If you have a car loan, you may want to think about refinancing it due to economic factors or a change in your personal finances. Perhaps you can snag a lower interest rate or you’d like to consider a longer term so your monthly payment takes a smaller bite out of your take-home pay.
If you’re thinking of refinancing an auto loan, it’s wise to delve into the key features and options to see what the best move would be. Read on to learn more.
• Refinancing a car loan involves replacing an existing loan with a new one, often to secure better interest rates or terms.
• Lower interest rates through refinancing can reduce the total interest paid over the life of the loan.
• Extending the loan term can lower monthly payments but may increase the overall cost due to more interest accrued.
• Improved personal financial situations or lower market interest rates can make refinancing a beneficial option.
• Personal loans can serve as an alternative to refinancing, especially if the car does not qualify for refinancing or if the borrower is underwater on the loan.
When Refinancing a Car Loan Might Make Sense
Refinancing a car loan is the process of getting a new loan that essentially replaces the existing loan. The process involves filing a new loan application, and lenders will generally evaluate potential borrowers based on factors like their credit score and history to determine their new loan terms and interest rate.
There are pros and cons to refinancing a car loan. Generally, borrowers refinance to secure a better interest rate or more favorable terms. For example, a lower interest can help borrowers pay less in interest over the life of the loan (just be sure to factor in fees that may be due on the new loan). Sometimes, borrowers may extend their repayment term to secure lower monthly payments. This can make the loan payments more affordable on a monthly basis, though ultimately it makes the loan more expensive in the long run.
Now that you know you can refinance a car loan, here’s a look at when doing so might make sense.
You Think You Can Do Better Than That Dealer-Sourced Loan
When you finance your car through a dealer, it can feel as though you’re going through some mysterious selection process. After the fact, you may realize that you could’ve found a better deal on your loan. Or, you might just come to hate working with your current lender. In either case, it might make sense to look into refinancing your car loan.
Your Overall Financial Position Has Improved
Perhaps your car loan was offered to you at a time when your finances weren’t as solid as they are now. Maybe you’ve since gotten a better job, paid off some debts, or have been working on making consistent payments on debts. Borrowers who have seen improvement in their financial situation or credit score may want to consider refinancing.
In that scenario, you may be able to qualify for a personal loan at a better interest rate than your original auto loan. This could lead to savings on interest, potentially lowering your monthly payments. With a personal loan calculator, you can compare what you’re currently paying to the estimated payments you might have with a new loan.
Interest Rates Have Improved Since You Borrowed the Original Loan
Another reason to consider refinancing a car loan is if interest rates have changed since you originally bought the car. Interest rates on auto loans are influenced by benchmark rates, like those set by the Federal Reserve.
If the Federal Reserve rate is low, interest rates for borrowers may also be lower. But as the Federal Reserve rate increases, the cost of borrowing money is also likely to increase.
An Alternative to Car Loan Refinancing: Personal Loans
In some situations, you might consider taking out a personal loan to pay off your auto loan rather than refinancing.
In fact, debt consolidation is one of the common uses for personal loans. This option might make sense if you have an older car or a model or mileage that disqualifies you from refinancing or if you’re underwater on your loan.
With an unsecured personal loan, which is the main type of personal loan you’ll come across, you can apply for the remaining amount of the car loan. Just keep in mind that lenders have minimum loan amounts and other requirements to consider.
To decide if this option makes sense, you’ll want to see if you get your personal loan approved for a better interest rate than your auto loan. Because auto loans are secured (meaning they’re backed by collateral — in this case, your car) they tend to have lower rates than unsecured loans, though not always, depending on your financial specifics.
The Takeaway
Refinancing a car loan may make sense for borrowers who can secure a better interest rate or otherwise more preferable terms than they have on their existing car loan. If a borrower’s financial situation has improved or if benchmark interest rates have fallen, they may consider looking into refinancing options. One option could be to replace your current auto loan with a personal loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
What to be aware of when refinancing a car loan?
When refinancing a car loan, make sure to consider whether there are pre-payment fees or whether doing so will impact your car warranty. Also, keep in mind that extending a loan’s term to lower your monthly payments can mean paying more interest over the life of the loan.
What disqualifies you from refinancing a car loan?
Several factors can disqualify you from refinancing a car loan (or doing so with favorable terms). These include low credit score, high debt-to-income ratios, and vehicle restrictions.
What are downsides of refinancing a car loan?
Among the downsides of refinancing a car loan are the fees that may be charged, having a longer loan term which can mean more interest paid over the life of the loan, and a small, temporary impact on your credit score due to the hard credit inquiry involved.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Three ways to consolidate and pay off debt are a balance transfer credit card, a personal loan, or a combination of the two. Which option is best depends on the type and amount of debt you have and your ability to pay off that debt over time.
