to open an online bank account with SoFi, though: You’ll also earn a competitive annual percentage yield (APY), pay no account fees, and, for qualifying accounts, get paycheck access up to two days early.
FAQ
How much time does a P2P transfer take?
P2P accounts can take just a few seconds or a couple of days to move funds. Then, if the person who has money in the P2P app wants to transfer their cash to a bank account, that can also take between hours and a few days. Often, you may be charged a fee if you want the money moved ASAP.
Is P2P digital money?
P2P, or peer-to-peer-payments, are a digital way of moving funds from one person to another. Once the transfer is complete, the recipient has money they can use to pay for purchases or transfer into a bank account.
What’s an example of a P2P payment?
An example of a P2P payment would be to use a P2P app such as PayPal or Venmo to send funds to a friend you owe money. Or you might send a payment to a service provider or retailer using P2P apps as well.
Do banks use P2P?
Many banks offer their own version of P2P apps. For example, you might be able to almost instantly send funds from your account to a friend, a retailer, or a service provider via Zelle, which partners with 100-plus financial institutions to offer free P2P payments.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% 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 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 4.60% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Issuing a Stop Payment on a Check
At some point in your financial life, you may need to issue a stop payment on a check to prevent it from being cashed. This might happen because a check gets lost or stolen. Or perhaps you need to cancel a check because you filled it out with the wrong information, such as an incorrect payee or amount. Or maybe you accidentally issued a duplicate payment and are worried about overdrawing your bank account. It happens!
Fortunately, if you take action quickly, you can prevent a check or an electronic payment from being processed with a stop payment order. It can be as simple to complete as contacting your bank.
Read on to learn more, including:
• What is a stop payment on a check?
• How do I stop payment on a check?
• What are alternatives to stop-payment orders?
What Is a Stop Payment on a Check?
A stop payment on a check is a way of requesting that a financial institution cancel a check or other payment that hasn’t been fully processed yet. It’s a way of intervening to stop a payment you initiated.
Doing so can help lessen your financial stress if you have a check that’s circulating with incorrect information on it or that could cause you to overdraft your account.
Typically, you will pay a fee for this service and it can only happen if the check or other payment has not yet been processed. If the recipient of the funds has cashed the check, you cannot reverse that.
Recommended: Ordering Checks – A Complete Guide
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
Issuing a Stop Payment on a Check
If you are in a situation where you want to stop payment on a check (say, you filled the check out for the wrong amount or to the wrong person), there are steps you can follow. This can also be a method for canceling an ACH payment vs. a check; say, a recurring electronic payment you set up.
Here are the specifics on how to stop payment on a check:
1. Checking Your Bank Account to See if the Check Cleared
Before you start the process of canceling a check or payment, it’s a good idea to make sure it hasn’t already been processed.
You can do this by pulling up your account online or calling the bank’s automated phone line to see if the check or payment has already been deducted from your account.
If the amount has been processed, your opportunity to stop payment is unfortunately gone. If it hasn’t, however, you can likely stop the check or payment from being cashed or deposited.
Note: You cannot stop payment on a cashier’s check or money order as these are prepaid forms of payment.
2. Compiling the Check Info
Next, in order to contact your bank with the full story on the check in question, gather the following information:
• Your account number and routing number
• The recipient’s or payee’s name
• The date you wrote the check
• The check number
• The amount of the check
For ACH payments, you may be asked to supply the company name, account number, ACH merchant ID, and the payment amount.
3. Contacting Your Bank
The next step in how to stop payment on a check is contacting your financial institution. You’ll want to do this as quickly as possible. Here’s how this typically works:
• You might call your bank’s customer service number or reach out online. Some people prefer to go in person to a brick-and-mortar branch if they keep their accounts at a traditional bank.
• It’s possible that your bank will want you to fill out a stop-payment form in order to initiate the process. You may need to complete this within 14 days to prevent the stop-payment order from expiring.
• You may need your ID handy to prove your identity.
