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ACH payments, otherwise known as ACH transactions or transfers, are one way to transfer your money or pay electronically. It’s been a real game-changer: The process eliminates the need for cash, paper checks, and credit card networks.

But, as with most banking transactions, it can feature its own range of costs, whether you are using it to pay your bills or to conduct business. While the costs of ACH are competitive with other payment methods, they can vary. The amount you end up paying for your ACH transaction will depend on multiple factors. For example, the way you use the ACH network and the size of your payments can both factor into pricing.

Since each person’s financial needs are different, we’ll take a look here at how ACH pricing works and how it stacks up against other payment methods. You’ll learn:

•   What an ACH transfer is

•   What typical fees are for ACH transactions

•   How ACH fees compare to other payment methods.

What Is an ACH Transfer?

First things first: ACH stands for Automated Clearing House, the network that powers these electronic transactions. It’s a hub that includes around 10,000 financial institutions and can support payment processing, such as direct payments, electronic checks (eChecks), electronic funds transfers (EFTs), direct debits, and direct deposits. When considering payment apps, like PayPal and Venmo, know that ACH powers those as well.

ACH transfers work similarly to other payment methods. Take your monthly internet bill, for example. If you signed up for autopay, you had to provide some personal information like your checking account details. You also needed to agree to a scheduled payment. After the sign-up, your internet provider requests funds from your bank to pay for the cost. From there, your bank processes the ACH transaction as long as you have enough funds. (It’s worth mentioning that ACH payments are quite secure but there is fraud out there. ACH Positive Pay offers one way to protect yourself if you are concerned about scammers.)

ACH transfers require an initial setup. Following that, you can make bank-to-bank payments using the ACH network. These payments generally fall into two categories: ACH credit and ACH debit. Either way, you may wonder how long an ACH transfer takes. They usually clear within a few business days and for a relatively low cost.

Recommended: How Does a P2P Money Transfer Work?

Typical ACH Payment Fees

Now that you understand the basics of how money moves around in an ACH transaction, let’s consider the costs. As a consumer, you may not pay for ACH processing, though some providers may try to pass along a service charge. In some cases, using ACH may even earn you a discount. For instance, if you automate a home loan payment for a certain date every month, you might be rewarded.

However, as a business, you will likely have to spend a bit to conduct ACH business. According to the Association for Financial Professionals (AFP), the median ACH transfer cost is $0.26 and $0.50. This means that ACH payments are one of the more affordable options for businesses, although prices may vary depending on the provider you choose to process your payments. That provider is usually known as a third-party payment processor (TPPP).

Here are some standard ACH fees you should be on the lookout for if you accept these payments.

Account Fee

The ACH account fee covers a broad array of costs. It essentially pays for the services needed to manage a payment processing account. These include recording a monthly statement, compliance costs, system maintenance, and transaction monitoring. Generally, your service provider or processor will collect this fee.

ACH Processing Fees

The ACH processing fee covers the expense to send an ACH payment to the recipient’s bank account after going through the Automated Clearing House network. ACH processing fees break up into three categories: debit, credit, and discount, which we’ll now look at individually.

Debit Fee

The debit fee pays for a customer to make an ACH debit payment to a business. As mentioned above, this ACH debit fee typically costs between $0.20 and $1.50. The charge depends on the risk of the transaction and the type of business.

Credit Fee

ACH credits come into play when a business makes a payment to a third party, vendor, or employee. It’s similar to a debit fee in terms of cost, meaning between $0.20 to $1.50, and it pays for the transaction to be sent through the ACH network.

Higher-risk businesses (which may cluster in certain fields, from financial and travel services, to auctions and tobacco-based businesses) may face an additional charge as well. This can bring the fee to around 0.5% to 1.5% of the payment. In part, this reflects the fact that ACH credit payments tend to be worth a higher dollar amount than ACH debit transactions. As a result, an ACH credit payment is a greater risk for the merchant services provider.

Discount Fee

The name “discount fee” may be misleading for people just learning about ACH charges. It has no connection to discounted prices. Instead, it’s a fee that applies to certain high-risk ACH transactions based on a percentage. With it, payment processors can increase the cost of the service and lessen the risk of the payment.

Other ACH Fees

We’ve just shared the run-down on the standard costs you may be charged for payment processing with an automated clearing house. But there are other fees you should know about with ACHs. Because when it comes to paying for financial services, no surprises is often the best policy.

Setup Fee

In some cases, your payment processor may charge you for setup. This one-time fee can be waived sometimes, though; it’s worth inquiring. You’re most likely to be able to avoid the fee if ACH processing comes as an add-on service to another arrangement you’ve made. Alternatively, you can reduce costs by working with a business that does not collect this setup charge.

Monthly Fee

Those who use ACH may also face a unique monthly fee along with processing charges. However, some may be able to pay both fees wrapped into the monthly fee. Usually, this fee costs anywhere from $5 to $30.

