A Guide to Unsecured Personal Loans

A Guide to Unsecured Personal Loans

When people look for the right loan to fit their financial needs, one of the options they’re sure to come across is a personal loan, either secured or unsecured. Among the most common uses for personal loans are paying off credit card balances to save on interest costs, funding home renovations, and debt consolidation.

Unsecured personal loans may provide an opportunity to borrow for those who cannot or do not want to use collateral to obtain a loan. However, there’s more to unsecured personal loans than just the collateral factor.

How do you know if an unsecured personal loan is the right choice for you? We’ll dive into exactly what an unsecured personal loan is, the benefits of an unsecured personal loan, and how to choose the best loan for your situation.

What Is an Unsecured Loan?

An unsecured loan is a loan that is not backed by collateral. Compare this to a secured loan, which is backed by an asset such as your home, bank account balances, or vehicle, for example. To have a loan “backed” by an asset means that a bank or lender has the right to take that asset in the event of default on the loan.

Loans backed by collateral are generally considered by banks to be less risky because if the borrower defaults on the loan, they are able to recoup the balance due by seizing the collateralized property.

When loans are viewed as less risky by lenders, they tend to have low interest rates, if everything else is equal. Lenders will also generally approve greater loan amounts when a loan is backed by an asset of value than when it is not.

Unsecured loans, on the other hand, are not backed by collateral. Therefore, they are likely to have higher interest rates and lower loan amounts than secured loans.

What Are Common Uses for Unsecured Personal Loans?

Here are a few of the most common uses for an unsecured personal loan:

Credit Card Payoff

Credit cards tend to have high annual percentage rates (APRs). Currently, the average credit card interest rate is just over 16% . A credit card interest calculator can give you an estimate of how much total interest you’ll pay on the remaining balance and when you’re likely to pay off that balance, given your interest rate and monthly payment.

Some borrowers may use an unsecured personal loan to pay the balance of their credit card debt. Repaying debt with a personal loan that has a lower interest rate than they were paying on their credit card could mean substantial savings on sizable credit card balances. Using a personal loan calculator can give you an estimate of potential savings if you’re thinking of using an unsecured personal loan to pay off a credit card balance.

Debt Consolidation

Debt consolidation is the process of taking out one new loan to pay off multiple debts. The borrower could potentially save money over the life of the loan if the consolidation loan has a lower interest rate than the old loans had. If the borrower makes larger payments over a shorter term length, they could also potentially save money over the life of the loan. This strategy also could be helpful for anyone who does not want to manage multiple payments each month.

Medical Expenses

Medical expenses can put a person in a tough financial situation. Medical bills can sometimes be negotiated and/or payment plans put into place. If these options don’t provide a reasonable path toward paying for past medical services, some borrowers may opt to take out a personal medical loan to cover any remaining balance.

Home Projects

Whether it’s something big like adding a bedroom to a home or something small like replacing kitchen fixtures, homeowners might consider an unsecured personal loan, also called a home improvement loan, to obtain funding for a home project.

This could be especially useful for someone who needs cash for immediate repairs or emergencies. An unsecured personal loan can be an alternative to taking out a home equity loan or home equity line of credit for remodeling or repairs, both of which are secured loans and require equity in your home.

What Are Some Different Types of Unsecured Loans?

Many personal loans are unsecured loans. They are installment loans, paid back over a set term on a regular payment schedule with either a fixed or variable interest rate.

Federal student loans are another type of unsecured loan, and come with their own unique requirements, protections, repayment options, grace periods, and federal regulatory requirements that must be met.

A credit card is also a type of unsecured loan. Essentially, when you’re approved for a credit card, you’re being approved for a revolving line of credit. Instead of a lump sum loan, it’s a loan where you’re basically borrowing what you need when you need it — and you can borrow again and again as long as you pay it back.

Why Choose an Unsecured Personal Loan?

Ultimately, every borrower must decide what makes the most sense for themselves and their financial situation when making the secured versus unsecured loan decision. There are some common reasons for choosing an unsecured loan, though.

•  Processing ease and time. A lender will likely require fewer pieces of documentation for an unsecured personal loan than its secured counterpart. Why? With a secured loan, the lender needs to provide proof of the value of the collateral — and that can take time.

