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May
12
2025
Investing in Small Cap Stocks

Investing in Small-Cap Stocks

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Investing in Small-Cap Stocks

Small-cap stocks are stocks in smaller companies, typically those worth between $250 million and $2 billion. Small-cap stocks often have high growth potential, which could make them an attractive investment. However, while these stocks may provide the opportunity to see higher returns over time, they also come with higher volatility and risk levels.

For investors considering adding small-cap stocks to their portfolios, it’s essential to understand how these stocks work and the advantages and disadvantages that come with this type of investment.

Key Points

•   Small-cap stocks have a market capitalization of $250 million to $2 billion, offering significant growth potential.

•   Higher risks and volatility are common due to less established business models and financial challenges.

•   Limited analyst coverage can lead to undervaluation, presenting investment opportunities.

•   Financial institutions may not heavily invest, affecting market liquidity and trading ease.

•   Diversifying through mutual funds or ETFs can help mitigate risks and balance returns.

What Are Small-Cap Stocks?

Small-cap stocks are shares of companies with a market cap between $250 million and $2 billion, and are usually moderately young companies. Small-cap stocks typically have some growth potential, but they may not have a longstanding market history. Therefore, these stocks are considered to be riskier than mid-cap stocks or large cap stocks.

Understanding Market Capitalization

Market capitalization, or market cap, is a measure of an individual company’s value. The market cap represents the value of total outstanding shares. Investors can use this value to compare similar companies as well as consider future growth predictions.

To calculate a company’s market cap, multiply the total number of outstanding shares by the current share price. For example, let’s say a company has 15 million outstanding shares at a share price of $25 per share. Using this calculation, the company’s market cap would be $375 million.

Due to share price fluctuations, the market cap fluctuates over time. To find the number of outstanding shares, investors can review the “capital stock” numbers on a company’s balance sheet. This information is updated during the quarterly filings with the Securities and Exchange Commission (SEC).

Are Small-Cap Stocks a Good Investment?

Small-cap stocks may be a good investment as part of a diversified portfolio, but there are risks. The market cap of a company can give investors an idea of the risk and reward of purchasing individual stocks. Purchasing small-cap stocks may be riskier than buying stocks of larger companies because the companies are often still in growth mode. In addition, small-cap companies often have fewer resources than large-cap companies, and may have less access to liquidity.

Due to these factors, any market dip can negatively impact small-cap stocks. Conversely, smaller companies often have higher upside potential, and small-cap growth stocks may deliver higher returns than their peers. Still, investors who choose these investments may have to weather market volatility along the way to growth.

Pros of Investing in Small-Cap Stocks

There are several benefits to allocating some of your portfolio into small-cap stocks.

Growth Potential

When comparing large-cap stocks to small-cap stocks, small-cap stocks tend to have a higher growth potential over the long-term. For much of the stock market’s history, small-cap stocks had higher returns than large-cap stocks, and other asset classes.

This growth potential makes small-cap stocks an attractive investment choice for investors. They tend to perform particularly well after recessions, during periods of economic expansion.

They’re Often Undervalued

Analysts usually spend less time analyzing small-cap stocks, so they get less attention from investors, which can lead to lower demand — and lower prices. Therefore, investors may be able to leverage the inefficiencies of the market for potentially better returns.

Financial Institutions Don’t Increase Stock Prices

Specific regulations may not allow financial institutions such as hedge funds and mutual funds to heavily invest in small-cap stocks. Therefore, it’s unlikely that large investments from financial institutions will artificially increase the stock price.

Cons of Investing in Small-Cap Stocks

While small-cap stocks have their benefits, there are also several drawbacks that investors should consider.

High Risk

Investing in small-cap stocks tends to have significant risk for investors. Since they’re often younger companies, small-cap companies do not always have a time-tested business model. If the company’s management can not make appropriate adjustments to the business model, it may yield poor financial or operational results.

Also, because small-cap companies may lack the resources such as capital or access to financing that larger companies have, they may struggle to expand the business or fill in cash flow gaps, especially if the economic conditions tighten.

Research May Be Time-Consuming

Due to the limited availability of research and analysis done on small-cap stocks, investors may have to spend a significant amount of time researching each investment option.

Minimal Liquidity

Small-cap stocks tend to have less liquidity than large cap company stocks. Since there are fewer shares available, investors may not be able to purchase the stock. Conversely, investors may not be able to sell their shares at a reasonable price. The liquidity of small-cap stocks adds to the risk of investing in this type of stock.

How to Invest in Small-Cap Stocks

Investors can purchase small-cap stocks through a brokerage firm or an individual investment account. Since there’s often less public information available about small-cap stocks, investors must do their own due diligence in researching companies to understand their potential risks and returns.

Investors who don’t have the time or expertise to determine which individual small-cap stocks to buy can invest in small-cap companies by purchasing mutual funds or exchange-traded funds (ETFs) that track a broader range of small-cap indexes. Some funds may also have unique characteristics within them, such as growth- or value-oriented stocks.

Buying mutual funds and ETFs allow investors to pool funds with other investors to sell and buy buckets of market securities. This type of investing aims to mitigate risks by diversifying investments. Instead of investing in a single company, fund investors are purchasing shares in dozens or hundreds of companies. Investing in mutual funds and ETFs is more of a passive investment strategy that doesn’t require investors to make trades actively.