Once your bank authorizes your stop-payment request, the check or payment should no longer be valid.
4. Getting in Touch With the Payee
Depending on your reason for requesting a stop-payment order, you may also want to contact the payee in order to let them know about the stop payment. You can then arrange for a new payment if needed.
Recommended: What Is a Duplicate Check?
5. Extending the Stop Payment if Needed
A stop-payment order is a formal request to cancel a check or ACH payment (such as a recurring monthly bill payment) before it’s been processed.
Stop-payment orders on checks typically last for six months. This is the same amount of time as how long personal checks are good after being issued. So that should therefore be a sufficient amount of time to prevent the check from being cashed.
However, many banks allow you to renew a stop-payment order if the check is still outstanding. If your bank charges a stopped check fee, they may also charge a fee to renew the stop-payment order.
Stop-payment orders on ACH payments last indefinitely.
Recommended: Guide to Altered Checks and How to Spot One
How Much Does It Cost to Stop Payment on a Check?
Now that you know how to stop a check, here’s how much it will likely cost you. Just as with cashing a check, fees for stopping payment on a check vary from one bank to the next. The typical fee is between $15 to $33. Some banks will waive the stop-payment fee for customers with premium-tier checking accounts.
Alternatives to Stop-Payment Orders
A stop-payment order is one way to prevent a payment from being processed. With an electronic payment, another option may be to contact the business or vendor directly.
Whether it’s your electric bill or a monthly streaming service, companies can typically stop or delay billing on request. A couple of considerations:
• If you stop a bill payment via the bank without reaching out to the service provider, the company can respond by cutting off your access to its services.
• If you instead delay the automatic debit by working with the vendor, you may be able to avoid a disruption in service, and also avoid paying a stop-payment fee to the bank.
The Takeaway
Mistakes and miscommunication can happen, and checks sometimes get lost or stolen. That’s when a stop-payment order can come in handy, canceling a check or electronic debit payment that’s waiting to be processed. While handy in some situations, note that stop payments often incur a fee that can typically range from $15 to $33.
If you’re looking for a bank that makes managing your money simple and convenient on a daily basis and when hiccups occur, consider opening an online bank account with SoFi. Our Checking and Savings account allows you to earn, spend, and save, all in one account. You can easily track your balances, pay bills, and send money to friends right from the SoFi app. More good news: With a SoFi checking account, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your money grow faster.
FAQ
How long does a stop payment on a check take?
The time required for a stop-payment request will depend on your financial institution. You may be able to do it very quickly in person, by phone, or electronically with your bank (especially if you have all the pertinent details handy) and have it authorized within minutes. At other banks, you may need to fill out and submit a stop payment request and wait for the bank to process it. Once in place, stop payment orders typically last six months.
Is a stop payment the same as canceling a check?
Yes, a stop payment is the same as canceling a check that has not been processed or paid yet. Note, however, that there is a more complex process of check cancellation that is sometimes available for prepaid checks such as a cashier’s check or money order.
How much does it cost to put a stop payment on a check?
Typically, a stop payment will cost between $15 and $33 when you issue this order. In some cases, a bank may waive the fee; you can check with yours to see if this is possible.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% 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 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 4.60% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Applying for a $20,000 Personal Loan
You’ll likely need a credit score in the Good range (670 to 739) or higher to qualify for a $20,000 personal loan with a competitive interest rate. If your credit rating is Poor or even on the lower end of Fair, you may have difficulty getting approved for a personal loan.
Personal loans offer relatively low interest rates compared with other options, such as high-interest credit cards. Ultimately, the interest rate will depend on the size of your loan, the term, and your credit score.
Here’s a closer look at what it takes to apply for a personal loan this year.
Can I Get a $20,000 Personal Loan with Bad Credit?
Your credit score helps banks understand your history of managing debt. A high score suggests that you have a history of paying your bills on time while managing multiple accounts. As a result, banks see borrowers with high scores as at relatively low risk of default. Therefore, they may offer these borrowers better terms and interest rates on loans.