•   Consistent payments. When consolidating debt, using an unsecured personal loan that has a fixed interest rate and a specific end date may make getting out of debt an attainable financial goal.

•   Potentially low interest rates. The interest rate a loan applicant is approved for will depend on a variety of factors, but an unsecured personal loan’s interest rate will likely be lower than many credit card interest rates.

•   Flexibility. An unsecured personal loan can be used for a variety of purposes. There are some restrictions, though, so it’s important to check with the lender to make sure you’re using the funds properly.

•   No collateral. An unsecured personal loan does not require collateral to be put up as a loan guarantee. Some people may not want to risk an asset when seeking financing.

Applying for an Unsecured Personal Loan

First, and as with any financial commitment, make sure your finances are in order. Checking your credit report regularly is a good way to catch any possible errors and correct them, minimizing any negative affect on your credit score.

Unsecured personal loans typically require a higher level of creditworthiness than a secured personal loan does. If you’re planning to apply for an unsecured personal loan in the future, you can start by doing things like making timely credit card payments to help responsibly build up your credit.

Recommended: How to Pay Tax on Personal Loans

If you have a weaker credit score, however, all is not lost. Many lenders will consider loaning money to borrowers with a weaker credit score or not enough credit history if they have a cosigner or coborrower with a more favorable credit history, consistent income, and other positive financial attributes.

Next, find a reputable lender that offers unsecured personal loans. Some things to look for include potential interest rates you might qualify for, terms that work for you, and any extra fees (origination fees or prepayment penalties, for example) so that you understand the true cost of the loan.

The Takeaway

For some of life’s many curveballs — or opportunities — the occasional need for an unsecured personal loan might arise. With no fees and competitive fixed rates, a SoFi Personal Loan may be the right option for your financial needs.

See what SoFi has to offer and get pre-qualified in one minute.
 


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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11 Types of Personal Loans & Their Differences

Even with the strictest budgeting and savviest spending, there may come a time when you face an expense that you just can’t cover with cash. It might be tempting to put the expense on a credit card. While that can be one solution, there are other options.

A personal loan is a type of loan that is offered by many banks, credit unions, and online lenders like SoFi. Unlike a mortgage loan or car loan which specifies what the money should be spent on, a personal loan doesn’t have as many restrictions and can typically be used to pay for a variety of expenses.

A variety of factors will influence which type of personal loan is right for you, like how much money you plan to borrow, your credit and income, and how much debt you already have. Read on for a few different types of personal loans explained.

Unsecured or Secured

A common type of personal loan is an unsecured personal loan. This means that there is no collateral backing up the loan. This can make them riskier for lenders. Approval and interest rates for unsecured personal loans are generally based on a person’s income and credit score, but other factors may apply.

Unlike an unsecured loan, there is some sort of collateral backing up a secured personal loan. For example, think of a home mortgage: if the borrower does not make payments, the bank or lender can seize the asset — the home — used to secure the loan as collateral.

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

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

Unsecured Personal Loan

Secured Personal Loan

No collateral needed Requires an asset to be used as collateral
Higher interest rates compared to secured personal loan May have lower interest rate than unsecured personal loan
Approval based on applicant’s income, credit score, and other factors Approval based on value of collateral being used, in addition to applicant’s creditworthiness
Funds may be available in as little as a few days Processing time can be longer due to need for collateral valuation

Recommended: Choosing Between a Secured and Unsecured Personal Loan

Variable or Fixed Interest Rate

A personal loan with a fixed interest rate will have the same interest rate for the life of the loan. This also means you’ll have the same fixed monthly payment and, based on scheduled payments, know upfront how much interest you’ll pay over the life of the loan.

The interest rate on a variable rate loan may change over the life of the loan, fluctuating based on the prevailing short term interest rates. Typically, the starting interest rate on a variable rate loan will be lower than on a fixed rate loan, but the interest rate is likely to change as time passes. Variable rate loans are generally tied to well-known indexes, such as the 1-month LIBOR .