For instance, a balance transfer credit card might be a smart choice if you have good credit and debt across a few credit cards. On the other hand, a personal loan might be better if you have multiple types of debts (credit cards plus other types of loans) and need more time to pay off your debt.
Read on to learn more about the choice between a balance transfer or personal loan, including the pros and cons of each option and how to leverage the benefits of both.
Key Points
• Balance transfer cards and personal loans are both ways to pay down debt, and you can use both simultaneously.
• Balance transfer cards can allow you to pay down debt with no or low interest for a period of 12 to 18 months.
• Personal loans can allow you to consolidate debt into a single, more convenient loan, often at more favorable rates.
• Each option has its advantages and disadvantages, so research is recommended.
• For some people, a combination of a balance transfer card and a personal loan will be the best way to deal with their debt.
What Is a Personal Loan?
A personal loan is a lump sum borrowed from traditional banks, credit unions, or online lenders that you agree to pay back over time, usually with interest. The borrower will make regular payments, usually on a monthly basis, to the lender over a fixed period of time until the loan is repaid.
Unlike many other types of loans, personal loans can be used for just about anything. Often, these loans are used to resolve short-term cash flow problems, cover unexpected expenses during an emergency, or pay for large expenses.
Personal loans for debt consolidation involve a borrower taking out a personal loan and using it to pay off balances on high-interest credit cards and other debts. Because personal loans typically have lower interest rates than credit cards, the borrower can potentially save money while paying off their debt.
Though there are different types of personal loans, they’re most often unsecured loans. This means they’re not backed by collateral like, say, your mortgage is backed by your house. As such, the lender will usually assess your creditworthiness and financial situation when determining whether to approve you for the loan.
A balance transfer credit card is a credit card that allows you to transfer balances from other accounts. Let’s say an individual has outstanding balances on three or four high-interest credit cards. They could transfer that debt to a balance transfer credit card that charges a lower or even 0% annual percentage rate (APR).
If a lower rate is offered, it will usually last for a limited period of time — 12 to 18 months is the norm. Should that person pay off their debt within that window, they could save money on interest and have all of their payments go directly toward paying down the principal. After the promotional period ends, however, the interest rate could be quite high, usually higher than the interest rate on a personal loan.
Balance Transfer vs Personal Loan for Debt Consolidation
When deciding on either a balance transfer credit card or personal loan for debt consolidation, consider the type of debt you have and your capacity for monthly payments.
A balance transfer credit card might be the right choice if you’re confident you can pay off your debt within the APR introductory period. However, a personal loan might be the better choice if you find it difficult to resist spending on a credit card, or if you have debt that needs to be paid off over a longer period of time. Personal loans are also preferable if you want a fixed interest rate and would like to know ahead of time how much your monthly payment will be, as it’s going to be the same each month.
Balance Transfer Credit Card vs. Personal Loan
Balance Transfer Credit Card
Personal Loan
Types of Debt You Can Consolidate
• Generally best for credit card debt
• Good for multiple types of debt
Interest Rates
• Can offer a lower intro APR, after which the rate will likely be higher than a personal loan
• Generally a variable rate
• Tend to have lower rates compared to credit cards
• Typically a fixed rate
Fees
• One-time balance transfer fee that’s usually 3% to 5% of the amount transferred
• One-time origination fee ranging from 0% to 8% of the loan amount
Terms
• Promo APR offers generally limited to 18-21 months
• Can have terms up to 84 months or longer
Repayment
• Only have to make the minimum required payment
• Fixed payments over a set period of time, with a predetermined payoff date
Credit Score Requirements
• Generally need at least good credit (670+) to qualify
• Best rates and terms reserved for those with good credit
Credit Score Impacts
• Might increase credit utilization, which can negatively affect credit
• Might lower your credit utilization, which can help credit
Pros and Cons of Personal Loans
Both balance transfer credit cards and personal loans can be good options depending on the amount and type of debt you have. Personal loans generally offer lower APRs, which can be helpful if you have a variety of types of debt that may take some time to pay off. Personal loan terms vary, but it’s possible to borrow up to $100,000 and pay off the balance over several years.
However, your interest rate will also depend on your credit score — a low score can mean a high interest rate. It’s smart to compare a few personal loan rates to find the best offers.
Pros and Cons of Personal Loans for Debt Consolidation
Pros
Cons
Loans can be large enough to consolidate many types of debt.
The interest rate may be high if you have bad credit.
Those with good credit can secure low APRs.
It could be a few years before your debt is fully paid off.
Budgeting is easier with fixed interest rates and monthly payments.
There’s less flexibility in your monthly payments, as they’re fixed.
You have the option to choose from different loan terms.
An origination fee may apply, which could be up to 8% of the loan amount.
