What Is a Revolving Letter of Credit & How Does It Work?

What Is a Revolving Letter of Credit & How Does It Work?

A revolving letter of credit is a financial instrument often used in international trade to facilitate transactions between buyers and sellers. It is a type of letter of credit that allows the buyer to make multiple drawdowns (or “draws”) within a specified period, typically a year, up to a certain limit.

If you’re in the business of importing and exporting, or any type of buying and selling, a revolving letter of credit can allow for smoother transactions. Once in place, it allows both buyers and sellers to be more confident in their business arrangements. It also helps to ensure that goods arrive — and all payments are made — on time.

Here, we’ll look at the specifics of revolving letters of credit. We’ll dive into:

•   What is a revolving letter of credit

•   How a revolving letter of credit works

•   The different types of revolving letters of credit

•   Limitations of revolving letters of credit

•   The pros and cons of a revolving letter of credit

What Is a Revolving Letter of Credit?

When you hear the phrase “revolving credit,” it may sound familiar from personal finance tools you’ve used, such as credit cards and home equity lines of credits. These revolving credit accounts have a credit limit, which represents the maximum amount that you can spend. You can draw on the account up to the limit. Then, as you pay back the amount you owe, the amount of credit will rise back to its original value.

Like the revolving credit you use in your personal finances, revolving letters of credit help streamline financial transactions. However, they work in a different way.

Revolving letters of credit offer convenience and added flexibility for buyers and sellers engaged in ongoing trade relationships, as they eliminate the need to establish a new letter of credit for each transaction. More specifically, they are used to facilitate the regular shipments of goods or the delivery of services between buyers and sellers. You often see them in international trade, in which the buyer and seller are operating in two different places and/or regulatory environments.


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How Does a Revolving Letter of Credit Work?

Here’s a step-by-step look at how revolving letters of credit work work in the business world.

•   Opening the letter of credit: The buyer and seller agree to use a revolving letter of credit for their transactions. The buyer applies for the letter of credit from their bank (called the issuing bank) and specifies the terms and conditions, including the amount and validity period.

•   Issuance: The issuing bank issues the letter of credit, which serves as a guarantee to the seller that they will receive payment for the goods or services as long as they comply with the terms and conditions of the letter of credit.

•   Shipment and presentation of documents: The seller ships the goods or provides the services to the buyer and prepares the necessary documents as specified in the letter of credit, such as invoices and packing lists.

•   Drawdown: Upon shipment, the seller presents the required documents to the issuing bank through their own bank (called the advising bank) to request payment. The issuing bank examines the documents and, if they comply with the terms of the letter of credit, makes payment to the seller.

•   Revolving feature: After the first drawdown, the letter of credit does not expire. The buyer can continue to make additional drawdowns up to the specified limit and within the validity period of the letter of credit without the need for the issuing bank to issue a new letter of credit.

•   Payment and settlement: The buyer is required to repay the issuing bank for the amount of each drawdown, typically on a predetermined schedule. The buyer can also choose to pay the entire outstanding balance at once.

•   Renewal: Once the specified period or limit is reached, the letter of credit can be renewed by the buyer and the issuing bank if both parties agree.

Recommended: How to Build Credit Over Time

Types of Revolving Letters of Credit

Revolving letters of credit can generally be subdivided into two main categories, one based on value and the other based on time.

Time-Based Revolving Letter of Credit

Some revolving letters of credit are based on time. This means a specific payment amount can be drawn down over a set time period. For example, an importer could have a revolving letter of credit worth $120,000 drawn to cover a six-month period. During that time, payments of $20,000 could be made to an exporter each month. At the end of the six-month period, the revolving letter of credit expires.

Cumulative Revolving Letter of Credit

The time-based resolving letter of credit can be subdivided again into two different subcategories: cumulative and non-cumulative revolving letters of credit. If the revolving letter of credit is cumulative, then previously unused limits can be shifted ahead and used in subsequent time periods. In the example above, if the exporter doesn’t ship any goods in the second month, then it could ship $40,000 worth of goods in month three.

This type of set-up provides the seller with a certain amount of flexibility. However, it can be riskier for the buyer who isn’t receiving goods regularly.