If you’re trying to decide on a variable or fixed-rate personal loan, this summary might be helpful:

Variable Interest Rate

Fixed Interest Rate

May have lower starting interest rate than a fixed-rate personal loan Interest rate remains the same for the life of the loan
Payment amount may vary from month to month Monthly payment will not change
Might be desirable for a short-term loan if current interest rate is low If predictable payments are desired, a long-term loan with a fixed rate might be the way to go
Maximum interest rate may be capped Potential to cost more in interest payments over the life of the loan

Debt Consolidation Loan

This type of personal loan refinances existing debts into one new loan. Ideally, the interest rate on this new debt consolidation loan is lower than the interest rate on credit card debt, which may mean you spend less money in interest over the life of the loan. With a debt consolidation loan, you may only have to manage one single monthly payment.

Cosigned

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

Coborrowers and co-applicants are other terms you might hear if you’re interested in borrowing a personal loan with the assistance of a friend or family member. A coborrower essentially takes out the loan with you.

Your coborrower’s name will also be on the loan so they’ll be equally responsible for making sure payments are made on time. A co-applicant is the person applying for a loan with you. When the loan application is approved, the co-applicant becomes the coborrower.

Want to see if a personal loan is right for you?
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rates. Find your rate today.


Personal Lines of Credit

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

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

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

Credit Card Cash Advances

Some credit cards offer the option to borrow cash against the total cash advance limit. This is called a credit card cash advance. The available cash advance amount may be different than the total available credit for purchases — the information is typically included on each credit card statement. Depending on the credit card company’s policy, there are a few options to secure a cash advance: you can use your credit card at an ATM to withdraw money, borrow a cash advance from a credit union or bank, or request a cash advance from the credit card company directly.

Cash advances typically have some of the highest rates around. There are often additional credit card fees associated with a cash advance transaction. Check your credit card disclosure terms for full details before making a cash advance.

Different Types of Personal Loan Uses

Personal loans can be used for nearly any personal expense. Here are a few reasons people consider borrowing money with a personal loan.

Planning a Wedding

The dress, flowers, catering, photographer, venue fees — the list of wedding expenses can go on and on. While Covid-19 put a halt on many weddings and, therefore, wedding spending, wedding experts expect that celebrations, along with spending, will resume as long as it’s safe to do so. A personal loan for weddings is one option that can be used to cover all or part of costs.

Moving Expenses

Whether you’re moving across the country or just across town or, the cost of moving can add up quickly. A personal loan could potentially help you make ends meet as you’re relocating.

If you want to do a few renovations or upgrades on your new place, a personal loan could help with that too.

Consolidating Debt

Another reason people use personal loans is to consolidate debt. Debt consolidation could allow you to simplify your repayment since you may only have one single payment to keep track of every month.

Depending on the rate and terms you qualify for, consolidating your debt could potentially help you save money on interest payments while you pay down your debt.

Taking a Vacation

Planning a vacation? Maybe your niece is getting married in Greece or you and your partner are planning a honeymoon. If budgeting and saving aren’t enough to get you to your vacation goal, a vacation loan could be one option to help you fill in the gaps.

Making a Large Purchase

Whether it’s a new TV, new patio furniture, or an engagement ring, if the cost of your dream item is a little out of your budget, a personal loan could help you afford the option you really want.

The Takeaway

Armed with some knowledge about types of personal loans, you may be ready to make an educated decision about whether or not a personal loan is right for you. As you consider your options, take a look at SoFi.

There are absolutely no fees when you borrow a personal loan with SoFi and as a SoFi member, you’ll be eligible for additional benefits like career coaching.

Want to find out if a personal loan makes sense for you? You can find out if you pre-qualify, and at what rates, in just a few minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Using a Coborrower on Your Loan

Using a Coborrower on Your Loan

Qualifying for a loan is sometimes easier said than done. Just because you need a mortgage to buy your first home or a personal loan to consolidate and pay off credit card debt, doesn’t mean a lender is going to magically understand and give you the exact loan and interest rate you want.

Thankfully, if you’re struggling to qualify for a loan, you might be able to ask a friend or family member to step in to help. If they agree, essentially, you leverage their income, credit score, and financial history to help you get a loan that’s right for you.

The downside is that this type of borrowing (as in, borrowing money with another person) can get a little jargon-heavy. “Coborrower,” “co-applicant,” and “cosigner” are all terms that are going to come up. Let’s dive into the details.