Lenders see borrowers with low scores as risky. To compensate for this risk, they may charge higher interest rates, if they offer a loan at all. It may be more difficult for those with bad credit to find a $20,000 personal loan, or to find one they can afford.
What Is the Typical Credit Score Required for a $20,000 Personal Loan?
When applying for a loan, a FICO® credit score in the Good range (670 to 739) or higher will help you qualify for loans with better interest rates from a wider variety of lenders.
If you have Poor credit (a FICO score of 300 to 579), or even in the low end of the Fair range (580 to 669), you may have difficulty getting approved for a personal loan.
If this is the case, all is not lost. You can work to raise your credit score by paying down debts and making sure to always make payments on time.
What Can You Use a $20,000 Personal Loan for?
A personal loan is money that you borrow from a bank, credit union, or online lender that you pay back in regular installments with interest, usually over about two to seven years. One feature of personal loans is the flexibility it provides borrowers in how they can spend their funds. Here are a few common options:
Debt Consolidation
Debt consolidation is one of the most popular uses for personal loans. If your current debt carries high interest rates, you may be able to pay it off in one fell swoop, combining all of your debt under a lower interest rate. Consolidating confers a number of advantages, including saving money in interest and replacing several debts with just one payment, which may be easier to keep track of and pay off on time.
If you consolidate credit cards, be wary of running up more debt on your cards while you pay off your personal loans. You don’t want to increase the amount of debt you’ve taken on.
Medical Expenses
If you’ve had an accident or unexpected illness, and you find yourself with growing medical bills, you may consider a personal loan to help you get them under control. Medical bills can be extremely pricey, so before committing to a loan, see if there is a way to negotiate the price down.
You may also be able to negotiate a payment plan that allows you to pay off your bill in installments, which might be more manageable and wouldn’t require taking out a loan that saddles you with interest payments.
Home Improvements
Borrowing money for home improvements is sometimes necessary and smart. For example, repairing a leaking roof in a timely manner can help prevent further damage to your home, which could cause pricier repairs down the road. In some cases, improvements or remodels can increase the value of your home.
That said, beware of taking out loans for home improvements that are simply “wants.” For example, it may not be prudent to borrow money to install a hot tub.
Funeral Expenses
In 2021, the median cost of a funeral was approximately $7,848, according to the National Funeral Directors Association. Personal loans may be an option for those who can’t afford to pay these expenses out-of-pocket.
Vacation Expenses
You can use a personal loan to pay for anything, but should you? The answer is likely no. When it comes to discretionary spending, like vacations, consider saving up money from your paycheck to cover the cost. Otherwise, because you’re paying interest, your vacation could end up costing you a lot more than the sticker price.
What’s more, if you miss a payment, you’ll be putting your credit score in jeopardy, which may not be worth it for a few days of fun in the sun.
Recommended: 11 Types of Personal Loans
Applying for a $20,000 Personal Loan
To secure your money, you’ll need to get approved for a personal loan. Once you know how much you want to borrow, you may consider getting prequalified for a loan. Lenders will ask you to provide basic information, including your address, income, and Social Security number. They may then perform a soft credit check that won’t hurt your credit score.
Finally, they’ll offer you a prequalified quote, including how much money you qualify to borrow, your monthly payment, and your interest rate. You can use this process to shop around with a few lenders to secure the best quote.
Once you’ve decided which lender to go with, you’ll submit an application. You’ll need to provide proof of income, address, and employment, and you’ll need to submit to a hard credit check.
Recommended: Personal Loan Calculator
Applying for Other Small Loan Amounts
If you don’t qualify for a $20,000 personal loan that you can afford based on your credit, you might consider taking out a smaller loan, such as a $3,000, $5,000, $10,000, or $15,000 personal loan. Smaller loans present less risk to lenders, so you may be able to qualify with a lower score.