💡 Quick Tip: Are self directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Diversifying With Small-Cap Stocks

Even though small-cap mutual funds and ETFs provide diversification within a specific asset class, investors can further reduce their risk exposure by expanding portfolio diversification into a broader mix of assets.

Depending on market conditions, different types of stocks may perform differently. The concept can apply to stocks of companies that vary in sizes. Depending on what the market is doing, small, medium, and large companies may either beat the market returns or underperform.

When diversifying a portfolio, investors may start by determining their investment goals, risk tolerance, and time horizon. Then, by assessing these factors, they can decide an appropriate asset allocation to determine the portfolio’s percentage that may include stocks. A typical example is a portfolio composed of 60% stocks and 40% bonds.

Investors use the same factors (time horizon, goals, and risk tolerance) to decide the mix of stocks that will go into the portfolio’s stock percentage portion. Then, as market fluctuations happen, allocations of the portfolio will perform inversely.

For instance, as small-cap stocks are rising, mid-cap stocks may fall. In this case, small-cap stock prices’ upward movement can offset the decrease in mid-cap stock prices, thus mitigating losses.

The Takeaway

Small-cap stocks are shares of companies with market caps ranging from $250 million to $2 billion. Although small-cap stocks have the potential for long-term growth, they tend to come with more risk. With this in mind, building a diversified portfolio with a broader range of investments can help minimize your risk exposure.

But, attempting to build an entire portfolio from scratch and keep it balanced can be time-consuming and a risky venture if you’re an average investor. Instead, many investors choose to get small-cap exposure by purchasing mutual funds and exchange-traded funds (ETFs), which mimic the returns of indices that track stocks meeting certain criteria.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What is a small-cap stock?

Small-cap stocks are shares of companies with market capitalizations between $250 million and $2 billion, making them relatively small.

What are some of the advantages to investing in small-cap stocks?

The primary advantages of investing in small-cap stocks are the potential for growth, share values tend to be relatively low, and share prices may not get pumped up due to large institutional investor activity.

What are the risks of investing in small-cap stocks?

Small-cap stocks tend to be riskier investments than some of their larger counterparts. They may take additional time to research and study, and they may also lack the same levels of liquidity as larger-cap stocks.

About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.


Photo credit: iStock/Erikona

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For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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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May
09
2025

Getting Private Student Loans Without a Cosigner

By | Financial Independence, Fresh Out of School, Student Loans, student_loan, Terminology | No Comments

With the average cost of tuition at a private college close to $40,000 per year, it’s no surprise that many students will take out student loans to pay for their education. These student loans come in all shapes and sizes: federal or private, subsidized or unsubsidized, cosigned or not.

Most federal student loans do not require a credit check and can be borrowed without a cosigner. While the majority of students who take out private loans have a cosigner to guarantee the loan, that’s not an option for everyone. A cosigner — generally a family member or close friend — is someone who guarantees they will pay back your student loan if, for some reason, you can’t.

If you don’t have enough established credit to qualify for a private student loan on your own, turning to a cosigner may help you get approved at a better interest rate. However, not everyone has someone to cosign their student loans. Luckily, there are plenty of ways to potentially qualify for both private and federal student loans without a cosigner. Here’s what you need to know.

Key Points

•   Many students need to take out loans due to rising tuition costs, with options including federal loans that do not require a cosigner.

•   Obtaining a private student loan without a cosigner is possible, but typically requires a solid credit history and may result in higher interest rates.

•   Federal student loans offer various funding options without the need for a cosigner, although loan limits may restrict the total amount available.

•   Students unable to secure a loan without a cosigner can consider alternatives such as attending a community college or exploring grants and scholarships.

•   Building credit early and checking eligibility through soft credit inquiries can help increase the chances of qualifying for loans without a cosigner.

Purpose of Adding a Cosigner

There are two main reasons why adding a cosigner to a private student loan may make sense — one is to improve your chances of being approved for a loan and the other is to potentially help secure a more competitive interest rate.

If you’re applying for student loans, you may not have a long credit history yet. To lenders, a lack of credit history can be seen as risky because you haven’t proved how well you can manage your financial obligations. You might need a cosigner to convince a lender to give you a student loan, since having a cosigner with more financial security or a better credit history reduces risk to the lender.

A cosigner with a strong credit history may also help you get approved for a loan with a lower interest rate, which could help reduce the amount of money you pay in interest over the life of the loan.

A cosigner will need to share their financial information with the lender, so it’s a good idea to make sure that your cosigner has plenty of time to get their documents in order and discuss loan applications with you.

Recommended: A Complete Guide to Private Student Loans

Named a Best Private Student Loans
Company by U.S. News & World Report.

Can You Get a Federal Student Loan Without a Cosigner?

Yes, you can get a federal student loan without a cosigner. The first step in qualifying for a federal financial aid package is to fill out the Free Application for Federal Student Aid (FAFSA) .

You’ll submit your financial information and, if you’re a dependent student, your parents’ information, too. Depending on your financial need, you’ll then be offered a combination of federal student loans — including Subsidized and Unsubsidized Direct or PLUS Loans — and work-study programs.