What is a Coborrower?

A loan co-borrower basically takes on the loan with you. Their name will be on the loan with yours, making them equally responsible for paying back the loan. They will also have part-ownership of whatever this loan buys — for example, a co-borrower will own half of the home if you take out a mortgage together.

Spouses, for example, might coborrow when buying property, or if they are taking out a home improvement loan for a remodel. You and your co-borrower may qualify for a larger loan or better loan terms than if you were to take out a loan solo, and this way you both own the investment and are equally responsible for loan payments.

Another quick piece of jargon: A co-applicant is the person applying for the loan with you. Once the loan is approved, the co-applicant becomes the co-borrower.

Coborrower vs. Cosigner

A cosigner, on the other hand, plays a slightly different role than that of a co-borrower.

A cosigner’s financial history and credit score is factored into the loan decision, and their positive financial history can be a boon to the primary applicant’s loan application. But they do not have ownership of any property the loan might be used to purchase, they do not receive any loan proceeds, and would only help make your loan payments if you were unable to make them.

Cosigning helps to assure lenders that someone will be able to pay back the loan. Typically, a cosigner with a stronger financial history than you have, which can help you get a loan you might not qualify for on your own (or for better terms than you may qualify for on your own). Lenders might be more comfortable lending to you if your cosigner has a strong credit score and a dependable income, but loan underwriting criteria (that is, the personal financial factors used to determine who gets a loan at what rates and terms) differ from lender to lender.

For example, let’s go back to our hypothetical home-buying experience. A parent with a strong credit history might cosign their child’s mortgage, allowing the child to get a lower interest rate on their home loan than they would have on their own. The parent wouldn’t own the home, but they would have to make mortgage payments if their child couldn’t.

Benefits of a Coborrower

Having a co-borrower can help two people who both want to achieve a financial goal — like homeownership or buying a new car — put in a stronger application than they might have on their own. Because the lender will have double the financial history to consider (and two borrowers to rely on when it comes to repayment), the loan is a potentially less risky prospect for them, which could translate to more favorable terms.

Basically, having a co-borrower has the potential to improve the borrowing power for both partners involved — whereas having a cosigner is generally more beneficial to the primary applicant than it is for the cosigner.

When Does Having a Coborrower Make Sense?

Applying with a co-borrower makes the most sense when you’re working as a team toward some financial objective. Spouses buying a house together is a common example, but a joint personal loan with a partner might also be considered in order to fund home improvements or consolidate debt to get your finances in better shape before getting married. Business partners also sometimes coborrow loans to help get their ventures up and running.

Many companies, including SoFi, now allow qualified individuals to coborrow on personal loans. That means you and your coborrower (whether they’re your spouse, friend, or a member of your family) may be able to qualify for an even better interest rate and fund your financial goals that much more easily.

Awarded Best Personal Loan of 2022 by NerdWallet.
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The Takeaway

It’s a big decision to take out a loan, so it may be a good idea to make sure both coborrowers are 100% ready to take on this financial commitment. Both of you will be responsible for making monthly loan payments.

Thinking about coborrowing on a personal loan? Check out your rate on a SoFi Personal Loan in 1 minute.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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What Happens if You Default on a Personal Loan?

Your car breaks down. Your furnace blows cold air. Your precious pup needs surgery — pronto.

Yep, life can be challenging when unexpected expenses pop up. When that happens, you may need to reassess how to spend the month’s budget, and you might be wondering what happens if you don’t make payments on a personal loan.

In this post, we’ll share the potential consequences of not paying back a personal loan.

What can happen if you miss one payment, of course, is quite different from what can happen if you miss several, so we’ll take you through possible ramifications along the spectrum.

What Does It Mean to Default on a Personal Loan?

Just as with a mortgage or student loans, defaulting on a personal loan means you’ve stopped making payments according to the loan’s terms. You might be just one payment behind, or you may have missed a few. The point at which delinquency becomes default with a personal loan — and the consequences — may vary depending on the type of loan you have, the lender, and the loan agreement you signed.

How Does Loan Default Work?

Even if you miss just one payment on a personal loan, you might be charged a late fee. Your loan agreement should have information about when this penalty fee kicks in — it might be just one day or a couple of weeks — and whether it will be a flat fee or a percentage of your monthly payment.