Pros and Cons of Balance Transfer Credit Cards
If you only have debt on a few credit cards, a balance transfer credit card might allow you to save on interest while you pay it down. These cards can offer lower or even 0% APRs for a certain period of time, usually for 12 to 18 months. This gives you time to pay off the total balance transferred from other cards.
However, suppose you do not pay off the balance within that window. In that case, the interest rate could rise above the rate you were initially paying before you consolidated the amounts to your balance transfer credit card.
Pros and Cons of A Balance Transfer Credit Card for Debt Consolidation
Pros
Cons
You can get a low or 0% APR for an initial period, thus saving on interest.
You need a good to excellent credit score to qualify.
Once your debt is paid off, you have an additional open credit line, which may boost your credit score.
You may not be able to transfer the full amount of your debt to the card.
Some balance transfer credit cards offer rewards, points, or other perks.
There may be a balance transfer fee, which generally is 3-5% of the balance transferred.
You’ll have the flexibility to pay off as much as you’d like each month with no fixed payment schedule.
If you don’t pay off your debt during the promo period, the interest rate may become higher than that of your initial debt.
Using A Balance Transfer Credit Card and a Personal Loan
A third option for debt consolidation is to use both a personal loan and a balance transfer credit card. You could use a balance transfer credit card to pay off as much high-interest credit card debt as you can at a low APR. Then, you’d take out a personal loan to pay off the rest of your debt at a lower interest rate than what you’re currently paying.
To figure out how much of a personal loan to take out in this scenario, add up your total debt. Next, calculate how much you would have to pay each month in order to pay off your debt in full by the end of the promotional APR.
For example, if you had $4,000 in credit card debt and a 0% APR that lasted for 18 months, you’d have to pay about $222 each month. If you weren’t able to pay that much, you could consider applying for a personal loan to pay off the remaining amount.
The Takeaway
Three ways to proactively consolidate and pay off debt are to use a balance transfer credit card, a personal loan, or a combination of the two. In general, a balance transfer credit card is best for those with good credit and primarily credit card debt. Those with various types of debts and who need a structured debt payment plan may prefer a personal loan. A combination of both can suit a variety of situations.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
What is a balance transfer loan?
A balance transfer is a credit card transaction whereby debt is moved from one account to another. These cards often offer a 0% introductory APR for 12 to 18 months, which means any balances moved to the card could potentially be paid off interest-free. The downsides are that there is often a balance transfer fee, and there may be a limit to the total amount you can transfer to the new card.
Does a balance transfer hurt your credit?
It depends. Opening a new credit card and transferring all your other credit card balances to it could push your credit utilization ratio to its limit, which would hurt your credit score. Your score is also negatively affected from the hard inquiry that results from applying for a new card. However, if you use a balance transfer credit card wisely and pay off all of your higher-interest cards, that will lower your credit utilization ratio and build your score.
Is there a difference between a loan and a balance transfer?
Both a loan and a balance transfer are ways to consolidate debt, but they are not the same thing. A debt consolidation loan is where you take out a loan to pay off your existing debt, while a balance transfer allows you to move your existing debt onto one credit card. Each option has unique pros and cons.
Photo credit: iStock/PeopleImages
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Personal loans are borrowed lump sums that you pay back, with interest, to the lender. Though the money can be used for almost anything, some common uses for personal loans include covering medical bills, paying for home repairs, and consolidating debt.
When you don’t have the savings to cover an important purchase or bill, a personal loan is usually a better alternative to credit cards. Here, take a closer look at what personal loans can be used for, their drawbacks and benefits, and alternative ways to pay for unexpected expenses.
• Personal loans are versatile financial tools used for various purposes including medical bills, home repairs, and debt consolidation.
• They offer an alternative to credit cards by providing lump-sum funding that is repaid in installments.
• Interest rates on personal loans are generally lower than those on credit cards, making them a cost-effective option for large expenses.
• Unsecured personal loans do not require collateral, which simplifies the borrowing process but may involve higher interest rates.
• Personal loans can also fund life events such as weddings or vacations, providing flexibility for personal financial management.
What Can I Use a Personal Loan For?
Personal loans may be used for just about anything “personal,” meaning it’s not a business-related expense. Here are some of the most popular reasons people take out different types of personal loans.
Debt Management and Consolidation
Refinancing or high-interest debt consolidation into better loan terms is one of the most common uses for a personal loan — and one of the most financially savvy. Credit card debt carries some of the highest interest rates out there. Credit cards also typically have variable rates, making it challenging to create a predictable budget to pay down outstanding debt.
Rates for personal loans, on the other hand, tend to be lower than credit card APRs. This can save borrowers a lot of money in interest over the long term. And the fixed payback schedule of a personal installment loan may help borrowers avoid falling into a vicious cycle of revolving debt that can continue indefinitely.