Monthly Minimum Fee

This may sound like the monthly fee we just described above, but there may indeed be a monthly minimum fee as well. This is a minimum processing charge that could be assessed in addition to your regular monthly charge. Or it might replace that monthly fee.

Batch Fee

ACH files can contain one or more groupings, called batches. Batches contain one or multiple transactions, and they are sorted based on certain clusters of data. When your ACH transfers are batched in this way, you are charged a batch fee. It’s assessed per each batch processed and is typically under a dollar per batch.

ACH Return Fee

Returning an ACH transfer is possible. However, it usually comes with an ACH return fee that costs between $2 to $5 per transaction.

ACH Chargeback Fee

Customers use chargebacks to dispute what they believe are erroneous payments. This process comes with a chargeback fee, and it’s typically higher than fees for ACH returns. The ACH chargeback fee tends to cost between $5 and $25.

High Ticket Surcharge

The original intention for ACH fees was to apply them to low-ticket (that is, not too pricey) purchases. As a result, there’s an additional charge added for high-ticket transactions. You’ll find that payment processors likely charge a surcharge on purchases over $5,000.

Expedited Processing Fee

You may need expedited processing for an ACH transfer. Depending on the payment processor, this service can come with an additional charge.

Comparing ACH Fees to Other Payment Methods

When it comes to electronic transactions, you may find that different techniques can sound quite similar. However, processes vary, and so too can fees. Here’s what you need to know about the fees associated with other payment methods.

ACH vs Wire Transfer

Wire transfers are transactions between two financial institutions where each is responsible for verification. In a wire transfer, a bank sends money from one account into another. This process can take little or virtually no time when it occurs within the same bank. However, if the money must transfer between distant or international banks, it can take a bit longer, but it is often viewed as one of the quickest ways to make a payment.

While this can be a fast method, it’s also costly, often averaging between $20 to $35 when sending money and $10 to $20 when you receive funds in this way. As a result, wire transfers may be best for one-time, large payments.

ACH vs Paper Checks

Paper checks are the traditional route for payment processing and may work well if you don’t want to electronically transfer money between banks. But the overall cost can vary depending on the business’s size, where the checking account is located, and timing.

It’s not unheard of for banks or financial institutions to offer free checking accounts to small businesses. They may even throw in checks at no additional cost. These two selling points, along with low monthly fees, can make paper checks an incredibly cheap financial method.

However, experiences vary. The financial institution may offer a free checking account, but only if the business maintains a certain minimum balance. Not only that, but monthly fees and the time spent filling out or processing checks can be costly. According to NACHA, sending money via a check results in a cost of about $1.22 per transaction.

ACH vs Credit Card and Debit Cards

Credit cards are a standard payment method, particularly for businesses collecting online payments. All the cardholder has to do is use their card to purchase the business’ goods or services. When they do, the credit card network verifies that the payer can indeed afford to do so. This is why credit card transactions are considered “guaranteed funds” payments. ACH doesn’t do this vetting during processing, which means transactions can be rejected. Thus, they may result in a penalty fee. Debit cards are another convenient way to pay. A person swipes or taps their card to pay, and funds are automatically deducted from their account.

ACH processing is relatively slow compared to credit card processing. But ACH pricing is lower than credit card and debit fees, which usually charge between 2.6% and 3.5% of the transaction amount, plus an additional 10- to 30-cent fee per transaction.

Recommended: What is a Credit Card and How Does it Work?

ACH vs Online Invoice with Pay Link

Let’s say you include an easy, clickable payment link in an online invoice that you’ve sent to your customers. In terms of processing, this is likely to cost between 2.9% and 3.5% of the transaction’s total, and you may also pay a 15- to 30-cent fee for each transaction.

ACH vs PayPal

Now, let’s consider how processing via PayPal stacks up. In the U.S., PayPal fees range from 2.7% to 2.9%, depending on whether the transaction was in-store or online, and then there’s a 30-cent fee per transaction. International transactions will be assessed an additional 1.5% of the amount. If you use a QR code with your PayPal transactions, you can lower the cost somewhat.

ACH vs Apple Pay Fees

Apple doesn’t assess a fee from merchants to accept and use Apple Pay for payments, but that doesn’t mean you’re getting a freebie. You will have to pay your processing partner at the standard rates for credit- and debit-card transactions.

The Takeaway

Businesses and individuals alike rely on ACH transfers to process transactions. And there’s a reason for it: These digital payments are quick, convenient, and accessible. ACH transfers also have the benefit of being a lower-cost option compared to methods like wiring funds and some other common techniques. Finding the right way to pay bills and collect payments is a personal decision, with many variables. Money matters, of course, but there may be other benefits to consider as well.

When it comes to your personal banking, finding the right partner is equally important. That’s why we’d like you to consider SoFi, because we think we help our members bank smarter. When you sign up for our high yield bank account with direct deposit, you won’t pay any account fees, so you’ll keep more of your money. And you’ll earn more interest, thanks to our competitive APY.