Federal student loans typically do not require a cosigner, nor a credit check, and they often have competitive interest rates. Direct PLUS Loans , which are primarily offered to parents and graduate or professional students, however, do require a credit check.

You’ll want to keep in mind that there are limits on how much you can take out in federal loans. For example, dependent students whose parents are unable to obtain PLUS Loans cannot take out more than $9,500 as a first-year undergrad. And, no more than $3,500 of this amount may be in subsidized loans. Because of these limits, students may look for additional sources of funding.

Can You Get a Private Student Loan Without a Cosigner?

Yes, it is possible to get a private student loan without a cosigner, but you will likely need to have an established credit history or be willing to pay a higher interest rate.

To qualify for a private student loan, which are available from banks, credit unions, and online lenders, you generally have to be age 18 or older, a U.S. resident, and enrolled in school at least part time. Additionally, certain lenders may only approve loans if you are enrolled at schools that meet their criteria, which can vary from lender to lender.

You also typically must meet certain credit requirements. This often includes at least two years of established credit history, a good credit score (670-739), and a certain minimum amount of income.

Some private lenders will provide student loans without a cosigner even if you have a limited credit history or income. However, you will almost definitely pay a higher interest rate.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

Pros of Having a Cosigner on a Private Student Loan

Having a cosigner on a private student loan can help you qualify for a loan you might not otherwise be able to get. In addition, it can help you get approved for a larger loan amount, as well as lower rates and fees.

You’ll also want to keep in mind that having a cosigner is not necessarily a permanent situation. Some lenders will release a cosigner from a loan after the primary borrower meets certain requirements, like a certain number of payments and a credit check.

You also may consider refinancing your loan once you’re out of school, which will then be a way to have the loan in your own name. It can be a good idea to talk through what your cosigner expects and anticipates for the life of the loan, so that you’re both on the same page.

Recommended: Should I Refinance Federal Student Loans?

What is the Minimum Credit Score for a Student Loan?

If you apply for a federal student loan, your credit score won’t be a factor, since a credit check is not even part of the application process. However, private student loans often require a credit score of at least 670 to get a loan without a cosigner.

The exact qualification criteria will vary from lender to lender but, generally, the higher your credit score, the more likely you are to qualify and obtain a competitive interest rate for a private student loan.

Before you apply for a private student loan, you may want to get copies of your credit reports (available free at AnnualCreditReport.com) and check your credit score to get a sense of where you may stand in the eyes of a lender. You also can check your credit report for any errors, which could bring down your score.

Who Is Eligible for Student Loans That Don’t Require Cosigners?

Federal student loans don’t require a cosigner. There are also some private student loans that don’t require a cosigner, though you typically need to meet certain credit and income requirements.

You may be able to check your private student loan eligibility before you apply for a loan without a cosigner. This triggers a soft credit check. A soft credit check does not affect your credit score, but can give you an approximate idea of whether or not you’ll be approved for a loan and what the interest rate on the loan may be.

Keep in mind, though, that your loan won’t be finalized until you apply for the loan. At this point, a hard credit check will be performed and final approval decisions will come through. But checking loan eligibility is one way to know whether or not a lender may consider your application without a cosigner.

Options If You Can’t Get a Student Loan Without a Cosigner?

If you can’t get a student loan without a cosigner and you don’t have someone who can be your cosigner, don’t panic. There are other potential paths forward depending on your goals and your circumstances:

•   Take a gap year. Some students take a year off to build credit, grow their income, and reapply once they feel their finances are on more secure footing.

•   Consider a less expensive school. Some students who can’t get a cosigner decide to go to a community college and take core credit courses. Once they feel their finances are more secure, they transfer to their intended school to finish their degree.

•   Rethink your education priorities. If you can’t get a cosigner and are having trouble shouldering loans on your loan, you may recalibrate your educational goals and consider different degree programs or institutions that may have a less expensive price tag. It can be helpful to talk to people who work in your future career field — they may have thoughts on how you can save money on education or may have tips for alternate paths toward the job you want.

•   Talk with your financial aid office. Chances are, your financial aid office has seen similar situations and may have ideas. They may also be able to connect you with other funding opportunities, as well as students who have independently financed their education.

Other Ways to Help Finance Your Education

Besides taking out federal student loans or private student loans without a cosigner, there are a few other options to help finance your education.

Grants and Scholarships

There are many grants and scholarships available, including need-based grants and merit-based grants (grants available for students who reach a certain level of academic excellence) that you do not need to repay.

You can search for scholarships online to see if there are any you might qualify for. You might also ask your high school’s college counselor or selected college’s financial aid office for information on any scholarships or grants you may be eligible for.

Working While in School

You might also consider working while you’re in school. Some students find they can manage a job alongside their studies, while others find that it’s challenging to find a balance.

There is no “right” way to pay for your education. Some students may take a year or more off to save up for school, and then focus full-time on school. Talking to graduates can help you see different pathways and that there is no “one size fits all” when it comes to financing an education.

The Takeaway

Applying for a private student loan with a cosigner can help a potential borrower secure a more competitive interest rate or preferable loan terms. This is because the cosigner provides additional security for the lender — if the primary borrower runs into any issues repaying the loan, the cosigner is responsible.