You don’t have to be drowning in credit card debt to benefit from consolidation. For borrowers with multiple loans, consolidating debt with one personal loan can be a useful financial tactic — if the borrower qualifies for good loan terms.
Bottom line: Personal loans can help streamline multiple high-interest debt payments into one payment. Plus, debt consolidation loans tend to have lower rates than credit cards. This could help borrowers save money in interest over time.
The average cost of a wedding in 2025 can range from $10,000 to over $30,000. Unfortunately, many young couples have not saved up enough to pay for their entire wedding themselves. (In many cases, the days when a bride’s parents footed the entire wedding bill are over.)
A personal loan, sometimes referred to as a wedding loan when used for this purpose, can cover some or all of a well-budgeted wedding. Personal loans tend to offer much lower interest rates than credit cards, which some newlyweds may use to fund their big day.
However, before you go this route, think long and hard about whether you really want to start out your married life in debt. Consider if you can actually afford to pay off the loan in a timely manner. If not, it might be better to cut back on your wedding budget, or take more time to save up for the big day.
Bottom line: A wedding loan can help pay for some or all of the wedding costs, which could help you avoid having to use a credit card or tap into your savings.
Unexpected Medical Expenses
When a medical emergency occurs, it’s important for your main focus to be on a healthy outcome. But the financial burden can’t be ignored. Being able to pay for out-of-pocket expenses with a low-rate personal loan may relieve some stress and give you time to heal.
It’s no secret that the cost of medical care in America can be sky-high, especially for the large portion of Americans who have high-deductible health plans. The situation is even more challenging for those who don’t have health insurance coverage at all. According to data from the Kaiser Foundation, about 6% of Americans carry at least $1,000 in medical debt.
Bottom line: Medical emergencies happen. Using a personal loan to help pay for bills and expenses could provide peace of mind.
A low-interest personal loan (also known as a relocation loan) may help defray some out-of-pocket costs associated with moving. A local move can set you back $1,500 on average. Moving 1,000 miles or more typically costs more than $3,000.
And these figures only account for the move itself. As anyone who has relocated knows, hidden costs can and do often pop up, from boxes and storage space to cleaning fees and lost security deposits.
There are also expenses that come with a new home. Most new rentals require upfront cash for a deposit, sometimes totaling three times the monthly rent (first, last, and security). Opening new utility accounts may also require a deposit.
And don’t forget about replacing household items left behind. Even basics like soap, light bulbs, shower curtains, and ketchup can easily total a few hundred dollars.
Lastly, miscellaneous costs can arise during the move itself, such as replacing broken items. Even with insurance, there’s usually a deductible to pay.
Bottom line: Whether you’re relocating across town or across the country, expenses can pile up quickly. A relocation loan can help you pay to move and set up your new home.
Funeral Expenses
Many people have life insurance to cover their own funeral. But what if Mom, Dad, or Grandpa didn’t plan ahead? If the deceased did not plan appropriately to finance their death, and life insurance doesn’t cover the bill, a personal loan can be a quick, easy solution for the family.
Basic costs for a funeral include the service, burial or cremation, and a memorial gathering of friends and family. The median cost of a funeral service with a viewing and burial is $8,300, while the cost of a funeral with cremation is $6,280.
Bottom line: When a loved one passes away, paying for the funeral may be the last thing on your mind. If you need help financing the arrangements, a personal loan could provide a fast and simple solution.
Home Improvement Expenses
Many renters and homeowners feel that annual or biannual itch to spruce up their living space. That might mean a fresh coat of paint, upgraded appliances, or a kitchen remodel. Depending on the level of your project, the cost of home remodel can come in anywhere from a few hundred to tens of thousands of dollars.
If you’re making upgrades that will improve a home’s value, the cost may be made up when selling the house later. Using a personal home improvement loan can help you focus on the renovation instead of fretting about costs. Plus, if you get an unsecured loan, you won’t have to worry about putting your home equity on the line as collateral.
Bottom line: Taking out a home improvement loan is one way to help fund a home improvement project.
Family Planning
Whether your plans involve pregnancy, adoption, in vitro fertilization (IVF), or surrogacy, growing a family can be expensive.
The average cost of a complete IVF cycle, for example, can be between $12,000 and $25,000, and multiple cycles may be required. Also, insurance may or may not cover some of all of the costs.
Once your baby arrives, you’ll need money to pay for diapers, clothing, formula, and other supplies. A personal loan can help you cover the expenses without having to dip into your savings or emergency fund.
Bottom line: When you’re looking to add a new member to the family, a personal loan can provide peace-of-mind financing.