Recommended: How Many Lines of Credit Should I Have?

Non-Cumulative Revolving Letter of Credit

The other type of time-based revolving letter of credit is non-cumulative. This means that previous unused amounts of credit cannot be rolled over into a subsequent month. So, if the exporter in the example above doesn’t ship any goods in the second month, only $20,000 worth of goods can be shipped in each of the subsequent months.

This set-up is less risky for the buyer, because it locks the seller into shipping goods within a narrower time period and under more specific conditions. If the seller doesn’t supply the promised goods within a certain period, they cannot carry that over into a subsequent period.

Value-Based Revolving Letter of Credit

The other main type of revolving letter of credit is the value-based revolving letter of credit. It’s much like its time-based counterpart. The biggest difference is payment from the buyer is only released when they receive goods worth a certain value.

Say, for example, a revolving letter of credit is issued for $120,000 over six months for goods worth $20,000 each month. The exporter can only ship and receive payment for goods worth $20,000 each month. If, for example, they are only able to produce $15,000 worth of goods in one month, they cannot ship the goods to the seller, and the seller won’t provide payment. In this case, the value is very specific, and it really matters.

Recommended: Personal Loan vs Personal Line of Credit

Advantages of Revolving Letters of Credit

So why issue a letter of revolving credit? Here’s a look at some of the benefits they offer:

•   It can save time and money.

•   Because it is revolving, the letter of credit does not need to be reissued for each transaction during a set period.

•   It helps facilitate regular trade between a buyer and a seller.

•   It can help build trust between buyers and sellers.

•   It can incentivize sellers to manufacture a consistent level of goods, especially for non-cumulative and value-based letters.

•   It can provide flexibility in terms of the types of agreements buyers and sellers can enter into.


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Disadvantages of a Revolving Letter of Credit

Despite the advantages listed above, there are some limitations and drawbacks to consider:

•   Letters of credit tend to be limited to one supplier only.

•   They don’t apply to one-time transactions.

•   Changes, such as changes to tax law, customs rules, or product design may require amendments to the agreement.

•   Bank fees may make revolving letters of credit costly, especially for applicants.

The Takeaway

If you run an importing business and you’re buying goods from overseas — especially from an exporter that represents a new business relationship — a revolving letter of credit can make things easier. It can remove some of the risk of the transactions as you build trust with this new supplier. Of course, if you’re an exporter, the same applies.

That said, it’s important to consider the limitations of using a letter of credit, in particular the cost, and weigh that against the benefits. Before agreeing to a revolving letter of credit, it’s important to explore how this financial instrument fits into your company’s overall needs and goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

When should a revolving letter of credit be used?

Generally, a revolving letter of credit should be used when there is an ongoing business relationship between a buyer and a seller, and the buyer needs to make multiple transactions over a period of time. It can be particularly useful for businesses that have regular import or export requirements and want to streamline the payment process.

Who issues the revolving letter of credit?

The revolving letter of credit is issued by the buyer’s bank.

What is an irrevocable revolving letter of credit?

An irrevocable revolving letter of credit is a type of revolving letter of credit that cannot be changed unless all parties involved agree to the modifications of the contract. This provides a high level of assurance to the seller that they will receive payment as long as they meet the terms and conditions of the letter of credit.


Photo credit: iStock/Morsa Images

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


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.

Our account fee policy is subject to change at any time.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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What Is a Senior Checking Account?

What Is a Senior Citizen Checking Account?

A senior citizen checking account is a type of bank account specifically designed for individuals who are typically aged 55 or older. These accounts often offer benefits such as higher interest rates, lower fees, and additional perks tailored to the needs of seniors, such as discounts on travel or entertainment.

Is it worth getting a senior checking account vs. a regular checking account? Sometimes — but not always. Here’s what you need to know.

How Does a Senior Checking Account Work?

A senior checking account works in the same way as a regular checking account. The only difference is that it may offer benefits and features customized for adults above a certain age, which might be 50, 55, or 62, depending on the bank or credit union. Senior checking accounts are more commonly offered by smaller regional banks or credit unions than by large national banks.