Federal student loans, aside from Direct PLUS Loans, do not require a credit check or cosigner. If you find that your federal loans aren’t going to cover your education, a private student loan may help. And, some private lenders will offer student loans without a cosigner. Just keep in mind that private student loans lack the borrower protections offered by federal student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Is it possible to get a private student loan without a cosigner?

Yes, it is possible, but it can be more difficult. Lenders typically require proof of good credit and sufficient income. Students without a strong financial profile may have trouble qualifying or may face higher interest rates.

How can students improve their chances of qualifying for a private student loan without a cosigner?

Students can build credit by paying bills on time, maintaining low credit card balances, and possibly working part-time to show income. A higher credit score and steady income improve the odds of loan approval.

Are there alternatives to private loans if you can’t get one without a cosigner?

Yes. Students should first maximize federal student aid, including grants, scholarships, and federal loans, which don’t require a cosigner. Some schools also offer institutional loans or payment plans that can help bridge funding gaps.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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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.

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

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May
08
2025

Secured vs Unsecured Personal Loans — What’s the Difference?

By | Debt Payoff, personal_loan, Terminology | No Comments

Personal loans can be either secured or unsecured. A secured personal loan has collateral that backs the borrower’s promise to repay the loan. An unsecured personal loan does not require collateral, and the only thing backing the borrower’s promise to repay is their creditworthiness.

The collateral requirement is the main difference between secured and unsecured personal loans, but it can impact interest rates and create other differences that may inform your decision about which type of loan is best for you.

Key Points

•   Secured personal loans require collateral, such as a vehicle or savings account, while unsecured personal loans depend solely on the borrower’s creditworthiness.

•   Borrowers may benefit from lower interest rates and better approval chances with secured loans, as lenders perceive them as less risky due to the collateral.

•   Unsecured personal loans allow quicker application processes since there is no need to evaluate collateral, but they often come with higher interest rates.

•   When choosing between the two loan types, factors like available collateral and intended use of funds should be carefully considered.

•   Reviewing one’s credit report is essential before applying for a personal loan, as it impacts approval chances and loan terms offered by lenders.

What Is a Secured Personal Loan?

A secured personal loan is a loan for which the borrower pledges collateral that the lender can take possession of if the borrower fails to repay the loan. Put in simpler terms: If you default on your car loan, for example, the bank can repossess your car. For the lender, collateral equals a certain level of security.

Collateralized loans are common for mortgage and auto loans. A home is collateral for a mortgage, and a vehicle is collateral for an auto loan. They are somewhat less common for personal loans, though.

A personal loan isn’t tied to a particular asset in most cases, so there’s not an obvious item to pledge as collateral. The asset pledged must be owned by the applicant, and the lender will evaluate its value to be sure it’s equal to the amount of money being loaned. In some cases, a physical asset such as a vehicle is put up as collateral, but the collateral could also be an asset like a savings account or certificate of deposit.

Pros of Secured Personal Loans

While it may seem like the lender benefits more with a secured personal loan, there may also be advantages for the borrower.

•   Lenders typically see secured personal loans as less risky than their unsecured counterparts because there is an asset to back the loan if the borrower defaults.

•   Borrowers may get a lower interest rate on a secured personal loan than they might on an unsecured personal loan.

•   Secured personal loans can be a good way for borrowers to build credit, as long as they make regular, on-time payments.

Cons of Secured Personal Loans

Things that a borrower might see as a drawback to a secured personal loan might be a benefit to the lender. But each party to the loan agreement takes risks.

•   The lender is able to recoup its losses by seizing the collateral if the borrower defaults on their secured personal loan. However, it may take a while to liquidate that asset. If the collateral is a physical asset, such as a vehicle, it may take some time to find a buyer willing to pay the price the lender has set.

•   For the borrower, the main drawback to a secured personal loan is the possible loss of the asset pledged as collateral if they default on their loan.

•   The application and approval process may include more steps for a secured personal loan than an unsecured one because the asset’s worth will need to be valued.

What Is an Unsecured Personal Loan?

A personal loan that is backed mainly by the creditworthiness of the borrower is an unsecured personal loan. Sometimes called a signature loan, an unsecured loan does not require any collateral to guarantee the loan.

Defaulting on an unsecured personal loan can certainly have a negative effect on the borrower’s credit, but there wouldn’t be an asset to lose in addition. In terms of a guide to unsecured personal loans, see what the pluses and minuses are below.

Pros of Unsecured Personal Loans

Like their secured counterparts, unsecured personal loans can have benefits for both lender and borrower.

•   Lenders may be able to charge a higher interest rate on an unsecured personal loan because there isn’t any collateral to secure the loan. (This is a drawback for the borrower — see below.)

•   The borrower won’t lose an asset if they default on an unsecured personal loan.

•   The application process for an unsecured personal loan is generally much quicker than for one that’s secured because there is no asset to be valued.

•   Funds may be disbursed the same day or within a week, depending on the lender.

Cons of Unsecured Personal Loans

It may be relatively easy to find lenders who offer unsecured personal loans, but there are aspects that may be considered drawbacks.

•   Interest rates on unsecured personal loans may be higher than for secured personal loans because there is no asset backing the loan.

•   Some lenders may have minimum credit score requirements for approval of an unsecured loan, so applicants with poor credit may not qualify.

