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There are two basic types of credit: installment and revolving. An installment loan is a form of installment credit that is closed-ended and is repaid in fixed payments over a regular repayment schedule.

Some common types of installment loans are mortgages, auto loans, student loans, and personal loans. If you’re considering borrowing money, learn more about installment loans and how they work here.

What Is an Installment Loan?

An installment loan is a lump sum of money borrowed and paid back over time. Each payment is referred to as an installment, hence the term installment loan.

In contrast, revolving credit like credit cards can be borrowed, repaid, and borrowed again up to the approved credit limit.

Installment loans can be secured with collateral or they can be unsecured. Some loans may have fees and penalties. The interest rate may fluctuate, depending on whether you choose a fixed or variable rate loan.

Recommended: Personal Loan Calculator

What Is an Example of an Installment Loan?

Installment loans can have multiple uses. These include auto loans, personal loans, mortgages, and student loans.

Auto Loans

Borrowers can take out auto loans for new and used vehicles. Monthly installments average around 72 months, but shorter loans may be available.

Loans with longer terms tend to have higher interest rates. It may seem like you’re paying less because the monthly payments may be lower, but you could end up paying more over the life of the loan.

Mortgages

Mortgages, or home loans, typically have terms ranging from 10 to 30 years with installments paid back monthly. Depending on your mortgage, you’ll either pay a fixed interest rate — it won’t change throughout your loan — or variable, which can fluctuate after a certain period of time.

Personal Loans

Personal loans are more flexible types of loans in that borrowers can use them for most purposes — examples include home repairs or debt consolidation. Many personal loans are unsecured, and interest rates will depend on your credit history and other factors.

Recommended: What Is a Personal Loan?

Student Loans

Student loans help borrowers pay for their post-secondary education such as undergraduate and graduate tuition costs. They’re either federal or private, and terms and rates will depend on a variety of factors. (With private loans, you can’t access the protections of federal student loans, such as deferment and forbearance, for example.)

Some student loans have a grace period, a period after graduation during which you aren’t required to make payments. Depending on how the loan is structured, interest may not accrue. Not all student loans have a grace period, however, so it’s important to verify your repayment schedule before you finalize the loan.

Pros and Cons of Installment Loans

An installment loan may or may not be the best fit for your borrowing needs. Consider the advantages and disadvantages, so you understand what you’re agreeing to.

Pros of Installment Loans

Here are the upsides of installment loans:

Expense

Most installment loans allow borrowers to take out large amounts, helping them to cover large expenses. For instance, many borrowers can’t afford to buy a house with cash, so mortgages can provide a path to homeownership.

Regular Repayments

Installment loans tend to come with predictable payment schedules. If you take out a fixed-rate loan, your payment amount should be the same each month. Having that knowledge of when and how much you need to pay can make it easier to budget.

Plus, installment loans have a payment end date. As long as you keep making on-time payments, your loan will be paid off in a certain amount of time.

Taking a careful look at your budget to make sure you can afford the monthly payments is an important consideration.

Refinancing

You may be able to refinance your loan to a lower rate if you’ve built your credit or if interest rates go down. Refinancing may shorten your loan repayment schedule or lower your monthly payments.

There are typically fees associated with refinancing a loan, which is another thing to consider when thinking about this option.

Cons of Installment Loans

Next, consider the potential downsides of installment loans:

Not Open-Ended

Once you finalize the loan and receive the proceeds, you can’t borrow more money without taking out another loan. Revolving credit like credit cards allow borrowers to use funds continually — borrowing and repaying up to their credit limit.

Commitment

When you take out a loan, being committed to paying it down is essential. Since some installment loans can come with longer terms — think mortgages — it’s important to make sure your budget can handle the regular payment.

Charged Interest

Like other types of loans, you’ll need to pay interest on installment loans. The interest rate you’re approved for is dependent on factors such as your credit history, credit score, and others. Applicants who have a longer credit history and a credit score at the higher end of the range will most likely qualify for the most competitive rates. If you’re stuck with a higher rate because of your poor credit, you could be making larger payments and paying more in interest.

Aside from interest, you may have to pay fees to take out an installment loan. There may also be prepayment penalties if you want to pay off your loan early.

Installment Loans and Credit Scores

How you use an installment loan can affect your credit score. If a lender reports your activity related to the loan, it could affect your score in two ways:

•   Applying for a loan: A lender may want to check your credit report when you apply for a loan, which may trigger a hard credit inquiry. Doing so could temporarily lower your credit score.