Like a standard checking account, senior checking accounts offer a place to safely store your money and manage day-to-day spending. They typically come with paper checks plus a debit card you can use for purchases or cash withdrawals. Checking accounts may also offer features like overdraft protection and direct deposit.

Recommended: 7 Tips for Managing a Checking Account

What Is the Difference Between a Senior Checking Account and a Normal Checking Account?

Overall, a senior checking account serves the same purpose as a regular checking account. However, a senior checking account may have certain age requirements and can come with unique benefits and senior discounts designed to appeal to older adults. Some of these benefits may include:

•   Free checks

•   No monthly service charges or low minimum balance requirement to waive monthly service fees

•   24/7 access to customer service by phone

•   Interest on checking account balances

•   A certain number of out-of-network ATM fees waived

•   Discounts on safe deposit boxes

•   Free services such as notary, cashier’s checks, money orders, and wire transfers

•   Special interest rates on certificates of deposit (CDs) or loans

•   Rewards points for using your debit card

These types of perks make it easier for senior citizens to manage their financial life.

Pros of a Senior Checking Account

A senior checking account generally offers all the benefits of traditional checking, plus some extras. Here’s a look at some of the advantages of opening a senior checking account.

•   Unique perks: Eligible account holders can often enjoy special perks like free checks, waived monthly service charges and transaction fees, and discounted banking services.

•   Earn interest: It’s not guaranteed everywhere, but some senior checking accounts allow account holders to earn interest on their deposits.

•   Security: Like regular checking accounts, funds stored in a senior checking account (up to a certain amount) are safe and secure, thanks to Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance,

•   Accessibility: As with any checking account, it’s easy to access your money from a senior checking account when you need it. You can usually make withdrawals in a variety of different ways, including at a branch with a teller, using a debit card at an ATM, writing a check, and making an online bank transfer.

•   Debit card: Typically, senior checking accounts come with debit cards which make it easy to pay for purchases without having cash on hand.

•   Direct deposits: Instead of waiting for paper checks in the mail, checking account holders can set up convenient direct deposits.

Cons of a Senior Checking Account

There are also disadvantages associated with senior checking accounts. Here are some to mull over.

•   Age requirements: Senior checking accounts often have age requirements. Depending on the bank or credit union, you may need to be 50-plus, 55-plus, or 62-plus.

•   Minimal interest: Some senior checking accounts offer interest. However, annual percentage yields (APYs) are generally low. You can likely get a significantly better return on your money by storing it in a high-yield savings account.

•   Minimum balance: Some senior checking accounts may require you to keep a minimum balance to avoid monthly maintenance fees or earn interest.

•   May not be better than a regular account: Many of the promoted perks of a senior checking account may also be available with a standard checking account.

•   Fees: While senior checking accounts tend to charge fewer or lower fees, they can come with account management fees, overdraft fees, and other fees

•   May get better perks with a regular checking account: If you keep a large balance in your checking account, you may be better off with a premium checking account, which could offer more perks and services than a senior checking account.

Things to Consider When Looking for a Senior Citizen Checking Account

Before opening a senior checking account, here are a few helpful things to keep in mind.

•   Convenience: Does the bank or credit union have enough branches and ATMs? Is their website easy to use? Do the bank’s customer service options fit your preferences?

•   Special services and features: Compare a few different senior citizen checking account options. What perks do they offer? Do these services and features matter to you? A free safety deposit box and a special rate on a CD won’t be useful if you don’t plan to use those products.

•   Minimum balance requirements: Does the account have a minimum balance requirement? Will this threshold be easy to meet? If not, you might end up paying a monthly maintenance charge.

•   Fees: Senior citizen checking accounts tend to have fewer fees than typical checking accounts. Still, it’s worth comparing the different fees each account charges. Consider overdraft fees, ATM fees, nonsufficient funds fees, as well as fees for services you may use, such as money orders or wire transfers.

Is a Senior Checking Account Worth It Over a Normal Checking Account?

It depends. Since there are numerous banking choices these days, including traditional banks and credit unions and online-only institutions, it generally pays to shop around and compare benefits and perks of different checking accounts.

As you shop around, keep an eye out for minimum balance requirements and monthly (and any other) fees. If a senior checking account will actually save you money, it could be worth it. If you could do better with a regular checking account, then you may want to skip the senior account.