•   If the borrower defaults, their credit score may be negatively affected.

•   Applicants with lower credit scores may not qualify for loan amounts as high as those with higher credit scores.

Recommended: Personal Loan Calculator

How to Choose Between Secured and Unsecured Personal Loans

There are lots of reasons for considering a personal loan in general, but choosing between a secured and an unsecured personal loan means taking some specifics into account.

Do You Have Collateral?

One of the main things to consider when thinking about applying for a secured personal loan vs. an unsecured personal loan is whether you have an asset of value that you’d be willing to risk.

If you do have such an asset, you may want to compare lenders who offer secured personal loans. Some online lenders offer secured loans, but they’re more commonly available through banks or credit unions.

Lenders may offer higher loan amounts for a loan backed by collateral than for one that isn’t, so if you need to borrow a large amount, it might be worth looking into a secured personal loan.

What Are You Planning to Use the Funds For?

Personal loan funds can generally be used for a wide variety of things, like debt repayment, unexpected medical expenses, home improvement costs, and more.

If you need funds to pay multiple vendors or contractors — common in the case of wedding or home improvement costs — or you plan to consolidate credit card debt, an unsecured personal loan might be the right choice for you.

If you plan to purchase a specific item that might be considered an asset, however, the lender may want to attach that asset as collateral on the loan, thus making it a secured loan. Examples of this might be a secured personal loan to purchase land or to buy a boat.

What Type of Lender Is Right for the Loan You Need?

Another factor to consider when choosing between a secured or unsecured personal loan is the type of lender you’d rather work with.

•   Unsecured loans may be available through banks, credit unions, or online lenders. Not every financial institution offers unsecured loans, however.

•   Secured loans are more commonly offered by banks and credit unions and occasionally online lenders.

If you have a savings account or certificate of deposit at your bank that you’d be willing to put up as collateral, it might be worth looking into a secured loan with your current bank.

How Does Your Credit Score Factor In?

Accessing a loan typically involves a hard inquiry on your credit, as lenders want to know your score and see whether you have handled debt responsibly in the past. If you have, it’s a good indicator that you will do so again in the future.

Typically, you need a credit score of at least 580 to qualify for a loan, but those with scores of 700 and higher will likely be able to access more favorable rates and terms. So, if you have excellent credit, with a score of 800 to 850, you will usually be offered the best rates.

Qualifying For a Personal Loan

There are different factors that go into qualification for a personal loan, which is a key step before getting approved for a personal loan.

Each lender may have its own credit score, income, or debt-to-income ratio requirements, in addition to other factors. If you’re applying for a secured personal loan, each lender may have its own requirements for valuation of collateral.

It’s a good idea to compare lenders so you’ll have an idea of what they commonly require for an applicant to qualify for a personal loan. With that knowledge, you can better evaluate your own credit for the likelihood of being approved — or not.

Reviewing Your Credit Report

You can get a free copy of your credit report from each of the three major credit bureaus: Equifax®, Experian®, and TransUnion®. (Currently, these are available weekly.)

It’s a good idea to check all three because not all lenders report payment history to all three bureaus. The credit bureaus don’t share information with each other, so getting a complete picture of your credit may mean looking at all three reports.

Your credit report contains personal information about you and information about past and current credit accounts in your name.

Personal information includes:

•   Name, current as well as any other names you may have gone by in the past

•   Addresses, current and previous

•   Birthdate

•   Social Security number

•   Employer

Lenders typically report:

•   The total amount of the installment loan or line of credit

•   Your record of on-time payments

•   Any missed payments

If you’ve had any bankruptcies, foreclosures, or repossessions, they will likely be included on your credit report as well. They usually stay on your report for seven to 10 years.

If there is missing, incomplete, or incorrect information on your credit report, you can file a dispute with the credit bureau. It’s a good idea to clear up any errors before you start applying for a loan so you don’t have any unexpected roadblocks on the way to qualification.

If, in the process of reviewing your credit report, you find that you don’t have much of a credit history or your credit isn’t up to qualification standards, you may decide to take some time to work on improving your credit situation. That could mean increasing your income, lowering your expenses, paying down or consolidating existing debt, or just learning how to better manage your overall finances.

Meeting Income Requirements

Income requirements are likely to vary with the type and size of the loan you get. A $2,000 loan to pay off a medical bill may demand a less lofty salary than, say, taking out a $30,000 wedding loan to finance a major celebration of your big day.

Debt-to-Income Ratio Considerations

Another way that lenders evaluate if you are a good risk for a personal loan is looking at your debt to income ratio. This calculates how much of your money coming in goes toward debt. Typically, lenders want to see no more than 30% or 36% going toward debt, though in some cases, those with figures from 40% to 50% may be able to get approved. This is especially true if they have strong income and/or other positive factors.

Common Types of Collateral for Secured Loans

For secured loans, here are some typical sources of collateral:

•   Money in bank accounts

•   Real estate

•   Investments

•   Vehicles

•   Antiques, art, jewelry, or other collectibles

Interest Rate Comparison: Secured vs Unsecured

As mentioned above, secured loans may have lower interest rates than unsecured loans since there’s less risk to the lender.

In terms of specifics, in April 2025, rates looked like:

•   12.43% average rate for unsecured loans

•   A range of 6.49 to 12.99%, depending on such factors as the lender’s guidelines, the borrower’s credit score, and the loan amount.