Car Repairs
You get a flat tire. The transmission fails. The brakes go out. When your car breaks, chances are you can’t afford to wait to have it fixed while you pull together the necessary funds. A personal loan can help you cover the cost of the repair, which can be significant.
On average, consumers spend around $1,160 per year maintaining their cars in 2025, and major repairs can run much higher than that.
Bottom line: Car repairs are rarely planned. If you need money quickly to fix your car, you may want to consider a personal loan. Depending on the lender, you may be able to get same-day funding, but it could also take up to one week to get the money.
Vacation
Ready to take the plunge and book that bucket list trip? A vacation loan is one way to help finance your travel, and the interest rate could be lower than a credit card’s.
Bottom line: If you’re planning an expensive getaway and don’t have the cash you need at the ready, a personal loan can help you pay for the trip. Note that you may be paying off the loan long after the trip.
What Personal Loans Can’t Be Used For
While personal loans can be used for almost anything, there are some restrictions. In general, here are things you should not use a personal loan for:
• A down payment on a home. Buying a home? In general, you’re not allowed to use personal loans for down payments on conventional home loans and FHA loans.
• College tuition. Most lenders won’t allow you to use personal loans to pay college tuition and fees, and many prohibit you from using the money to pay down student loans.
• Business expenses. Typically, you are not allowed to use personal loan funds to cover business expenses.
• Investing. Some lenders prohibit using a personal loan to invest. But even if your lender allows it, there may be risks involved that you’ll want to be aware of.
Typically lower interest rates compared to credit cards
Credit and income requirements to qualify
No collateral required for unsecured personal loans
Applying might ding your credit score
Deciding Whether to Take Out a Personal Loan
Wondering whether a personal loan makes sense for your situation? Here are a few things to keep in mind as you make your decision.
• Figure out how much you’ll need to borrow. Remember, you’ll be on the hook for repaying a significant amount of money including interest. There might be hidden fees, too.
• Make a repayment plan. Going into debt should never be taken lightly, so it’s important to set a realistic strategy to repay the debt.
• Check your credit score. Your credit history and score will have a significant impact on the loan terms, and interest rates and qualifying criteria will vary from lender to lender.
• Explore your options. Before applying with a lender, shop around for the interest rate and terms that best fit your needs.
Keep in mind that there may be situations when taking out a personal loan might not make sense. Here are a few instances:
• You can’t afford your current monthly payments. If making the monthly payments on your existing debt is a challenge, you may want to reconsider whether it’s a good idea to take on any more debt right now.
• You have a high amount of debt. Shouldering a high amount of debt? Taking out a personal loan could put a strain on your finances and make it more difficult for you to make ends meet or put money away for savings. Plus, carrying a lot of debt could increase your debt-to-income ratio (DTI), which lenders look at in addition to your credit score and credit report when reviewing your loan application.
• You have a “bad” credit score. A less-than-stellar credit score could reduce your chance of getting approved for a personal loan. If your credit score is considered “bad,” which FICO defines as 579 or below, then you may want to hold off on taking out a personal loan and instead work on your credit. You can help raise your score by paying your bills on time, paying attention to revolving debt, checking credit reports and scores and addressing any errors, and being mindful about opening and closing credit cards.
Considering alternative ways to pay for expenses or big-ticket items that don’t involve personal loans? Here are three to keep in mind:
Credit cards
Credit cards offer a line of credit that you can use for a variety of purposes. This includes making purchases, balance transfers, and cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.
A credit card may make sense for smaller expenses that you can pay off fairly quickly, ideally in full each month. Otherwise, be careful about racking up high-interest debt this way.
Home equity line of credit
If you have at least 20% equity — the home’s market value minus what is owed — you may be able to secure a home equity line of credit (HELOC). HELOCs commonly come with a 10-year draw period, generally offer lower interest rates than those offered by a personal loan, and you can borrow as much as you need, up to an approved credit limit. However, you may be required to use your home as collateral, and there’s a chance your rate might rise.
HELOCs might be an option to consider if you plan on borrowing a significant amount of money or if you expect to have ongoing expenses, like with a remodeling project.
401(k) loan
If you need money — and no other form of borrowing is available — then you may want to consider withdrawing funds from your retirement plan, to be repaid with interest. A 401(k) loan doesn’t come with lender requirements and doesn’t require a credit check. However, you may face taxes and penalties for taking out the money. Each employer’s plan has different rules around withdrawals and loans, so make sure you understand what your plan allows.
Borrowing from your 401(k) could be a smart idea in certain situations, like if you need a substantial amount of cash in the short term or are using the money to pay off a high-interest debt.
The Takeaway
When it comes to weddings, home improvement, cross-country moves, and other big-ticket items, a personal loan is typically a better alternative to high-interest credit cards. Other common uses for personal loans include credit card debt consolidation, medical bills, funeral expenses, family planning, and vacation.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
What is interest?