•   Paying back a loan: Lenders generally report your activity to the three major credit bureaus. If you make regular, on-time payments, this positive mark on your credit report could raise your credit score. The opposite can happen if you’re behind on or miss payments.

💡 Recommended: Installment Loan vs Revolving Credit

Getting an Installment Loan

Since taking out an installment loan is a big financial commitment, you may want to consider the following best practices:

•   Shopping around: Getting quotes from multiple lenders is a good way to compare personal loans to find one that offers the best rates and terms for your financial profile.

•   Prequalifying for loans: Getting pre-qualified allows you to see what rates and terms you may qualify for without it affecting your credit score.*

•   Enhancing your borrowing profile: Check your credit report for any errors or discrepancies. Making corrections could have a positive effect on your credit score.

•   Adding a cosigner: If you can’t qualify for an installment loan on the merits of your own credit, you may consider asking someone you trust and who has good credit to be a cosigner.

Alternatives to Installment Loans

Here are a few alternatives to consider:

•   Using a credit card: If you don’t need a large sum of money or don’t know how much you’ll need to borrow, a credit card can be a smart choice. Paying the entire balance by the due date means you won’t have to pay interest. Paying at least the minimum amount due each month will keep you from incurring a late fee, but you’ll still pay interest on any outstanding balance.

•   Borrowing from your next paycheck: Some apps let you receive an advance on your next paycheck, if you meet qualifications. You agree to pay the advance back when your next paycheck is deposited into your bank account.

•   Borrowing from friends or family: Asking to borrow money can be an uncomfortable conversation to have. However, it may be an option if you can’t qualify for or would rather not take out a bank loan. Having a written agreement outlining each party’s expectations and responsibilities is a good way to minimize miscommunication and hurt feelings.

Recommended: Family Loans: Guide to Borrowing & Lending Money to Family

The Takeaway

If you’re looking for a loan, an installment loan might fit your needs. This is a loan that disburses a lump sum, which is then paid back over time. Shopping around for an installment loan is a good way to find the best rates and terms for your unique financial situation and needs.

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.

FAQ

What is the meaning of installment loan?

An installment loan is a type of loan where borrowers take out a lump sum of money and pay it back in installments. Loan amounts can range from hundreds to thousands of dollars, and terms range from a few months to a few years.

What is an example of an installment loan?

Examples of installment loans include auto loans, personal loans, mortgages, and student loans.

Are installment loans bad for credit?

Making your scheduled monthly payments on time could build your credit score. On the flip side, late or missed payments can hurt your credit score.

What is the difference between a personal loan and an installment loan?

Personal loans are types of installment loans. Other types include student loans, mortgages, and auto loans.

Photo credit: iStock/Ridofranz

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.

SOPL-Q425-025

The prime interest rate is the interest rate that banks charge their best customers. It’s the lowest rate offered to individuals and corporations that are considered low risk by banks — those with good credit history who aren’t likely to miss payments or default on their loan.

But when you run into the term “prime interest rate” in your daily life (maybe you’re taking out a personal loan or applying for a mortgage), it’s pretty common to feel a little confused. To get a better handle on this financial term and know how it relates to your money, read on.

How Is the Prime Interest Rate Set?

You’ve just learned that the prime interest rate is the rate that banks charge their best customers. Take a closer look at how the prime interest rate is set, as well as how this figure fits into the larger financial landscape.

Individual banks determine their prime interest rate. While the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate.

The federal funds rate is the rate that banks charge each other on an overnight basis and is established by the Federal Open Market Committee.

Why do banks lend each other money? They do so in order to meet the reserve requirement, which is also set by the Federal Reserve.

This is the minimum amount of cash a bank must have in their vault or at the closest Federal Reserve bank. If one bank has excess cash, the bank has a financial incentive to lend that excess cash to a bank that has less than its federally mandated amount. The reserve requirement acts as a lending limit for banks and also ensures that they have enough cash on-hand for the start of business each day.

How Does the Prime Rate Compare?

Generally, the prime rate is about three percent higher than the federal funds rate. That means that when the Fed raises interest rates, the prime rate typically goes up as well.

Because the prime interest rate is typically aligned with the federal funds rate, it’s highly susceptible to change. How often could the prime rate change? It can shift quite a bit. Take, for instance, the fact that the prime rate was 3.25% on March 16, 2020. From that date to July 2023, it rose 11 times to 8.50%. As of October 30, 2025, the prime rate was 7.00%.