Recommended: How to Get Approved for a Personal Loan


The Takeaway

The main difference between unsecured and secured personal loans is that one requires collateral — a secured personal loan — and the other doesn’t — an unsecured personal loan. Deciding between the two depends on the borrower’s willingness to risk the loss of collateral, as well as their overall creditworthiness and the rates they qualify for.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.


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

FAQ

Which is better: a secured or unsecured personal loan?

There is no one answer to whether a secured or unsecured personal loan is better. For some, an unsecured loan is the faster, simpler option without risk of losing one’s collateral. For others, a secured loan can be a path to a lower interest rate and more affordable loan.

Can I get a secured personal loan with bad credit?

Yes, you can often get a secured personal loan with bad credit, though the interest rate may not be favorable. However, the presence of collateral can reassure lenders and give you options that you might not otherwise have if you were shopping for an unsecured personal loan.

What happens if I default on a secured personal loan?

If you default on a secured loan, you risk losing your collateral. The lender could claim it and sell it to cover the loss of repayment money from you.

Do secured loans have lower interest rates than unsecured loans?

Often, secured loans have lower interest rates than unsecured loans. The reason: Because collateral is involved, the loan is less risky for the lender. The lender could claim the collateral if you default and use its value to cover the loan. This could motivate the lender to charge less in interest.

What can I use as collateral for a secured personal loan?

Some common examples of collateral for a secured personal loan include money in the bank, real estate, vehicles, investments, and collectibles (art, antiques, and jewelry, for instance).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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

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

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

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

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

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Pros & Cons of Buying Mid-Cap Stocks

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Pros & Cons of Buying Mid-Cap Stocks

Mid-cap stocks are shares of publicly traded companies with market capitalizations of about $2 billion to $10 billion. The range also indicates where they fall in the spectrum of valuation between small-cap and big-cap (sometimes called large-cap) companies.

Because the stocks are approximations based on a company’s current value, their classification might change over time. There are also pros and cons to investing in mid-cap stocks, as there are when investing in stocks of all types and sizes.

Key Points

•   Mid-cap stocks are from companies valued between $2 billion and $10 billion.

•   Mid-cap companies may be less volatile compared to small-caps.

•   Mid-cap stocks may outperform small- and large-cap stocks over time due to diverse valuations.

•   Mid-cap stocks carry risks, including greater vulnerability to market downturns than large-cap stocks.

•   Mid-caps can become large-caps over time.

Market Capitalization Investing

Market capitalization is a company’s total value: the number of outstanding shares a company has multiplied by the current price per share. For example, a company with 40 million shares selling at $100 a share would have a market cap of $4 billion.

When investing, the case can be made for including small-, mid-, and big-cap stocks in your portfolio. But when thinking about the numbers involved — small-cap companies have a value of less than $2 billion, and large-cap companies have a value of over $10 billion — understand that the values also govern potential growth.

In other words, small-cap stocks might grow into mid-cap stocks. But a large-cap stock can only stay a large-cap stock unless the value goes down. (Investors have informally come up with valuation categories for nano-cap stocks, micro-cap stocks, and mega-cap stocks, but there isn’t a broad consensus about their cutoff values.)

Either way, when investing, the hope is generally for stocks to increase in value or appreciate, and the prevailing wisdom is that small- and mid-cap stocks are appealing because they have room to grow.

Market Cap As a Basic Investor Tool

Knowing the market cap of a company can help investors compare the company to others of similar size. An investor choosing auto-manufacturing stocks could look at mid-cap companies in that particular market sector and compare how they are doing against one another.

To dig even deeper into the basics, it’s good to understand the difference between stocks and bonds. Bonds are a type of debt instrument, whereas stocks represent ownership in a company. Generally, stocks have the potential to offer the highest gains, while bonds are generally safer.

Investing In Mid-Cap Stocks

Finding an investment strategy that makes sense for you is largely about understanding the trade-offs involved. There’s really no such thing as a sure thing in investing, and probably the only way to think about the “best” mid-cap stocks is to look for ones that may offer a return on investment over time, and ideally a large one.

Beyond that, here’s a look at a couple of possible advantages and disadvantages of investing in mid-cap stocks.

Growth, Earnings, Capital

On the upside, whether mid-cap stocks are the sole investments being targeted for a portfolio or they’re part of a more diverse selection, a good argument for them is that they are often for companies that are trying to expand.

These are established companies in industries that are experiencing rapid growth, or are expected to. And thanks to that growth, the average mid-cap company’s earnings often grow at a steady clip.

Most mid-cap companies are small-caps that have burgeoned, and some are on their way to becoming large-cap businesses. Growth eases the ability to access financing to fuel expansion, so mid-caps typically have an easier time obtaining financing than small caps do.

Investing in mid-cap stocks can be the happy medium between small-cap growth and large-cap stability.

However, mid-cap stocks can be more vulnerable than large-cap ones. Being middle tier, by definition, means such companies don’t have as much capital to sustain them through market downturns as big-cap companies do.

And because they are also not massive companies like large-cap companies with a value over $10 billion, it also means they are not as diversified as bigger-cap companies. If the market for that company disappears, the company is also at risk.