Interest is the money you’re charged when you take out a loan from a bank or earn for leaving your money in a bank to grow. It’s expressed as a percentage of the total amount of the loan or account balance, usually as APR (annual percentage rate) or APY (Annual Percentage Yield). These figures estimate how much of the loan or account balance you could expect to pay or receive over the course of one year.
How important is credit score in a loan application?
Credit score is one of the key metrics lenders look at when considering a loan applicant. Generally, the higher the credit score, the more likely lenders are to approve a loan and give the borrower a more favorable interest rate. Many lenders consider a score of 580 to 680 or above to indicate solid creditworthiness, while a score of 740 or higher will qualify you for the most favorable rates.
Can I pay off a personal loan early?
Most lenders would likely welcome an early loan payoff, so chances are you can pay off a personal loan early. However, if an early payoff results in a prepayment penalty, it may not make financial sense to pay off the loan ahead of schedule.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Personal loans are typically not considered to be income and are therefore not taxed by the Internal Revenue Service, or IRS.
Personal loans can be a useful, flexible source of a lump sum of cash to put towards everything from a major medical bill to a home renovation project to a summer vacation. But you may wonder whether that cash infusion is considered income and therefore subject to taxes.
Fortunately, a personal loan is usually not considered income, though there are some exceptions that could impact borrowers during tax season. Here’s a closer look.
• Personal loan funds are generally not considered income and are not taxed by the IRS.
• If a personal loan is partially or fully forgiven, the canceled debt may be treated as taxable income.
• Interest on personal loans is typically not tax-deductible, unlike some other types of loans.
• Formal loan forgiveness will usually trigger a 1099-C form and must be reported on your tax return.
Does a Personal Loan Count as Income?
If you take out a personal loan, you may treat the funds the same as you would your paycheck. But as far as the IRS is concerned, any kind of formal loan from a bank or lender with terms that require repayment is considered a debt and is therefore typically not considered income. This distinction is important because it means you may not have to pay taxes on money you receive from a personal loan.
However, there may be tax implications on informal loans from friends and family. For instance, loans above a certain amount must charge interest, which could potentially trigger some tax consequences. Before you enter into any agreement with a loved one, it’s a smart move to consult with an accountant.
While personal loans are generally not considered income and therefore taxable, there are exceptions that borrowers should know about.
If you take out a personal loan and then some or all of the loan debt is forgiven, the amount forgiven could be considered income. It might seem odd for canceled debt to be considered income, but think about it like this: Say you made an extra $5,000 from work and used it to pay off your personal loan. That $5,000 would be considered income, and your loan would be paid off.
However, if you made no extra money but your $5,000 loan was canceled, then you would be in the same financial position in the end. So the IRS considers that forgiven loan debt taxable income.
Once a formal debt is forgiven or canceled, you should receive a Form 1099-C from the lender. According to the IRS, the amount of the canceled debt is taxable and must be reported on your tax return for the year.
There are some exceptions, such as certain qualifying student loan cancellations or personal loans canceled as part of bankruptcy hearings. And that’s where professional tax guidance might come in handy. Another important point to know is that the interest on personal loans is generally not tax-deductible.
What Exactly Is a Personal Loan?
As you’re exploring your options, it helps to understand what a personal loan is and how it works. A personal loan is one of many types of loans offered by banks, credit unions, and online lenders. Personal loans typically range from $1,000 to $100,000, depending on the lender. There are both secured and unsecured personal loans. A secured personal loan means there is some sort of collateral to back the loan.
With an unsecured loan, there is no collateral. Generally, personal loans are unsecured. The terms of the loan—including things like interest rates, origination fees, and repayment schedules—are typically based on an applicant’s financial history, income, debt, and credit score. Because these types of loans aren’t tied to an asset, their interest rates can be higher than secured personal loans but are usually lower than credit cards or payday loans.
Exact eligibility requirements will vary by lender. The loans are then typically paid back with interest in monthly payments over a set schedule; typical repayment terms are extended over anywhere from 12 to 84 months.
Unlike a business loan or a home loan, the uses of an unsecured personal loan include a range of personal expenses, from home renovations to medical bills to consolidating credit card debt.
Applying for a Personal Loan
If you’re thinking about a personal loan, consider starting with this checklist:
• Determine how much money you need.
• Explore all your financial options.
• Research various loans and lenders.
• Choose the type of loan you want.
• Compare interest rates.
If you decide a personal loan is right for you, the application process is relatively straightforward. You may be asked to submit paperwork, like a photo ID, proof of address, and proof of employment or income. Many lenders offer applicants the option to see if they prequalify for a loan, which can give them an idea of the rates and terms available to them.