How Can I Apply for a Senior Citizen Checking Account?

The process of opening a checking account for senior citizens is generally the same as opening a regular checking account. Here’s a look at the steps that are typically involved.

1.    Complete the application. You can generally do this either online or in person at a branch and will need all your basic information (including a government-issued photo ID, proof of address, and Social Security number).

2.    Designate beneficiaries. Once your application is approved, you can choose a beneficiary for your account.

3.    Deposit funds. If an opening deposit is required, you can typically do this by transferring funds from another account (either at the same or a different bank) or using a check, cash, or a debit card.

If you plan to close your other checking account, you’ll want to wait until all outstanding payments and deposits going in or coming out of that account have cleared. Also be sure to change any online bill payments and direct deposits from your prior checking account to your new checking account.

Recommended: How To Switch Banks in 3 Easy Steps

The Takeaway

Senior checking accounts generally come with benefits tailored to older adults, such as lower fees, higher interest rates, and additional perks like free checks or discounts on services.

If you’re over a certain age, prefer traditional banking services, and value these benefits, a senior checking account could be worth it. However, if you’re looking to switch your bank account, it’s wise to compare the features and fees of different accounts to determine which one offers the best value. Depending on your needs and goals, you might find that a checking account with no age requirements is a better fit.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is senior banking?

Senior banking refers to banking services and accounts specifically designed for older individuals, typically aged 55 or older. These accounts often come with features and benefits tailored to the needs of seniors, such as lower fees, higher interest rates, and additional perks like free checks or discounts on services. Senior banking may also include financial planning and retirement services to help seniors manage their finances more effectively.

What is the age restriction for senior checking accounts?

Depending on the bank or credit union, the age restriction for a senior checking account may be age 50, 55, or 62.

What is the age limit for a senior citizen bank account?

The age limit for a senior bank account can vary depending on the financial institution. In general, senior bank accounts are available to individuals who are aged 55 or older. However, some banks may offer senior accounts to individuals as young as 50, while others may set the age limit at 62 or older. It’s best to check with the specific bank or credit union to determine the age requirements for their senior banking products.


Photo credit: iStock/Deagreez

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


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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Where to Get a Personal Loan

Where to Get a Personal Loan?

You can get a personal loan from many banks, online lenders, and credit unions. A type of unsecured loan, personal loans can be used to pay for just about any large expense.

You might use it to pay off credit card debt, an unexpected medical bill, or the cost of home renovations. Some people use these loans to fund a wedding or big vacation. Given the many ways these versatile loans can be spent, it’s no surprise that personal loans are a popular choice. Currently, 23.5 million Americans have unsecured personal loans, totaling about $245 billion.

If you’re thinking of getting a personal loan, read on to learn more about where you can get one and the pros and cons of each option.

Where Can You Get a Personal Loan?

In terms of where to get a personal loan, these loans are generally available through three main markets: banks, credit unions, and online lenders. (There are other types of personal loans available through physical storefronts and online, such as payday loans and pawnshop loans, but it’s wise to avoid these options. You’ll learn why in a minute.)

Banks

National and regional banks often offer personal loans, which you can typically apply for online or in person. A bank may be the first choice for consumers who are already account holders at that institution, especially since the loan amount can usually be deposited quickly and directly into their checking account.

Credit Unions

Credit unions are another popular option for where to source a personal loan — though generally, these loans are only available to those who are already credit union members.

Each credit union has its own eligibility requirements to open an account or otherwise do business with it, which may be based on where you live or what industry you work in. However, if you do have access to a credit union, you may find lower interest rates and more favorable terms there than at other financial institutions.

Recommended: Is It Hard to Get a Personal Loan?

Online Lenders

Online lenders have proliferated over the years. These days, a personal loan can be easy to find from one of these sources with just a few clicks.

Online lenders may offer instant or near-instant loan decisions. They also don’t require you to be a member of or an account-holder at any specific financial institution. That said, it may take longer to receive your check or transfer than it would if you were borrowing from a bank or credit union where you already hold an account.

Of course, you will want to carefully review the personal loan interest rates and fees you are offered.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Where Can You Get a Personal Loan With Bad Credit?