Why Is the Prime Interest Rate Important?

The prime interest rate impacts all kinds of loans, including interest rates for mortgages, credit cards, auto loans, and personal loans. Typically, banks and lenders will use the prime interest rate as a benchmark for setting interest rates for their customers. Consider some of the ways this can impact personal finance and the economy:

•  Changes in the federal funds rate and prime interest rate can impact variable rate credit cards, adjustable-rate mortgages, home equity lines of credit (HELOC), and more. The interest rates on variable loans are based on these market interest rates and therefore change over time. In fact, variable interest rates, including those on credit cards, are often expressed as the prime rate plus a certain percentage.

Unlike fixed-rate loans, monthly payments on any variable loan could change considerably from month-to-month. This is why fixed-rate loans can be a more desirable alternative than variable loans for some borrowers.

•  Though rates are largely influenced by the Federal Reserve, borrowers have little control or way of predicting the rates from year to year. Even when the Federal Reserve predicts growth, interest rates can rise due to a variety of factors, causing your monthly bill to rise with it.

•  Beyond individual borrowers, the prime interest rate also influences the financial market as a whole. A low prime rate makes it easier and less expensive to borrow loans which increases liquidity in the market.

•  Historically, when the prime rate is low, the economy grows. That’s why, if there’s a recession, rates may go down, with the goal of getting consumers and businesses to borrow again and stimulate the economy.

When the prime rate is high, economic growth slows down. For instance, recently interest rates were raised, which can nudge consumers to think twice about spending. This can lower demand and help bring down inflation’s impact.

•  The prime rate isn’t the only benchmark that banks use to inform interest rates. Banks also often use the SOFR, or Secured Overnight Financing Rate, which replaced the London Interbank Offer Rate (LIBOR). This reflects the rate that banks charge each other for short-term loans. The federal funds rate, prime interest rate, and SOFR rates generally fluctuate together. When the three rates are out of sync, this can be an indicator of an issue with the financial markets.

Recommended: How to Apply for a Personal Loan

The Takeaway

The prime interest rate is defined as the interest rate that banks charge their best customers who are considered low risk by banks. Interest rates play an important role when you are borrowing funds to finance an expense, so it pays to pay attention to them and shop around for the most favorable offer you can find.

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.

FAQ

What is the prime interest rate?

The term prime interest rate refers to the interest rate that banks charge their best customers, whether they are individuals or businesses.

What is the current prime interest rate?

At the end of October 2025, the prime interest rate was 7.00%.

What is the current interest rate for the Fed?

The St. Louis Fed reported the effective federal funds rate was 4.12% as of October 27, 2025.

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.

SOPL-Q425-021

Putting in a pool can turn your backyard into an oasis for parties, playtime for kids, and weekend relaxation. However, installing an in-ground swimming pool costs $65,909 on average in 2025. This expense can leave many homeowners wondering how to cover the cost of installing a swimming pool.

Fortunately, there are several options for financing a pool, including a cash-out refinance, a home equity loan or credit line, and a personal loan. Read on for a closer look at different types of pool financing and their pros and cons.

Key Points

How to Finance a Swimming Pool

If you don’t have enough money saved to pay upfront for a pool — or even if you do — you might be wondering what types of loans or other options are appropriate for this type of backyard remodel.

There are several pool financing choices available to homeowners — including credit cards, pool company financing, cash-out refinancing, home equity loans, home equity lines of credit, and home improvement loans.

Before you take the plunge into financing a pool, it’s a good idea to consider the pros and cons of each type, including the overall costs of borrowing and whether you might qualify for a particular type of loan. What follows is a guide to four of the most popular pool financing options.

Using a Cash-Out Refinance to Pay for a Pool

If you have significant equity built up in your home, you may want to consider a cash-out refinance. Equity refers to the amount of your home’s value that you’ve actually paid off. Put another way, it’s the difference between your mortgage balance and your home’s current value.

With a cash-out refinance, you replace your existing mortgage with a new mortgage for a larger amount. You receive the overage as cash back, which you can then use to cover virtually any expense, including the installation of a swimming pool.

Pros of a Cash-Out Refinance

A cash-out refinance comes with a number of potential benefits:

•   Access to large loans You may be able to borrow up to 80% of your home’s equity, which could be enough to cover the cost of putting in a pool — and maybe even some extras, like a new barbecue or lounge chairs.