Performance

On the pro side, because $2 billion to $10 billion is a sizable range of valuations, it means that mid-cap stocks often outperform large- and small-cap stocks just because it’s a markedly wide net of stocks. There are no guarantees that that will happen, of course, which is very important to keep in mind. And, naturally, historical performance is not necessarily an indicator of what will happen in the future.

On the other hand, investment risk is risk, and even those who don’t dabble in investing likely know that something that seems low risk isn’t the same as something that is not a risk. It doesn’t matter how many reports you read, there are always exceptions. It’s still a good idea to read up on different strategies and try to develop a sense of why some investments are riskier than others.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Researching Mid-Cap Stocks

Many mid-cap companies are household names, and you’d likely recognize a whole host of them. Even so, it’s best for anyone interested in investing in mid-cap stocks to do their homework: look at who’s running the company, who’s already invested, and what the stated goals in earnings and annual reports are.

And it might be smart to consult a financial professional if you need guidance.

It’s tempting to think of a “hot tip” as something you must rush to get in on, but it’s worth taking a breath and considering what you might be overlooking by fixating on something that seems lucrative but also requires urgent action. Again, do your homework.

The Takeaway

Market capitalization is a way for investors to understand the value of different companies and compare their performance and outlook, and mid-cap stocks, which can be seen as lying between small-cap growth and big-cap stability, are one investment strategy to consider.

But there are pros and cons to investing in mid-cap stocks, as there are when investing in other types of stocks. It’s always best to do as much research as you deem necessary before making decisions, and even consider consulting with a financial professional.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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charts and graphs investing

Tips on Evaluating Stock Performance

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Tips on Evaluating Stock Performance

Evaluating stock performance is not an exact science, and there are many factors, indicators, and tools that investors have at their disposal. However, it can be easy to get overwhelmed by the amount of information, charts, and choices available. After all, no amount of analysis can truly make accurate predictions about stock performance.

With all this in mind, for most investors, using a few simple strategies to evaluate stocks can provide a good understanding in order to help make an investment decision. Every investor has their own goals, investing and diversification strategies, and risk tolerance, so it’s beneficial for each person to come up with their own stock evaluation strategy.

Key Points

•   Evaluate total returns over various periods to assess stock performance.

•   Compare stock performance to market indexes for relative performance.

•   Analyze company revenue and earnings for financial health.

•   Use financial ratios like P/E, PEG, and ROE for deeper insights.

•   Consider dividends and inflation impact on overall returns.

Evaluating Stock Performance

Stock evaluation can involve both quantitative and qualitative analysis. Quantitative analysis involves looking at charts and numbers, whereas qualitative analysis looks into industry trends, competing firms, and other factors that can affect a stock’s performance. Both forms of analysis provide valuable information for investors, and they can be used in tandem to come up with a comprehensive picture of performance.

Here are a few key steps investors can take to evaluate stock performance or to analyze a stock.

Total Returns

One of the most important metrics to look at when evaluating a stock’s performance is the total market return over different periods of time. A stock may have increased significantly in value within the past few days or months, but it could still have lost value over the past year or five years.

Investors may want to consider how long they plan to hold a stock and look into each stock’s historical performance. Some common periods to look at are the past year (52 weeks), the year to date (YTD), the five-year average return, and the 10-year average return. Investors can also look at the average annual return of a stock.

Every investor has different goals and expectations for returns. One investor might be happy with a 3% return over five years, while another might not be.

Using Indexes

Another step investors may want to take to evaluate a stock’s performance is comparing it with the rest of the stock market. A stock might seem like an attractive investment if it has had a 7% return over the past 52 weeks, but if the rest of the stock market has increased by more than that, there might be a better choice.

A single stock can be compared to the overall stock market using stock indexes. Indexes show averages of the market performance of a handful or even hundreds of stocks. Index performance metrics show how any particular stock compares to the broader market. If a stock has been performing similarly or better than the market, it may be a good investment.

Looking at Competitors

An additional way investors might consider evaluating a stock’s performance is by comparing it to other companies within the same industry. One might discover that an entire industry is doing well in the current market, or that another stock within the industry would actually be a better investment. There are numerous industries and market sectors.

Not every company within an industry will be a good comparison, so it’s best to look at companies of a similar size, those that have been around for a similar amount of time, or that have other similarities. Even if a giant, established corporation offers a similar product or service to a small startup, they may not be the best two stocks to compare within an industry.

Two questions investors might consider asking are:

•   Does the company have a competitive advantage? If the company has a unique asset or ability, such as a patent, a new research or manufacturing method, or great distribution, it may be more likely to succeed within the industry.

•   What could go wrong? This could be anything from poor management to a new form of technology making a company irrelevant. Nobody can predict the future, but if there are any red flags it’s important to pay attention to them.

Reviewing Company Revenue

Looking at stock returns is useful, but it’s also a good idea to look into the actual revenue of a company through its profit and loss statement, orearnings reports. Stock prices don’t necessarily follow a company’s revenue, but looking at revenue gives investors an idea about how a company is actually performing.

Like stock returns, investors can look at revenue over different periods of time. Revenue is categorized as operating revenue and nonoperating revenue. Operating revenue is more useful for investors to look at because non-operating revenue can include one time events such as selling off a major asset.