The agreement also should tell you when the lender will get more serious about collecting its money. Because the collections process can be costly for lenders, it might be a month or more before yours determines your loan is in default. But at some point, you can expect the lender to take action to recover what they’re owed.

What Are the Consequences of Defaulting on a Personal Loan?

Besides those nasty late fees, which can pile up fast, and the increasing stress of fretting about a debt, here are some other significant consequences to consider:

Damage to Your Credit

Lenders typically report missing payments to the credit bureaus when borrowers are more than 30 days late. Which means your delinquency will likely show up on your credit reports and could cause your credit scores to go down. Even if you catch up down the road, those late payments can stay on your credit reports for up to seven years.

If you actually default and the debt is sold to a collection agency, it could then show up as a separate account on your credit reports and do even more damage to your scores.

Though you may not feel the effects of a lower credit score immediately, it could become a problem the next time you apply for new credit — whether that’s for a credit card, car loan, or mortgage loan. It could even be an issue when you try to rent an apartment or need to open new accounts with your local utilities.

Sometimes, a lender may still approve a new loan for borrowers with substandard credit scores, but it might be at a higher interest rate. This means you’d pay back more interest over the life of the loan, which could set you back even further as you work toward financial wellness.

Dealing with Debt Collectors

If you have a secured personal loan, the lender may decide to seize the collateral you put up when you got the loan (your car, personal savings, or some other asset). If it’s an unsecured personal loan, the lender could come looking for payment, either by working through its in-house collection department or by turning your debt over to a third-party collection agency.

Even under the best conditions, dealing with a debt collector can be unpleasant, so it’s best to avoid getting to that stage if you can. But if you fall far enough behind to be contacted by a debt collector, you should be prepared for some aggressive behavior on the part of the collection agency. These agents may have monthly goals they must meet, and they could be hoping you’ll pay up just to make them go away.

There are consumer protections in place through the Fair Debt Collection Practices Act that clarify how far third-party debt collectors can go in trying to recover a debt. There are limits, for example, on when and how often a debt collector can call someone. And debt collectors aren’t allowed to use obscene or threatening language. If you feel a debt collector has gone too far, you can file a complaint with the Consumer Financial Protection Bureau.

You Could Be Sued

If at some point the lender or collection agency decides you simply aren’t going to repay the money you owe on a personal loan, you eventually could end up in court. And if the judgment goes against you, the consequences could be wage garnishment or, possibly, the court could place a lien on your property.

The thought of going to court may be intimidating, but failing to appear at a hearing can end up in an automatic judgment against you. It’s important to show up and to be prepared to state your case.

A Cosigner Could Be Affected

If you have a cosigner or co-applicant on your personal loan, they, too, could be affected if you default.

When someone cosigns on a loan with you, it means that person is equally responsible for paying back the amount you borrowed. So if a parent or grandparent cosigned on your personal loan to help you qualify, and the loan goes into default, the lender — and debt collectors — may contact both you and your loved one about making payments. And your cosigner’s credit score also could take a hit.

Is There a Way to Avoid Defaulting on a Loan?

If you’re worried about making payments and you think you’re getting close to defaulting — but you aren’t there yet — there may be some things you can do to try to avoid it.

Reassessing Your Budget

Could you maybe squeak by and meet all your monthly obligations if you temporarily eliminated some expenses? Perhaps you could put off buying a new car for a bit longer than planned. Or you might be able to cut down on some discretionary expenses, such as dining out and/or subscription services. This process may be a bit painful, but you can always revisit your budget when you get on track financially. And you may even find there are things you don’t miss at all.

Talking to Your Lender

If you’re open about your financial issues, your lender may be willing to work out a modified payment plan that could help you avoid default. Some lenders offer short-term deferment plans that allow borrowers to take a temporary break from monthly payments if they agree to a longer loan term.

You won’t be the first person who’s contacted them to say, “I can’t pay my personal loan.” The lender likely has a few options to consider — especially if you haven’t waited too long. The important thing here is to be clear on how the new payment plan might affect the big picture. Some questions to ask the lender might include: “Will this change increase the overall cost of the loan?” and “What will the change do to my credit scores?”