If you’re planning to use a personal loan to pay off existing debt, you could also use a personal loan calculator to compare payments and rates to see if an unsecured personal loan could potentially help you save money.
A personal loan can provide borrowers with funds for a variety of purposes. Generally speaking, the money isn’t taxable or considered to be income. However, there are some exceptions. For instance, if you take out a personal loan, and some or all of the balance is forgiven, the canceled debt could be considered income.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
Do I report a personal loan as income on taxes?
No, a personal loan usually isn’t considered income as it is a loan that you repay with interest. Even if you receive the funds as a lump sum, it is still debt that you are repaying. However, if your loan is forgiven, you may owe taxes.
Is a personal loan tax-free?
Yes, personal loans are typically tax-free. They are not a form of income but a kind of debt that you repay with interest.
Does a loan from a family member count as income on taxes?
As long as it is properly structured and treated as a loan vs. a gift, a loan from a family member does not count as taxable income.
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Currently, the average cost for one in vitro fertilization (IVF) cycle in the United States is $12,400, according to data from the American Society for Reproductive Medicine. That alone is a steep price tag, and many patients go through several cycles of IVF before conceiving or attempting other options. Many clinics also charge fees for add-on procedures, which can bring the total cost of a single treatment to well over $20,000.
Fortunately, there are a number of different funding options for fertility treatments. These include budgeting and saving, insurance coverage, flexible spending accounts, IVF financing, loans, and grants. Read on for a closer look at ways to make the cost of IVF more manageable.
Key Points
• Check health insurance for IVF coverage, which can significantly reduce costs but varies by state and plan.
• It can be possible to use HSA or FSA funds for eligible IVF expenses, providing a tax-advantaged way to save.
• Budget and save for IVF by setting aside monthly funds and cutting discretionary spending.
• Consider personal loans for IVF financing, which typically offer lower interest rates than credit cards and are unsecured.
• Explore grants from nonprofits to help cover IVF costs.
IVF Financing: 9 Ways to Pay for Treatment
For many prospective parents, the cost of IVF is worth every penny, as it can provide the chance to have children. If you’re wondering how to pay for treatment, consider these option for funding IVF.
1. Tapping into Your Health Insurance
A good first step is to check whether your health insurance will cover IVF. There are currently 21 states and the District of Columbia that require insurance companies to cover infertility treatment, but only 14 include IVF in the requirement.
You can contact your insurer to find out your specific benefits. Depending on where you live, coverage can run the gamut. Some plans will cover IVF but not the accompanying injections that women may also require, while other plans will cover both. Some insurers will only cover a certain number of attempts. And some plans do not cover IVF at all.
If you have the option and if the timing works out with your enrollment period, you might consider switching your insurance plan to one that covers, or partially covers, IVF.
2. Using Your Health Savings Account or Flexible Spending Account
A health savings account (HSA) allows you to put pre-tax money aside for medical expenses. Typically, you get an HSA in tandem with a qualifying high-deductible health plan. If you have funds in your HSA, you can use them to pay for IVF and related medical expenses. As long as you paid for the expenses after you opened the HSA, you can reimburse yourself for them at any time — it doesn’t have to be in the year that you incurred the costs.
If your employer offers a flexible spending account (FSA), you can also use those funds to pay for IVF. You don’t need a qualifying health plan to have and use this account. However, you can only use the funds for medical expenses incurred during the plan year. Also, if you don’t use all of the money you set aside, you generally lose it. However, you may be able to carry over a certain amount to the following year.
Bear in mind that there are annual limits on how much money you can contribute to either kind of account. For 2025, the individual cap on HSA contributions is $4,300 and the family cap is $8,550. Health flexible spending account limits are $3,300 for 2025.
3. Budgeting and Saving
If you’re planning to pay for IVF out-of-pocket and you don’t just have that kind of cash lying around, the most basic financial move is to save up, the way you would for any major expense. You may want to open a high-yield savings account dedicated to your IVF fund, then set up an automatic recurring transfer from your checking account into that account each month.
Depending on your timeline, you may need to cut back on discretionary expenses, such as meals out, streaming services, a gym membership, and non-essential purchases, at least temporarily. Any expense you cut can now get diverted into your IVF savings fund. You may want to investigate different types of budgeting methods to find a system that works best for you in this scenario.
4. Borrowing From a Loved One
If you have a friend or relative who is financially comfortable, you might consider asking them for a loan. There may be people in your life who would be happy to support your efforts to build your family. If you go this route, however, it’s a good idea to set out the terms of the loan clearly, including whether you’ll pay interest and, if so, at what rate, and when and how you’ll repay the loan. Setting out clear terms, and honoring those terms, can help ensure that the loan doesn’t damage your relationship in any way.