The Takeaway
To get the best terms and interest rate for a $20,000 personal loan, you’ll likely need a Good credit score (670 to 739). But no matter your score, shop around and consider using prequalification to find the loan that’s best for you.
Consider personal loans from SoFi, which have no fees and offer low rates for loans of $5,000 to $100,000. Borrowers can receive funds as quickly as the same day their loan is approved.
FAQ
What credit score is needed for a $20,000 personal loan?
To access personal loans from a broad array of lenders offering the best interest rates, you’ll need a credit score of at least 670.
Where can I get a $20,000 loan with bad credit?
Some lenders may offer you a personal loan if you have bad credit. However, they may charge much higher interest rates.
What’s the monthly payment on a $20,000 personal loan?
Your monthly payment will depend on the term you choose and your interest rate. Typically, shorter terms will carry higher monthly payments and lower interest rates, while longer terms will have smaller monthly payments and higher interest rates.
Photo credit: iStock/AsiaVision
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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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$50,000 Personal Loan: What You Should Know
Most people could use a cash injection at some point in their lives. Perhaps they need to cover major home repairs, a big-ticket purchase, or emergency expenses. Whatever the reason, a personal loan may be a good idea, especially for borrowers with a strong credit history.
Read on to learn about $50,000 personal loans. Find out why they might be right for you (and when they may be wrong), how the terms are decided, and possible alternatives to a personal loan for $50K.
What Are Personal Loans?
Personal loans are a convenient way to fund a short-term cash flow problem or consolidate credit card debt. In many cases, once the loan is approved, the funds are deposited to your account within a day or two.
Banks, credit unions, or online lenders can all provide personal loans. The amount of a personal loan typically ranges from $1,000 to $100,000. Payback terms are flexible, running from 12 months to several years, and loan payments are due monthly. Personal loan rates vary depending on the credit score of the borrower: A higher credit score will be rewarded with better terms and a lower interest rate.
Despite their flexibility and convenience, there are pros and cons to personal loans that a borrower should be aware of before they opt for this financing option.
Recommended: How To Create a Personal Cash Flow Statement
Pros and Cons of Getting a $50,000 Personal Loan
One of the biggest advantages of an unsecured personal loan is that no collateral is required, which means you don’t risk losing your home or car. On the other hand, interest rates can be high if your credit score is low, and fees and penalties often apply.
| Pros | Cons |
|---|---|
| Funds received in a lump sum, often within a day or two | If you have poor credit, the interest rate could be higher than other financing options, even credit cards |
| No collateral required if it is an unsecured loan | Few lenders available to borrowers with no financial history |
| Funds can be used for any purpose, unlike a mortgage or auto loan | Potentially high fees and penalties for paying it off early |
| Excellent credit score not required | Interest and fees may be high if your credit score is low |
| Interest rates often beat credit card rates | Adds to your debt and is one more payment to make each month |
| Higher borrowing limits | Monthly payments are higher than minimum payments on a credit card |
Considerations When Looking for a $50,000 Personal Loan
Borrowers should pay special attention to these factors when comparing loans.
Types of Lenders
Three types of lenders offer personal loans: traditional banks, credit unions, and online lenders. Each lender will offer different loan terms, interest rates, and fees.
Online lenders will deliver funds faster, and they may offer lower rates because they have fewer overhead costs, such as physical branches to maintain. Banks and credit unions may offer discounts to their customers who hold checking or savings accounts.
Interest Rates
The biggest consideration for a $50,000 personal loan is the interest rate, because the rate and the length of the loan will determine the total cost of the loan. The shorter the loan, the less interest you will pay, and the lower the total cost.
In most cases personal loans have a fixed interest rate, but some do have variable rates. Variable rate loans often start out with a relatively low interest rate, but the rate can rise significantly later, increasing the monthly payments.
Fees
Origination fees can be hidden in the fine print, so make sure you understand how they impact the annual percentage rate (APR) that you are charged. Also check if there’s a prepayment penalty for paying off your loan early.