•   A lower rate Borrowers with good or improved credit, or those who bought their home when interest rates were higher, may be able to refinance to a lower interest rate.

•   Potential tax deductions A mortgage interest tax deduction may be available on a cash-out refinance if the money is used for capital improvements on your property. (Consult with a tax professional for more details on how this applies to your situation.)

Cons of a Cash-Out Refinance

There are also some downsides to going the cash refi route, including:

•   Involved application process Borrowers must go through the mortgage application process all over again to get a new loan, which usually means submitting updated information, getting an appraisal, and waiting for approval.

•   Closing costs You may have to pay closing costs, generally from 2% to 6% of the total loan amount. (That’s the old loan plus the lump sum that’s being added.)

•   Foreclosure risk Your mortgage is a secured loan, which means if you can’t make your payments, you could risk foreclosure.

Using a Home Equity Line of Credit to Finance a Pool

Another way you can use your home’s equity to finance a pool is to take out a home equity line of credit (HELOC).

A HELOC is a revolving line of credit that uses your home as collateral. It works much like a credit card in that:

•   The lender gives you a credit limit to draw from, and you only repay what you borrow, plus interest.

•   As you pay back the money you owe, those funds become available to you again for a predetermined “draw” period (usually five to 10 years).

Pros of a HELOC

Here’s why a HELOC can be a popular way to pay for home improvements like adding a pool:

•   Flexibility Instead of borrowing money in one lump sum, a HELOC allows you to tap into the line only as needed. Plus, you only pay interest based on the amount you actually borrow, not the entire amount for which you were approved, as you would with a regular loan.

•   Low rates The interest rates are generally lower than credit cards and unsecured personal loans.

•   Potential tax deductions The interest on HELOC payments might be tax deductible if the funds were used to buy, build, or substantially improve your home, and you itemize your deductions.

Cons of a HELOC

HELOCs also have a few potential drawbacks, which include:

•   Variable interest rates HELOCs generally come with a variable interest rate, which means when interest rates increase, the monthly payments could go up. Although there may be a cap on how much the rate can increase, some borrowers might find it difficult to plan around those fluctuating payments.

•   HELOCs are easy to use — and overuse Some of the same things that can make a HELOC appealing (easy access to cash, lower interest rates, and tax-deductible interest) could lead to overspending if borrowers aren’t disciplined.

•   Foreclosure risk A HELOC is secured by an asset (your house). If you stop making the payments on the HELOC, you could lose your home.

Recommended: Guide to Unsecured Personal Loans

Using a Home Equity Loan for Pool Financing

A home equity loan is yet another way to tap into the money you’ve already put into your home. But unlike a HELOC, borrowers receive a lump sum of money.

Pros of a Home Equity Loan

There are different types of home equity loans which all offer a way to tap into the money you’ve already put into your home. But unlike the case with a HELOC, borrowers receive a lump sum of money.

•   Predictable payments Unlike HELOCs, which typically come with a variable interest rate, home equity loans usually have a fixed interest rate. The borrower can expect a reliable repayment schedule for the duration of the loan.

•   Low rates Because it’s a secured vs. unsecured loan, lenders usually consider a home equity loan lower risk and, therefore, offer lower rates. Secured loans also tend to be easier to qualify for than unsecured loans.

•   Potential tax deductions And, once again, there is a potential tax break. If the loan is used for capital improvements to the home, and you itemize your deductions, the interest may be deductible.

Cons of a Home Equity Loan

There are also some downsides to a home equity loan:

•   Rates may be higher than HELOCs Because a home equity loan’s interest rate won’t fluctuate with the market, the rate for a home equity loan is typically higher.

•   Closing costs As with most loans involving real estate, you’ll likely have to pay closing costs. These costs can range from 2% to 5% of the loan amount.

•   Foreclosure risk You may put your home at risk for foreclosure if you can’t make your loan payments.

Using a Personal Loan

You don’t necessarily have to tap into your home’s equity to finance a swimming pool. Many banks, credit unions, and online lenders offer unsecured personal loans that can be used for home improvements, including the installation of a swimming pool.

If you haven’t owned your home for long, or if your home hasn’t gone up much in value while you’ve owned it, a personal loan may be worth considering.