You can get a personal loan with bad credit from a few lenders, such as online ones and payday lenders, but it’s important to proceed with caution.

First, a little important background intel:

•   A personal loan with no collateral, also known as an unsecured personal loan, can be tough to qualify for if your credit history is less than perfect.

•   Since there’s no collateral, like a house or a car, for the lender to take if you fail to repay the loan, unsecured personal loans often come with steeper qualification requirements than other types of loans.

•   They may also have higher interest rates, especially for those whose credit could use some improvement. There are some lenders out there who specifically market their products to folks with lower credit scores — but beware. Sometimes these loans come with predatorily high interest rates and other drawbacks.

Online Private Lenders

The convenience and ubiquity of the online personal loan market is a mixed blessing. Sure, it’s easy to find a loan when you need one, but it’s also easy to fall into a bad deal.

Some online lenders specialize in offering loans for poor or no credit, but be sure to read all the fine print before you hit “submit” on your application. The loans may come with soaring interest rates, high origination fees, or hidden costs. Do your homework and vet the business you are borrowing from to make sure it’s legitimate. You may want to check with the Better Business Bureau to search for any complaints on file and for reliable, verified reviews.

Payday Lenders

Payday loans have been around for a long time, but that doesn’t mean they’re a good option.

Designed to be repaid quickly (i.e., at the borrower’s next payday), these short-term cash loans may be for small amounts, but often come with astronomical interest rates. According to the Consumer Financial Protection Bureau, it’s not uncommon for these quick-turnaround loans to have APRs as high as 400%!

In almost every instance, when comparing payday loans vs. personal loans, payday loans are worth avoiding. Other forms of unsecured loans will likely come with lower interest rates and more favorable repayment terms. Fortunately, it is possible to find loans from reliable lenders — even with imperfect credit.

Banks and Credit Unions

You can get a personal loan with bad credit from a few lenders, such as online ones and payday lenders, but it’s important to proceed with caution.

First, a little important background intel:

•   A personal loan with no collateral, also known as an unsecured personal loan, can be tough to qualify for if your credit history is less than perfect.

•   Since there’s no collateral like a house or a car, for the lender to take if you fail to repay the loan, unsecured personal loans often come with steeper qualification requirements than other types of loans.

•   They may also have higher interest rates, especially for those whose credit could use some improvement. There are some lenders out there who specifically market their products to folks with lower credit scores—but beware. Sometimes these loans come with predatorily high interest rates and other drawbacks.

Another place where you can go to get a personal loan of this sort is a bank or credit union. Each financial institution sets their own qualification requirements for their unsecured personal loans, so it’s worth shopping around to find the best fit for your financial needs. Additionally, they may have other products that could work for you, like secured credit cards or share-secured loans.


💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

What Are Some Pros and Cons of Different Types of Lenders?

Now that you’ve learned about the main options for personal loan shopping, you can figure out which kind of lender is right for you. Each alternative comes with its own pros and cons. Here are some things to consider while you’re browsing.

Personal Loans From Banks

Pros of Personal Loans From Banks

Cons of Personal Loans From Banks

You may get a discounted rate if you’re already a member. You may need to be an existing customer or have good credit to qualify.
Funds may show up more quickly if you have an existing account there. You may have to go to the physical bank to apply.

Personal Loans From Credit Unions

Pros of Personal Loans From Credit Unions

Cons of Personal Loans From Credit Unions

Loans may come with lower interest rates and fees than other financial institutions. You’ll need to meet whatever eligibility requirements are necessary to be a credit union member in the first place.
Qualification requirements may be minimal. You may have to go to the physical credit union to apply.

Personal Loans From Online Lenders

Pros of Personal Loans From Online Lenders

Cons of Personal Loans From Online Lenders

Online lenders make it convenient and easy to apply for a personal loan from the comfort of your home. It can be difficult to know for sure if you’re borrowing from a reliable, legitimate source.
A wide variety of lenders can be shopped for and compared easily through an online search. Some online lenders may charge high interest rates and other fees.

Choosing a Personal Loan Lender

No matter where you choose to apply for a personal loan, the best way to determine whether it’s the right loan for you is to look at the fine print. The lender matters less than the loan, and knowing what you’re agreeing to ahead of time is key to avoiding an unpleasant financial surprise.