Total Repayment Cost
The total repayment cost of a $50,000 loan will depend on the interest rate and the length of the loan. You will make more payments over a longer term, racking up more interest and increasing the total cost of the loan. A shorter term will lower the total repayment cost. To minimize total repayment costs, select a loan with the biggest monthly payment you can comfortably afford and the shortest repayment term.
Monthly Payment Amount
The monthly payment is critical. If a monthly payment offered by a lender seems like a stretch, try to negotiate a longer repayment period. For instance, if a five-year loan is extended to a seven-year loan, you’ll make 84 smaller payments compared to 60 larger payments. Just remember, you’ll pay more interest over the life of the loan.
Credit Score
The minimum credit score to qualify for a $50,000 personal loan will depend on the lender. For such a significant loan amount, a traditional bank or credit union may require a credit score of 650 or more, which is considered a fair credit score. Other lenders may require a credit score of 600. Take steps to improve your score by removing any inaccuracies before you shop for a loan.
Recommended: What Is the Minimum Credit Score Needed To Get a Personal Loan
Debt to Income Ratio
A lender will consider your debt-to-income ratio when qualifying you for a personal loan. This ratio shows what proportion of your income is already used for existing debt, and whether you have enough income to pay the additional personal loan monthly payments. According to Investopedia, a debt-to-income ratio of around 36% or lower is desirable. A higher ratio may mean you’ll pay a higher interest rate.
Collateral
A personal loan is usually “unsecured,” which means that it doesn’t require collateral, such as your home, car, or savings account. If you have bad credit, however, the lender may ask you to provide collateral for a large loan.
Cosigner
One option for a borrower with bad credit is to apply with a cosigner that has good credit. This balances out the credit score calculation. The cosigner agrees to make the payments if you cannot.
How To Qualify for a $50,000 Personal Loan With Bad Credit
A $50,000 loan will be expensive if you have bad credit (read more on the bad credit score range). The best thing to do is to boost your credit score to at least 650. Check for any errors on your credit report, use credit cards sensibly, and pay bills on time.
It is possible to get $50,000 with a lower credit score, but you may have to resort to a secured loan, such as a home equity line of credit (HELOC), or find a cosigner.
Questions To Ask Yourself Before Taking Out a Large Personal Loan
A $50,000 personal loan is a huge financial commitment. Ask yourself the following questions before signing on the dotted line.
How Much Do I Really Need?
Minimizing your debt load means you pay less to lenders in fees and interest. Consider whether you can borrow money from another source at a lower cost and reduce the amount that you need from a personal loan.
Can You Afford the Monthly Payment?
If the monthly payment is going to take a big bite out of your paycheck each month, you may find yourself unable to meet the payments. Make sure your cash flow is sufficient to meet your monthly payments.
Is a Personal Loan Your Best Financing Option?
Look at other options before you settle on a $50,000 personal loan. If you have equity in your home, refinancing your mortgage or obtaining a HELOC might be a better choice. Credit cards and borrowing from family or friends are also good alternatives.
How Will the Loan Affect Your Credit?
When you are shopping for a loan, whether it be for $5,000, $10,000, or $100,000, a lender may pull a soft credit check to prequalify you. This will not affect your credit score. When you formally apply for your loan, the lender will do a hard credit check. This may reduce your credit score by around five points for one year.
Aside from credit checks, personal loans can help build your credit history or seriously hurt it, depending on how you manage your payments. If you make a payment that’s over 30 days late and it gets reported to the credit bureaus, it could lower your credit rating from excellent to fair. But if you use your loan to consolidate existing debt, your score might actually rise because your credit utilization ratio has improved.
Recommended: What’s the Difference Between a Hard and Soft Credit Check?
Alternatives to $50,000 Personal Loans
As we already mentioned, two alternatives to a $50,000 personal loan are a home equity loan or a HELOC. A home equity loan uses your home’s equity as collateral. This type of loan may have longer repayment terms and lower interest rates than personal loans because your home is used as security. However, you risk losing your home if you can’t make the payments.