Pros of a Personal Loan for Pool Financing

Here’s a look at some of the advantages of using a personal loan for a home renovation like a pool:

•   Simple application process Applying for an unsecured personal loan is typically quicker and simpler than applying for a secured loan. With a personal loan, you don’t have to wait for a home appraisal or wade through the other paperwork necessary for a loan that’s tied to your home’s equity.

•   Fast access to funds Personal loan application processing and funding speeds vary, but many lenders offer same- or next-day funding.

•   Lower risk Because your home isn’t being used as collateral, the lender can’t foreclose if you don’t make payments. (That doesn’t mean the lender won’t look for other ways to collect, however.)

Cons of a Personal Loan for Pool Financing

Personal loans also come with some disadvantages. Here are some to keep in mind:

•   Higher interest rates Personal loans are unsecured, which means they generally come with a higher interest rate than secured loans that use your property as collateral. (However, borrowers who have good credit and don’t appear to be a risk to lenders still may be able to obtain loan terms that work for their needs.)

•   Origination fees Many (though not all) personal loan lenders charge an origination fee of between 0.5% and 8%, adding costs you might not have anticipated.

•   Less borrowing power Personal loan amounts range from $1,000 to $100,000 but how much you can borrow will depend on the lender and your qualifications as a borrower. With a home equity loan or credit line, you may be able to access more — up to 80% of your home’s value, minus your outstanding mortgage.

Should You Finance a Pool?

Installing a pool is an expensive home improvement, so you may need to borrow some money to pay for all or part of the project. Even if you have enough cash saved to pay upfront for a pool, you may still want to consider financing some or most of the project if you want to keep cash accessible for emergencies and other needs.

Financing with a low-interest loan (provided you can afford the payments) can make paying for a pool manageable. But before you borrow a large sum, you may want to consider how long you plan to live in your current home, how much pool maintenance might cost each month, if you’ll actually use the pool enough to make it a worthwhile purchase, and if the value added to your home is worth the investment.

The Takeaway

With an average cost of $65,909 in 2025, installing an in-ground pool is a costly proposition, but one that can be a wonderful addition to a home in terms of enjoyment and value. If you have significant home equity, you might consider using a cash-out refinance, home equity loan, or HELOC to finance your pool. Or it may be worth looking at a personal loan for pool financing.

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.

FAQ

How much is it to install an in-ground pool?

As of 2025, the cost to install an in-ground pool is approximately $65,909, according to the home improvement website Angi. Costs may vary based on size, location, materials, design, and other factors.

How can I finance a swimming pool?

There are several ways to finance a swimming pool for your home. You might leverage your home equity with a home equity loan or home equity line of credit (HELOC). Or you might consider a home improvement personal loan.

Can I get an in-ground swimming pool for $20,000?

Whether $20,000 is a sufficient budget for an in-ground pool depends on several factors. Given that the average cost is currently about $66,000, you would likely have to get a very small pool (say, a plunge pool) and live in an area with a very low cost of living in order to keep costs in the $20,000 range.

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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.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOPL-Q425-018

Not all wills are alike. There are actually four main kinds and one of them may be right for you. Sure, writing a will can be an easy task to put off until “someday.” But what if the worst were to happen before “someday?” That could mean a complicated and emotionally draining legal process for your loved ones. Creating a will not only can provide peace of mind for your loved ones after you die — it can also provide peace of mind for you right now.

The simple definition of a will is a document that states your final wishes. This alone was sufficient a century ago, when many people had limited property to pass down. But in the modern era, when “property” encompasses everything from the contents of your long-forgotten storage unit to the crypto you decided to buy on a whim, a simple will may not encompass your complex life.

Not only that, but a will is a document that only takes effect after you die. But what if you were medically unable to make decisions? Modern end-of-life documents encompass your wishes if you were medically or otherwise unable to make decisions on your own. Among these documents is one that also has the world “will” in its name.

4 Kinds of Wills

As you begin estate planning, you’ll likely come across four common types of wills. These are:

•   A simple will

•   A joint will

•   A testamentary trust will

•   A living will

Let’s look at each type of will more closely.

What Is a Simple Will?

A simple will may be the type of will that pops into your mind when you hear the word “will.” This will can:

•   State how you want your property bequeathed upon death

•   Provide guardianship specifications for minors

Upon death, a simple will is likely to go through a legal process known as probate to divide assets. Sometimes, in the case of high-net-worth individuals, probate can be expensive. (For those with complex situations and a positive net worth, a trust can help handle those what-ifs. It can transfer assets out of your estate and into the trust, which can be advantageous in terms of taxes.)