Recommended: How Deferred Payments Impact Credit Scores

Getting a New Personal Loan

If your credit is still in good shape, you could decide to get proactive by looking into refinancing the old personal loan with a new personal loan that has terms that are more manageable with your current financial situation. Or you might consider consolidating the old loan and other debts into one loan with a more manageable payment.

This strategy would be part of an overall plan to get on firmer financial footing, of course. Otherwise, you could end up in trouble all over again.

But if your income is higher now and/or your credit scores are stronger than they were when you got the original personal loan, you could potentially improve your interest rate or other loan terms. (Requirements vary by lender.) Or you might be able to get a fresh start with a longer loan term that could potentially lower your payments.

If you decide a new personal loan is right for your needs, the next step is to choose the right lender for you. Some questions to ask lenders might include:

•   Can I borrow enough for what I need?

•   What is the best interest rate I can get?

•   Can I get a better rate if I sign up for automatic payments?

•   Do you charge any loan fees or penalties?

•   What happens if I can’t pay my personal loan because I lost my job? Do you offer unemployment protection?

Shopping for a personal loan online can be fast and convenient. With a SoFi Personal Loan, for example, you can find your interest rate in minutes without impacting your credit score.* And with SoFi, you’ll have access to live customer support seven days a week.

Is There a Way Out of Personal Loan Default?

Even if it’s too late to avoid default, there are steps you may be able to take to help yourself get back on track.

After carefully evaluating the situation, you may decide you want to propose a repayment plan or lump-sum settlement to the lender or collection agency. If so, the Consumer Financial Protection Bureau (CFPB) recommends being realistic about what you can afford, so you can stick to the plan.

If you need help figuring out how to make it work, the CFPB says, consulting with a credit counselor may help. But consumers should be cautious about companies that claim they can renegotiate, settle, or change the terms of your debt: the CFPB warns that some companies promise more than they can deliver.

Finally, as you make your way back to financial wellness, it can be a good idea to keep an eye on two things:

1. The Statute of Limitations

For most states, the statute of limitations — the period during which you can be sued to recover your debt — is about three to six years. If you haven’t made a payment for close to that amount of time — or longer — you may want to consult a debt attorney to determine your next steps. (Low-income borrowers may even be able to get free legal help .)

2. Your Credit Score

Tracking your credit reports — and seeing first-hand what helps or hurts your credit scores — could provide extra incentive to keep working toward a healthier financial future. You can use a credit monitoring service to stay up to date, or you could take a DIY approach and check your credit reports yourself. Every U.S. consumer is entitled to a once yearly free credit report available at annualcreditreport.com , which is a federally authorized source.

The Takeaway

If your debt seems daunting right now, and you’re struggling to make payments, some proactive planning could help you avoid falling so far behind that you default on your personal loan. That plan may include talking to your current lender about modified payment terms — or it might be time to consider a new personal loan to consolidate high-interest debt.

The good news is there’s help out there. And the sooner you act, the more options you may have to protect your credit and stay away from the serious consequences of defaulting.

Wondering if a personal loan is the right move for you? Learn more about how to apply for a SoFi personal loan.


*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.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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

6 Simple Ways to Reduce a Mortgage Payment

It’s often said that your mortgage payment should be no more than 28% of your gross monthly pay. A really conservative take is that your payment should be no more than 25% of net monthly pay.

In any case, here are suggestions to make your payments more palatable. A lower mortgage payment could mean lower blood pressure, not to mention the ability to pay down other debt, build investments, and have a healthy emergency fund.

6 Ways to Lower Your Mortgage Payments

1. Give Your Mortgage a Bonus

If you get a bonus or a windfall, consider throwing some of that money at your mortgage. If you are in a position to make a major lump-sum payment on your home loan, you may benefit from mortgage recasting.

With recasting, your lender will reamortize the mortgage but retain the interest rate and term. The new, smaller balance equates to lower monthly payments. Many lenders charge a servicing fee and have equity requirements to recast a mortgage.

Simpler options:

•   Make a lump-sum payment toward the mortgage principal.

•   Make extra payments on a schedule or whenever you can.

It’s a good idea to tell your lender that you want to put the extra money toward the principal and not the interest.