A HELOC is a revolving line of credit that you can draw from when you need to. It works like a credit card but uses your home as collateral. Again, you risk losing your home if you cannot make the payments.
The Takeaway
Personal loans for $50,000 are easy to find. Traditional banks, credit unions, and online lenders all provide flexible personal loans. The terms of a personal loan will depend on your credit score, and the higher your score the lower your interest rate.
An online lender can prequalify you and deliver funds in a day or two to your account. A bank or credit union may take longer, but they may also offer better terms to their customers. Borrowers should find out the average personal loan interest rate, shop around with different lenders, and look out for origination fees and prepayment penalties hidden in the small print.
Consider a personal loan with SoFi. SoFi personal loans have absolutely zero fees required. No prepayment fees. No late fees.
FAQ
What credit score do I need to get a $50,000 personal loan?
Most lenders will require a credit score of 650 or more, which is considered a fair credit score. Other lenders may require a credit score of 600, but they will charge higher fees and a higher interest rate.
How can you qualify for a $50,000 personal loan?
In general, to qualify for a $50,000 personal loan you will need to show you have sufficient income to make the monthly payments and have a credit score of 650 or higher. You also must be 18 years old and a U.S. citizen, legal resident, or visa holder.
Is it hard to get a 50k personal loan?
It is not difficult to get a $50K personal loan if you have good credit. If you have poor credit, the number of lenders available to you will be limited, and you will likely face higher interest rates and high fees, making the loan quite costly.
Photo credit: iStock/undefined undefined
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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Financial Hardship Loans: What Are They and How Can You Apply?
Some people may have emergency savings to dip into or family or friends who can help them out if the unexpected happens. But for those who can’t access such resources, help may come in the form of a hardship loan, a type of loan offered to help people get through financial challenges, such as unemployment or medical debt.
Taking out a hardship loan can offer the cushion needed until a person’s financial prospects brighten. There are a variety of hardship loans to consider, from personal loans to home equity borrowing, and each has its own application requirements.
What Is a Hardship Loan?
A hardship loan doesn’t have an official definition, but many personal finance institutions may offer their own version of hardship loans. At its core, a hardship loan is a loan that can help you get through unexpected financial challenges like unemployment, medical bills, or caregiving responsibilities.
What Can You Use a Hardship Loan For?
As one of the types of personal loans, a hardship loan typically works much like any standard personal loan. The borrower receives a lump sum of money to use as they need, with few limitations. Potential uses could include:
• Rent or mortgage payments
• Past-due bills
• Everyday expenses like groceries and transportation
• Medical needs
A hardship loan could overwhelm already strained finances, however. Debt in any form will have to be repaid eventually, with interest, even in the case of hardship loans.
Hardship Borrowing Options
When you’re experiencing financial difficulties, you may feel the need to make a quick decision. But assessing your options can help you find the best solution for your needs and financial circumstances. Here are some options you may consider when looking for financing during times of hardship.
Personal Loans
A personal loan allows you to borrow a lump sum of money, typically at a fixed interest rate, that you’ll then repay in installments over a set amount of time. Unlike a credit card, which is revolving debt, a personal loan has a set end date. This allows you to know exactly how much interest you’ll pay over the life of the loan (a personal loan calculator can always help with that determination, too).
The common uses for personal loans are wide-ranging. In addition to using a personal loan to help cover current expenses, you could also use personal loans to consolidate high-interest debt that you may have incurred, whether due to hardship or other reasons.
Typically, personal loan interest rates are lower than credit card interest rates, making them an attractive alternative to credit cards. When it comes to getting your personal loan approved, expect lenders to look at your credit history, credit score, and other factors.
Credit Cards
Some people also may use credit cards to cover hardship expenses. While this strategy can help in the moment, it can lead to larger bills over time.