However, in many situations, a simple will can provide peace of mind for people in good health. Later, these individuals may want to take on more complex estate planning, but a will provides a good foundation when it comes to making sure guardians are named and property is divided according to your wishes.

A simple will can be created through online templates, and the cost can be zero dollars to several hundred dollars. More expensive online options may come with support from an attorney who can help answer questions. Once created, a will then needs to be made legal according to state laws. This may include signing the will in front of witnesses. You may also want to have it notarized. Having a hard copy of the will, as well as people who know how to access it in case of your death, can ensure the will is found in a timely manner.

Recommended: How to Make a Will: 7 Steps

What Is a Joint Will?

A joint will functions in much the same way as a simple will, except it is a will created by two people, usually who are married to each other. It merges their wishes into a single legal document. In many cases, this kind of will dictates that property will be left entirely to the surviving partner. Here’s the catch, though: Upon death, property will be distributed in the manner dictated by the will. The surviving person does not have the ability or authority to make changes to what the will says once the initial spouse has died.

This can sound streamlined, especially if couples were planning to leave everything to each other anyway. But this type of will can cause headaches. For example, if the surviving spouse has more children or gets remarried, it can be almost impossible to provide for additional people not named in the initial, joint will.

There could be problems even if the surviving spouse does not remarry. For example, if the marital home is considered an asset to be given to the couple’s children upon the death of both of the will’s creators, it may be impossible for the surviving spouse to sell a home to downsize.

One alternative that may suit married couples is to create two individual wills. This may provide a greater degree of flexibility and better achieve the desired effect without ruling out all of life’s what-ifs.

What Is a Testamentary Trust Will?

A testamentary trust will is usually part of big-picture estate planning. It is a document that creates a trust that goes into effect when you die. This trust can outline how certain types of property will be divided. A testamentary trust can have certain stipulations (for example, someone only inherits X piece of property when they reach Y age). This can also be used for people with minors or dependents to help ensure that wishes are followed.

What’s more, a testamentary trust can also help provide for pets. Because a pet can’t own property, naming your “fur baby” within a will can set up a legal headache. But a testamentary trust can ensure that your pet will be provided for according to your wishes.

It’s worth noting that a testamentary trust will go through the probate process, and it may not have the same tax benefits for recipients as other types of trusts. Weighing the pros and cons of different trust options can be helpful before settling on the best one for your situation.

What Is a Living Will?

This is a hard topic to think about, but what if you were in an accident and were knocked unconscious? What if you were undergoing treatment for a serious medical condition and couldn’t fully grasp the options offered to you? There’s a way to put a trusted relative or friend in the decision-making role. A living will, which is also known as an advance directive, specifies your wishes if you were medically incapacitated or unable to make or communicate decisions about your medical care. It also stipulates who your healthcare proxy, also known as a medical power of attorney, would be to make medical decisions on your behalf.

If you are creating a living will, you may also want to create a power of attorney document. This designates a person — who may or may not be the same person as your healthcare proxy — who has the right to make financial decisions on your behalf. Having a living will can cover unexpected situations that may occur before death and can be an integral part of end of life planning.

Recommended: How to Write a Will Online: 8 Steps

The Takeaway

While end of life planning can be a challenging or sad endeavor, it’s an important step in making sure your assets are directed where you want them to go and that other important wishes are executed as you want. There are four main types of wills to help you legally record your plans; more than one may suit your needs. And you can decide to use online services or work in person with an attorney.

In either case, making a will can give you peace of mind right now — and help smooth things along for your loved ones in the future during a difficult time.

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 20% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

Create a complete and customized estate plan in as little as 15 minutes.

Photo credit: iStock/LaylaBird

SOPRO-Q425-018

Credit card churning describes when you open and then close a credit card account to snag sign-up rewards. Given how much competition there is for your business as a card holder, there are many enticing offers out there of cash, points, miles, and more. Some people may be tempted to try to grab those freebies and bonuses, but this practice comes with pros and cons.

Read on to learn about credit card churning and whether it’s something you should ever try.

What Is Credit Card Churning?

Credit card churning occurs when you open and close credit card accounts for the sole purpose of earning a sign-up bonus. The trick is to do it over and over again, with several credit cards. The end goal is to earn as many rewards as you can. In other words, you are maximizing your eligibility for points and prizes.