Here are the most important factors to look for when shopping around for a personal loan:

•   Fees, such as origination fees, early repayment penalties, and late fees, can increase the total amount you’ll spend on your loan in no time. Ideally, you’ll want to look for a lender that charges few fees — or none at all.

•   Interest rates can vary widely with unsecured personal loans, from as low as 4% to as high as 30% or more. While your specific options will vary based on your credit history and other financial information, it’s good to shop around for the lowest possible interest rate.

•   Loan amount caps may be relatively small (e.g., $1,000) or very large ($100,000 or more). Whatever your financial need, you want to ensure your lender will offer enough for you to cover whatever expense you’re paying for.

Recommended: Personal Loan Calculator

The Takeaway

There are many personal loan lenders to choose from, including banks, credit unions, and online lenders. Whether you need money to pay for an unexpected expense, such as a car repair, or you’re planning the ultimate 40th birthday party, it’s wise to shop around and compare interest rates, fees, and speed of funding.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Where is the best place to get a personal loan?

In terms of where to get a personal loan, there isn’t one “best” place. When comparing banks, credit unions, and online lenders, look at interest rates, fees, customer reviews, and how quickly the loan would fund to determine the option that suits you best.

Where is the best place to get a small personal loan?

Where to go to get a personal loan depends on a variety of factors. Would you be more comfortable working with a large lender or a small, community-based lender for your small loan? Do you already have an account at a financial institution that also makes personal loans? It might also depend on how much you want to borrow because different lenders have different borrowing ranges.

Where is the easiest place to get a personal loan?

If you’re looking for where you can go for a personal loan, it might be best to start at a financial institution where you already have an account. In that case, your financial information will be on record, making the process faster and easier. Although online lenders may promise super-fast funding, be sure to research options carefully and make sure the business is legitimate and interest rates are affordable.


Photo credit: iStock/solidcolours

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Understanding Pivot Points

Pivot Point: What It Is and How to Use It in Trading

Pivot points are technical indicators that average the intraday high, low, and closing price from the previous trading period. Based on the price movements the following day, traders can use the pivot point to identify support and resistance levels.

If the price moves above the primary pivot point, it may signal a bullish trend; if it moves below the pivot point, it may indicate a bearish trend. Thus, pivot points can help inform a decision to buy or sell stocks.

When used alongside other common technical indicators, identifying pivot points can be part of an effective trading strategy. Pivot points are regarded as being important indicators for day traders.

What Is a Pivot Point?

Pivot points got their start during the time when traders gathered on the floor of stock exchanges. Calculating a pivot point using yesterday’s data gave these traders a price level to watch for throughout the day.

While other technical indicators, such as oscillators or moving averages, fluctuate constantly throughout the day, the pivot point remains static.

Analysts consider the main or primary pivot point to be the most important. This point indicates the price at which bullish and bearish forces tend to break one way or the other — that is, the price where sentiment tends to pivot from.

Pivot point calculations are considered leading indicators, and are often used in tandem with other common technical indicators. Today, traders around the world use pivot points, particularly in the forex and equity markets.

Two Ways to Use Pivot Points

But there are different ways to use pivot points. One way is to use the pivot point to help identify the trend. Again, when prices move above the pivot point, this could be considered bullish; prices falling below the pivot point could be considered bearish.

Traders can also use pivot points to set entry and exit points for trades. All things being equal, a trader might want to set a stop loss order around the support level, the price at which a downtrend generally turns around, or a limit order to buy shares if the price goes above a resistance level, generally the upper limit of the price range.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.


*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

How to Calculate Pivot Points

The PP is vital for the pivot point formula as a whole. It’s essential for traders to exercise caution when calculating the pivot-point level; because if this calculation is done incorrectly, the other levels will not be accurate.

The formula for calculating the PP is:

Pivot Point (PP) = (Daily High + Daily Low + Close) Divided by 3

To make the calculations for pivot points, it’s necessary to have a chart from the previous trading day. This is where you can get the values for the daily low, daily high, and closing prices. The resulting calculations are only relevant for the current day.