Paying extra toward the principal provides two benefits: It will slowly reduce your monthly payment, and it will pare the total interest paid over the life of the loan.

Refinance your mortgage and save–
without the hassle.


2. Reap Rental Income at Home

There are at least two options here: “House hacking” and adding an accessory dwelling unit (ADU).

House hacking can mean buying a two- to four-unit multifamily building for little down and living in one of the units. Multifamily homes with up to four units are considered residential when it comes to financing. Owner-occupants can choose Federal Housing Administration (FHA) loans, Veterans Affairs (VA) loans, or conventional financing.

Some people house-hack a single-family home, which just translates to having housemates or short-term rental guests.

An ADU, aka an in-law suite, granny flat, or carriage house, is a secondary dwelling unit on the same lot as a primary single-family home. It can be a detached cottage, a garage or basement conversion, or an attached unit.

With any addition or renovation, you might want to estimate return on investment — how much you’d charge and how long it would take to recoup the cash you put in before turning a profit.

3. Extend the Term of Your Mortgage

If your goal is to reduce your monthly payment — though not necessarily the overall cost of your mortgage — you may consider extending your mortgage term. For example, if you took out a 15-year mortgage, refinancing into a 30-year mortgage would amortize your payments over a longer term, thereby reducing your monthly payment.

This technique could lower your monthly payment but likely will cost you more in interest in the long run.

Just because you have a new 30-year mortgage doesn’t mean you have to take 30 years to pay it off. You’re often allowed to pay off your mortgage early without a prepayment penalty by paying more toward the principal.

4. Get Rid of Mortgage Insurance

Mortgage insurance can add a significant amount to your monthly mortgage payments. Luckily, there are ways to eliminate these payments, depending on which type of loan you have.

Getting Rid of the FHA Mortgage Insurance Premium

Consider your loan origination date.

•   July 1991 to December 2000: If your loan was originated between these dates, you can’t cancel your MIP.

•   January 2001 to June 3, 2013: Your MIP can be canceled once you have 22% equity in your home.

•   June 3, 2013, and later: If you made a down payment of at least 10% percent, MIP will be canceled after 11 years. Otherwise, MIP will last for the life of the loan.

Another way to shed MIP is to refinance to a conventional loan with a private lender. Many FHA homeowners of late have enough equity to refinance.

Getting Rid of Private Mortgage Insurance

If you took out a conventional mortgage with less than 20% down, you’re likely paying PMI. Ditching your PMI is an excellent way to reduce your monthly bill.

To request that your PMI be eliminated, you’ll want to have 20% equity in your home, whether through your own payments or through home appreciation.

Recommended: Thinking about starting a new home renovation project? Use this Home Improvement Cost Calculator to get an idea of what your project will cost.

Your lender must automatically terminate PMI on the date when your principal balance reaches 78% of the original value of your home.

Check with your lender or loan program to see when and if you can get rid of your PMI.

5. Appeal Your Property Taxes

Your property taxes are based on an assessment of your house and land conducted by your county’s tax assessor. The higher they value your property, the more taxes you’ll pay.

If you think you’re paying too much in taxes, you can appeal the assessment. If you do, be prepared with examples of comparable properties in your area valued at less than your home. Or you may also show a professional appraisal.

To challenge an assessment, you can call your local tax assessor and ask about the appeals process.

6. Refinance Your Mortgage

One of the best ways to reduce monthly mortgage payments is to refinance your mortgage. Refinancing (not to be confused with a reverse mortgage) means replacing your current mortgage with a new one, with terms that better suit your current needs.

There are a number of signs that a mortgage refinance makes sense, such as an improved financial situation, the ability to lower your rate, or the desire to secure a fixed rate.

Refinancing can result in a more favorable interest rate, a change in loan length, a reduced monthly payment, and a substantial reduction in the amount you owe over the life of your mortgage.

The Takeaway

How to lower your mortgage payment? There are several possible ways. And who wouldn’t love a thinner house payment?

If refinancing during this time of low rates could help, SoFi offers refinancing and cash-out refinancing.

And SoFi offers a range of fixed-rate loans for owner-occupied primary residences, second homes, and investment properties.

It takes just two minutes to find your rate.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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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