Types of Sign-up Bonuses

Of course, there is no such thing as a free lunch or a free reward. Being rewarded usually costs you. In order to earn the credit card rewards, you are typically required to spend a certain amount of money on that credit card, and it has to be done within the first few months (in most cases, three months).

The way you’re lured into a sign-up bonus is by earning a large amount of rewards by spending only a small amount. This usually happens only with a new credit card as a “welcome” offer. If you are careful about what and where you spend, you may be able to save money and get rewarded in the meantime. However, as you’ll learn below, this practice can also have its downsides.

Can You Win at Credit Card Churning?

If you want to try to get rewarded via credit card churning, there are some important best practices to be aware of.

Pay Off Your Balance in Full Each Billing Period

This is a good tip even if you’re not gunning for reward points. If you don’t pay off your balance at the end of the month, the rewards you earn will wind up being a net loss as credit card interest rates take their toll. There is no bigger credit card churning buzzkill than taking months or even years to pay off the debt you accumulate racking up charges to earn a sign-up bonus.

While on this subject, remember that paying off your credit card balance in full every month will keep away the interest charges that accrue when you don’t make a full monthly payoff.

Look at it this way: When it comes to credit card churning, it’s you against the credit card companies. You want to reap their rewards but not open yourself up to suffocating debt and high-interest charges.

Credit card churning can work if the consumer hits the rewards thresholds, but practice responsible spending. If you’re someone who doesn’t manage credit card debt well or tends to overspend just to cash in on the rewards, it might be better to steer clear of credit card churning.

Make Your Credit Card Payment on Time

Don’t be even a day late. Late fees can be a budget buster, and they can damage the credit rating you’ve worked so hard to keep strong. If other credit providers see a pattern of late payments, they may not be so fast to offer you their credit card, which means no rewards, or give you their best rates.

An excellent way to avoid late payments is to schedule automatic payments through your debit card, or checking or savings accounts. This way, you just set it and forget it!

Have a Plan for Your Rewards

Enjoying the rewards you earn may mean so much more to you when you have a short-term goal for how to use them. Perhaps the points are for airline miles or a vacation destination. Maybe you can use them toward a new wardrobe or the latest electronics. Keeping your eyes on the prize will prevent you from squandering your reward points on something forgettable or regrettable. Stay strong.

Don’t Bite Off More Than You Can Chew

Fight the temptation to get greedy. New credit cards with amazing reward offers are a dime a dozen. They’re like buses: Another one will come along soon.

Think about where you may be in a few short months if you take on too many credit cards and too much debt. That won’t be worth any amount of reward points. Only use the number of cards that you can comfortably manage.

Focus on Credit Card Fees

Credit card companies tend to be selective about what they promote to you. The reward offer may come with annual fees, transfer fees, and other charges. If your card requires an annual fee, ask yourself if acquiring it and paying fees is worth the reward points.

Shop Around

Be extremely selective in choosing your rewards-based credit cards. The competition among credit card companies for your business is intensely competitive. Take your time, and wait for the best offer.

Be Wary of No-Interest Credit Cards

It certainly sounds tempting to get a credit card that charges zero interest, and as long as you plan to pay off your balance in full every month, you’re already ahead.

However, this type of offer for a balance transfer credit card can bite you in the back end with extremely high-interest rates when the period expires or a “transfer charge” when transferring your high-interest credit cards.

Charges like that could equal the same amount of money you would be paying in the interest you thought you were passing by. Be sure you’re aware of the pros and cons of no-interest cards.

Read the Fine Print

Always read the fine print. That amazing offer may have some exclusions and exceptions and other unpleasant surprises. Find out which of the reward rules are subject to change and if there are any expiration dates or winning rewards. If you are not great at reading the fine print, find somebody close to you who is, or call the credit card customer service line and get your answers.

Protect Your Credit Score

A credit score is an overview of your credit history and payback behavior. Making timely monthly payments and not defaulting on any of your credit cards or loans, and you’ll likely be on the right path. It also helps to keep your debt utilization ratio (how much your balance is versus your credit limit) low; no more than 30% at most.

Always consider your credit score before you consider credit card churning. Recognize that if you apply for new credit cards, a hard credit inquiry will be conducted. This will temporarily lower your credit score a bit.