Recommended: How to Know When to Buy Stocks

What Are Resistance and Support Levels in Pivot Points?

Traders track price patterns in order to decide when to enter and exit trades. This may require using more than one support or resistance level in order to ascertain a trend. Support refers to the lower end of the price, where the price generally stops falling and turns around. Resistance is the upper end, where the price generally stops rising and begins to dip.

The numerals R1, R2, R3 and S1, S2, S3 refer to the resistance (R) and support (S) levels used to calculate pivot points. These six numbers combined with the primary pivot-point (PP) level form the seven metrics needed to determine pivot points.

•   Resistance 1 (R1): First pivot level above the PP

•   Resistance 2 (R2): First pivot level above R1, or second pivot level above PP

•   Resistance 3 (R3): First pivot level above R2, or third pivot level above the PP

•   Support 1 (S1): First pivot level below the PP

•   Support 2 (S2): First pivot level below the S1, or the second below the PP

•   Support 3 (S3): First pivot level below the S2, or the third below the PP

Pivot Point Formulas

All the formulas for R1-R3 and S1-S3 include the basic PP level value. Once the PP has been calculated, you can move on to calculating R1, R2, S1, and S2:

R1 = (PP x 2) – Daily Low
R2 = PP + (Daily High – Daily Low)
S1 = (PP x 2) – Daily High
S2 = PP – (Daily High – Daily Low)

At this point, there are only two more levels to calculate: R3 and S3:

R3 = Daily High + 2 x (PP – Daily Low)
S3 = Daily Low – 2 x (Daily High – PP)

How Are Weekly Pivot Points Calculated?

Pivot points are most commonly used for intraday charting. But you can chart the same data for a week, if you needed to. You just use the values from the prior week, instead of day, as the basis for calculations that would apply to the current week.

Types of Pivot Points

There are at least four types of pivot points, including the standard ones. Their variations make some changes or additions to the basic pivot-point calculations to bring additional insight to the price action.

Standard Pivot Points

These are the most basic pivot points. Standard pivot points begin with the primary pivot point, which is the average of the high, low, and closing prices from a previous trading period. The support and resistance levels can be calculated from there, as noted above.

Fibonacci Pivot Points

Fibonacci projections — named after a well-known mathematical sequence — help identify support and resistance levels. The percentage levels that follow represent potential areas of a trend change. Most commonly, these percentage levels are 23.6%, 38.2%, 50.0%, 61.8%, and 78.6%.

Technical analysts believe that when an asset falls to one of these levels, the price might stall or reverse. Fibonacci projections work well in conjunction with pivot points because both aim to identify levels of support and resistance in an asset’s price.

Woodie’s Pivot Point

The Woodie’s pivot point places a greater emphasis on the closing price of a security. The calculation varies only slightly from the standard formula for pivot points.

Demark Pivot Points

Demark pivot points create a different relationship between the open and close price points, using the numeral X to calculate support and resistance, and to emphasize recent price action.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

How Might Traders Interpret Pivot Points?

A trader might read a pivot point as they would any other level of support or resistance. Traders generally believe that when prices break out beyond a support or resistance level, there’s a good chance that the trend will continue for some time.

•   When prices fall beneath support, this could indicate bearish sentiment, and the decline could continue.

•   When prices rise above resistance, this could indicate bullish sentiment, and the rise could continue.

•   Pivot points can also be used to draw trend lines in attempts to recognize bigger technical patterns.

The Takeaway

The pivot-point indicator is a key tool in technical stock analysis. This pricing technique is best used along with other indicators on short, intraday trading time frames. This indicator is thought to render a good estimate as to where prices could “pivot” in one direction or another.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How are weekly pivot points calculated?

Pivot points can be applied to any time frame, simply by adjusting the period. To calculate a weekly pivot point you can use the values from the prior week, instead of day, as the basis for calculations that would apply to the current week.

How accurate are pivot points?

While no technical analysis tool is guaranteed, pivot points are generally considered among the more accurate in terms of helping traders gauge support and resistance levels, and market trends overall.

Do professional traders use pivot points?

Professional traders do use pivot points, but usually in combination with other types of technical analysis — depending on the trade they want to make.


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Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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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