5. Applying for a Fertility Loan or IVF Loan
Some fertility clinics work with lenders that specialize in IVF financing. This allows you to pay for your out-of-pocket IVF costs in installments over time. These loans can offer anywhere from $5,000 to $100,000, and interest rates can range from 0% to 35.99%. IVF lenders typically determine whether you qualify for financing, and at what rate, based on your financial qualifications and credit. With this type of loan, the money is usually paid directly to the clinic rather than you, the borrower.
In addition, there are personal loans designed to help people pay for treatment costs. These are offered by banks and other lenders, and you may see them called fertility loans, IVF loans, and family planning loans. (Learn more about personal loans below.)
Awarded Best Online Personal Loan by NerdWallet.
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6. Applying for a Grant
A number of nonprofit organizations offer grants and scholarships to those who cannot afford to pay for IVF. These grants are usually income-based, meaning you must demonstrate a need to qualify. Organizations that offer IVF grants include the Cade Foundation, Journey to Parenthood, Gift of Parenthood, the Baby Quest Foundation, and the Starfish Fertility Foundation.
Resolve offers a list of fertility treatment scholarships and grants on their site. It’s also a good idea to ask your fertility clinic about any local or national grant or scholarship opportunities they know of.
7. Taking Out a Home Equity Line of Credit
If you own a home, you may be able to take out a home equity loan or home equity line of credit (HELOC) and use the funds to pay for IVF. The amount you can borrow and the terms depend on the amount of equity you have in your home, as well as your credit history, debt-to-income ratio, and other factors.
The advantage of this type of IVF financing is that home equity loans and credit lines often have lower interest rates than credit cards and other types of loans. The downside is that you need to have equity in order to qualify, and you must use your home as collateral for the loan (which means that if you have trouble making payments, you could potentially lose your home).
You generally don’t want to tap your retirement nest egg before retirement, but if no other funding sources are available, borrowing from your retirement account, such as an 401(k), could be an option.
You may be able to borrow up to $50,000 or half of the amount vested in your 401(k) — whichever is smaller. If you take this path, you are basically lending the money to yourself at market interest rates for up to five years. Keep in mind, though, that 401(k) plan providers will typically charge fees to process and service a loan, which adds to the cost of borrowing and repayment. Also, not all employers offer these loans.
In addition, you might qualify to withdraw money from your individual retirement account (IRA) or 401(k) to pay for IVF treatment if your plan allows what’s called a hardship withdrawal. This allows you to avoid the 10% early withdrawal penalty, but you’ll still have to pay income tax on any withdrawals you make.
9. Taking Out a Personal Loan
Compared to using high-interest credit cards or tapping your IRA, a personal loan might be a better option for many people. A personal loan can be used for almost any expense, including IVF, and typically comes with a fixed interest rate that is lower than most credit cards.
Unlike a home equity loan or credit line, personal loans are typically unsecured, which means you don’t need to put your home or any other asset at risk. Also, you do not need to have any equity in your home to qualify. Instead, a lender will look at your overall financial qualifications to determine whether or not to approve you for a loan and, if so, at what rate and terms.
IVF might be one of the most meaningful investments you’ll ever make, but it can be a major expense. You can look to your insurance, health savings accounts, cash savings, or a loved one for help with IVF funding. If that’s not enough, an unsecured personal loan may be a smart way to finance treatment and help make your dreams a reality.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
What is an IVF loan?
An IVF loan is typically a kind of personal loan designed to pay for fertility treatment costs. It’s an installment loan: You receive a lump sum of cash and then repay it, with interest, over time.
Can I get a personal loan for fertility treatments?
Personal loans can be used for almost any purpose, and fertility treatments are one option. You may see personal loans specially designed for this purpose. To qualify, you will need to go through the application process, have your credit reviewed, and see what terms you are offered.
Are there medical loans that cover IVF?
Yes, you can likely find loans that cover IVF in two ways. Some fertility clinics partner with lenders to offer funding, or you can apply for a personal loan to finance the expense of IVF treatments.
What is the best way to finance IVF?
Deciding how to finance IVF is a very personal decision, based on a variety of factors. Homeowners with equity might choose a HELOC; others might apply for a personal loan; and still others might seek a grant or a loan from a family member.
Does insurance cover IVF?
Some health insurance policies cover IVF. Check your policy for details; the amount of coverage and its details can vary greatly.
Can I use an HSA or FSA for IVF expenses?
Yes, you may be able to use HSA or FSA funds for IVF expenses, but it’s important to check the eligibility guidelines to see which aspects of your treatment are covered.
What are alternatives to IVF loans if I have bad credit?
If you have bad credit and are seeking IVF financing, you may find lenders, albeit with higher interest rates and less favorable terms. Other options include payment plans with your healthcare provider, a loan from a family member or close friend, and/or applying for grants.
About the author
Julia Califano
Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.
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