Be Organized

When it comes to credit card churning, always stay organized and aware. Know exactly what the offer is and what you need to do to get it. Know the deadline for spending the money that will make you eligible for the rewards.

Keep up on your progress toward your rewards goal: How much more do you have to spend and how much more time do you have before the offer expires? Again, avoid the pitfall of impulse spending just to get your reward.

When to Avoid Credit Card Churning

Think of credit card churning possibly as a privilege you have to earn rather than a right that doesn’t require prior deliberation. If you fall into any of these following categories, think twice before opening another credit card.

The biggest takeaway here is if you have credit card debt, it doesn’t make sense to continue to rack up debt in the name of credit card churning. Instead, it’s best to make a plan to get out of credit card debt ASAP.

If Your Credit is Bad

Credit card rewards are meant for customers with good-to-excellent credit, not for customers with late payments or delinquent accounts. Think of this as an opportunity to build your credit score. Once you do, you may be eligible for some offers.

If You’re About to Take on More Debt

Are you about to sign a mortgage or are on the verge of a car or school loan? Applying for extra credit cards for the sake of their rewards will more than likely affect your credit score, as noted above. Each hard credit inquiry will lower your score temporarily. The constant nature of credit card churning can possibly stand in the way of your loan request or result in you being offered a higher interest rate than you would be with a higher score.

If you’re thinking about credit card churning, wait until after you secure that all-important loan or at least wait until your loan is approved, your payments are underway, and your monthly budget adjusts to the debt increases.

If You Don’t Use a Credit Card That Often

Not overusing a credit card can show good discipline. However, your lack of credit card usage may mean you’re not a good candidate to try credit card churning. In some cases, credit cards will only grant you rewards if you spend a certain amount of money, which means increasing your spending (and your debt). You might feel “obligated” to use plastic more than you would otherwise.

If You’re Already Earning Rewards on Your Credit Cards

Some credit cards offer travel points and other rewards, without you having to get into a spending contest.

If you are pretty disciplined about your monthly spending and careful about avoiding too much debt, you’ll probably already steadily earn points and rewards on the credit cards you have. Call customer service and ask what you are eligible for.

If This Is Your First Credit Card

Usually, getting your first credit card is a chance to prove that you are responsible with credit. You can use that first card to spend wisely and pay your balance in full each month. This can build your credit score and keep your finances on the straight and narrow.

If you get involved with credit card churning right off the bat, it could lead to trouble that you don’t need when you’re first establishing credit. Building a credit score once it’s damaged can take a long time and can stand in the way of the things you may want and need to buy. Wait until you’re further along in the credit game, and when you’re earning money to handle a bit more debt.

If You Tend to Overspend

Know yourself. If you’re the type who tends to overdo it when using plastic and can’t resist BOGO sales and the like, proceed with caution. Getting a large number of credit cards can leave you open to running up a tab on many of them and accruing too much debt. In other words, if you are in the habit of overspending, think twice.

Too Much Credit Card Debt?

If you have accumulated too much credit card debt, whether or not churning is a factor, there are several ways you might deal with it:

•  Investigate debt payoff techniques, such as the avalanche and snowball methods.

•  Consider a balance-transfer card to give yourself a breather from high interest rates and a chance to pay down your balance.

•  Explore a debt consolidation personal loan to simplify payments and possibly reduce the interest you pay. These personal loans can come in amounts from hundreds of dollars to $100,000.

•  Pursue debt counseling from a qualified provided; some nonprofits offer free or low-cost services.

Recommended: Debt Consolidation Calculator

The Takeaway

Credit card churning involves opening and closing credit card accounts to snag rewards. This practice can be harmful as it can lead to taking on too much debt and lowering your credit score. If you do find yourself with considerable credit card debt, you might look into a balance transfer credit card, debt counseling, or repaying the debt with a lower-interest personal loan.

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

FAQ

How to get free from the cycle of debt?

If you are stuck in a cycle of debt, you might try budgeting, debt consolidation loans, and using techniques like the avalanche or snowball method to pay off what you owe.

What is credit card churning?

Credit card churning is the practice of opening and then quickly closing credit card accounts to snag bonuses and rewards that the issuer offers, such as cash back, a sign-up bonus, or discounts.

What are downsides of credit card churning?

Each time you apply for a new credit card, a hard credit inquiry is likely triggered, temporarily lowering your credit score by several points. Also, credit card churning can involve fees and may encourage overspending to reach certain usage milestones.

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