Using Stock Ratios in Evaluations

There are several financial ratios that can be used to evaluate a stock and find out whether it is currently under or overpriced in the market. These ratios can help investors gain an understanding about a company’s liquidity, profitability, and valuation. Here are some of the most commonly used ratios.

Price to Earnings (P/E) Ratio

The most popular ratio for evaluating stock performance is the price to earnings ratio, or P/E ratio, which compares earnings per share to the share price. P/E is calculated by dividing stock share price by the company’s earnings per share. It’s important because a stock’s price can shoot up based on good news, but the P/E ratio shows whether the company actually has the revenues to back up that price. One can compare the P/E ratios of companies in the same industry to see which is the best investment.

There are two different ways to calculate P/E. A trailing P/E ratio can be calculated by dividing current stock price by earnings per share. A forward P/E ratio is a prediction that can be calculated by dividing stock price by projected earnings.

Price to Earnings Growth (PEG) Ratio

P/E is a useful ratio, but it doesn’t take growth into account. PEG looks at earnings, growth, and share price all at once. To calculate PEG, divide P/E by the growth rate of the company’s earnings. If the PEG is higher than 2, the stock may be overpriced, but if it’s under 1, the stock may be underpriced.

Price to Sales (P/S)

The price-to-sales ratio is calculated by dividing the company’s market capitalization by its 12-month revenue. If the P/S is low in comparison to competitors, it may be a good stock to buy.

Price to Book (P/B)

The P/B ratio looks at stock price compared to the book value of the company. The book value includes assets such as property, bonds, and equipment that could be sold. Essentially, the P/B looks at what the value of the company would be if it were to shut down and be sold immediately. This is useful to know because it shows the value of a company in terms of assets, rather than valuing it based on growth.

If the P/S is low, the stock may be a good investment because the stock might be underpriced.

Dividend Yield

Dividend yield is calculated by dividing a stock’s annual dividend amount by the current price of the stock. This gives investors the percentage return of a stock’s price. If the dividend yield is high, this means an investor may earn more cash from the stock. However, this can change at any time so isn’t a good long-term indicator.

Dividend Payout

The dividend payout ratio tells investors what percentage of company profits get paid out to shareholders. Companies that don’t pay out dividends or pay low dividends are likely reinvesting their profits back into the business, which could help the business continue to grow. Paying out dividends isn’t a negative thing, but if a company pays out high dividends, they will have less money to reinvest and may not be able to continue to grow.

Return on Assets (ROA)

The ROA ratio compares a company’s income to its assets, which gives investors an indicator of how they handle their business.

Return on Equity (ROE)

ROE provides a calculation of how much profit a company makes with every dollar that shareholders invest. To calculate ROE, divide a company’s net income by shareholder equity. This gives an indication of how a company handles its resources and assets. However, as with every calculation, ROE doesn’t always provide a full and accurate picture of a stock’s performance. Companies can temporarily boost their ROE by buying back shares, which lowers the amount of equity held by shareholders.

Profit Margin

Profit margin compares a company’s total revenues to its profits. If a company has a high profit margin, this shows that a company is good at managing expenses, because they are able to keep revenue rather than spending it.

Current Ratio

The current ratio is calculated by dividing a company’s current assets by its current liabilities. This shows if a company will have enough money to pay off its debts. Current assets include cash and other highly liquid property. Current liabilities are any debts that a company must pay within one year.

Earnings Per Share (EPS)

This ratio is just what it sounds like, how much profit is a company generating per share of stock. A high EPS is a positive indicator. It’s a good idea for investors to look at EPS over time to see how it changes, because EPS could be boosted in the short term if a company has cut costs.

EPS is also useful for comparing different companies, since it gives a quick indication of how well each stock is doing. However, EPS doesn’t give a full picture of how a company is doing or how they manage their money, because some companies pay out earnings in the form of dividends, or they reinvest them back into the business.

Debt-to-Equity Ratio

Even if a company is growing and earning more profit, they could be doing so by getting into more and more debt. This could be a bad sign if they become unable to pay back their debts or if borrowing becomes more difficult. An ideal debt equity ratio is under 0.1, and over 0.5 is considered to be a bad sign.

Additional Factors

Aside from all the tools above, there are other factors to consider when evaluating a stock.

•   Dividends: If a stock pays dividends, investors may want to consider how those payments affect the overall returns of the stock.

•   Inflation: Factoring in how much inflation will affect stock returns is another helpful factor. This can be done by subtracting inflation amounts from a stock’s annual returns.

•   Analyst Reports: Another resource available to investors is Wall Street analyst reports put together by professional analysts. These can give in-depth insights into the broader market as well as individual companies.

•   Historical Patterns: Looking at past trends to get a sense of what the market might do in the coming months and years can help investors make informed decisions. Past trends aren’t predictions for the future, but they can still be useful.

The Takeaway

There are many tools available to help investors who are just getting started researching stocks and building a portfolio, and there’s no right or wrong way to evaluate stock performance. It can take a lot of time to gather information and research stocks, but investors can use tools to see everything at once and make quicker, more informed investment decisions.

If you’re ready to put your evaluation skills to the test, you can start investing in stocks and other securities to see if you’re on-point. But be aware that investing always involves risk.

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

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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

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