For instance, a credit card that offers a 0% annual percentage rate (APR) could allow you to minimize interest charges throughout the promotional period. However, you’ll need to ensure the balance is paid in full before the introductory period ends. Otherwise, you could start racking up interest charges quickly, adding to your financial challenges.
Peer-to-Peer Lending
Peer-to-peer (P2P) lending is becoming more common as people seek out nontraditional financing. P2P loans are generally managed through a lending platform that matches applicants with investors.
While it may offer more flexibility than a traditional loan, a P2P lending platform still looks at an applicant’s overall financial picture — including their credit score — during the approval process. Like a traditional loan, a P2P’s loan terms and interest rates will vary depending on an applicant’s creditworthiness.
Generally, lenders in the P2P space will report accounts to credit bureaus just as traditional lenders do. So making regular, on-time payments can have a positive effect on your credit score. And, conversely, making late payments or failing to make payments at all can have a negative effect on your credit score.
Recommended: Understanding How P2P Lending Works
Home Equity
If you own your home, you may consider borrowing against your home’s value. You could do this in the form of a home equity loan, a home equity line of credit (HELOC), or by refinancing your mortgage through a cash-out refinancing option.
With a home equity loan, you’ll pay back the amount borrowed (with interest) over an agreed-upon period of time. While a home equity loan is offered in a lump sum, a HELOC is a revolving line of credit that can allow you to withdraw what you need. However, HELOCs often have variable interest rates, which can make it challenging to plan for repayment.
With a cash-out refinance, on the other hand, you’d refinance your current mortgage for more than what you currently owe, allowing you to get a bit of extra cash to use as you need. This process replaces your old mortgage with a new one.
In all of the options outlined above, if you can’t pay back the loan or follow the agreed-upon terms, there’s the potential that you may lose your house.
401(k) Hardship Withdrawal
It also may be possible to withdraw funds from your retirement plan. Under normal circumstances, a penalty typically is incurred for early withdrawal. There’s a chance the penalty will get waived due to certain types of financial hardship, but exceptions are limited.
Additionally, making a hardship withdrawal from your retirement account means a missed opportunity for these funds to grow. This could potentially put your retirement goals at a disadvantage or later require you to come up with an alternative catch-up savings strategy. In other words, really pause to think it through before using your 401(k) to pay down debt or put toward current expenses.
Alternative Options
While you can use personal loans for a variety of financial needs, there may be other options to consider depending on your situation. For example, if you’re a single parent, you might consider seeking out loans for single moms or dads who have sole financial responsibility for their household. Here are some other options you might explore:
• Employer-sponsored hardship programs: If you’re facing financial hardship, ask your employer if they have an employee assistance program (EAP). Financial assistance might be offered to help employees who have emergency medical bills, who have experienced extensive home damage due to fire or flood, or who have experienced a death in the family. Employees will likely have to meet specific qualifications to receive EAP funds.
• Borrowing from friends and relatives: Asking for an informal loan from a friend or family member is certainly an option for getting through financial hardship, although not one that should be considered lightly. Having clear communication about each party’s expectations and responsibilities can go a long way to keeping a relationship intact. Consider having a written loan agreement that outlines details about the loan, such as the amount, interest rate (even if it’s nominal), and when repayment is expected.
• Community-based resources: There may be specific grants within your community available for people with emergency financial needs. Organizations like 211.org help individuals find the assistance they need. Community-based social services organizations also may be able to make referrals to other organizations as needed.
• Government programs: Federal and state governments list resources on their websites for individuals seeking financial hardship assistance. Depending on your circumstances, you may be eligible for certain government programs that could help reduce expenses for food, childcare, utilities, housing, prescription medication, and others.
The Takeaway
Researching all of your options for financial relief is a wise move. You might find help from government or community resources, your employer, or a friend or family member. Or, you might consider options such as a financial hardship loan, a home equity loan, or a P2P loan.
If you’re looking for financial help in the form of a hardship loan, a SoFi personal loan could be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score*, and it takes just one minute.
Photo credit: iStock/staticnak1983
*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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