Ready to bank better? See the difference SoFi can make.

FAQ

Do ACH payments have fees?

Yes, ACH payments come with fees. However, these are generally the lowest fees versus any other payment processing option.

Why do banks charge ACH fees?

Banks charge ACH fees to cover the processing service and potential costs, like penalty fees.

How do you avoid ACH fees?

Since ACH fees vary, the best way to avoid them is through research. Reading terms ahead of time can help you find whether a provider is the right option for you. In general, accessing ACH through a third-party can drastically increase the number of fees.

Do US banks charge for ACH transfers?

As a customer, ACH transfers are typically free, and your bank doesn’t collect a fee. As a business conducting ACH transactions, however, you might be charged a fee for an occasional ACH transaction. It’s more likely, however, that if you are completing these transactions regularly that you will work with and pay a third-party payment processing company rather than your bank.

What is ACH on my bank statement?

ACH stands for Automated Clearing House. It is a network used to transfer funds between bank accounts around the United States. When you see it on your bank statement, you know that payment was made electronically through the ACH network.

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

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

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

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

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

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

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Having to get a root canal is already painful enough — but then comes the prospect of paying for it.

While the specific cost of a root canal will vary depending on your geographical location, the location of the tooth, your dentist, and other factors, it can easily cost as much as $1,400 or even more out of pocket if you don’t have insurance — and several hundred even if you do.

Fortunately, there are a variety of ways to finance dental work that make it possible to afford the care your teeth require. Here’s what you need to know.

Recommended: Smart Ways to Pay For Your Expensive Dental Work

What Is a Root Canal Treatment?

A root canal is a dental treatment that can remove infection and bacteria from the pulp beneath the hard exterior of the tooth. It’s a pretty common procedure — millions of them are performed each year.

While root canals are often characterized as unpleasant, modern dentistry means this medical intervention can take place relatively painlessly while preserving the natural tooth for both chewing and complementing a smile. All of which is to say, if you’re in need of a root canal, you’re not alone.

Reasons for a Root Canal

There are many different reasons your dentist might prescribe a root canal, including:

•   Tooth decay

•   Large cavities

•   Chips in tooth enamel

•   Periodontal disease

•   Dental trauma

In any of these situations, bacteria might infect the pulp of the tooth and, if left untreated, the infection can spread to the surrounding structures such as gums, other teeth, or even the jawbone. In extreme cases, dental infections can contribute to heart attack or stroke, along with causing a lot of pain.

Taking good care of your teeth can help prevent these causes, but sometimes, accidents or predisposition to decay can play into the equation. In any case, if your dentist prescribes a root canal, it’s probably worth heeding their advice.

How Much Does a Root Canal Cost on Average?

While, again, the cost of a root canal procedure varies greatly depending on factors we’ll dive into in more depth below, the average cost hovers around $1,400 without insurance. With insurance, your bill might be considerably lower: between $200-$500 out of pocket, depending on your coverage and the extent of the procedure.

How Much Is a Root Canal and a Crown?

In many cases, you may also require a crown along with a root canal, which can help protect the tooth for future chewing and use. A crown can add a substantial amount to the overall bill: as much as $1,000 if you’re paying out of pocket.

Factors That Impact the Cost of a Root Canal

Here are some of the specific factors at play that can pull the cost of your root canal up or down.

Insurance Coverage

Obviously, the cost of a root canal — or any dental or medical procedure — is likely to be higher if you don’t have insurance coverage or if your provider is out of your insurance company’s network. Because root canals are usually medically necessary, as opposed to just cosmetic, it’s likely your insurer will cover the procedure itself.

Tooth Location

The location of the infected tooth in your mouth can also have an impact on the total cost of the root canal. That’s because certain teeth are more difficult for dentists to work on than others.

For instance, molars, which are set more deeply in the mouth, are harder to reach and thus command higher costs for dental procedures. Bicuspids, or premolars, cost slightly less, while front teeth needing root canals are likely to cost the least.

Geographical Location

Like most other goods and services, the cost of a root canal can vary largely depending on the local economy — or the prices set by the dental professional you choose.

Type of Dentist

While most general dentists can perform a simple root canal, some teeth with more complicated infections might require an endodontist, who specializes in dental pulp specifically (the part that is treated during the procedure).

Root canal treatment cost by a specialist may be more more than treatment by your general dental professional, as can the use of high-tech equipment such as an ultrasonic needle or water laser.

Root Canal Complications

Although they’re very common and generally safe, like most other medical procedures, root canals do come with some risk.

For example, the root canal can fail due to a breakdown of materials or the provider’s failure to remove all of the bacteria during the procedure. In addition, sometimes the tooth becomes slightly discolored after the procedure due to bleeding on the inside of the tooth.

Ways to Pay For a Root Canal

Although root canals can be expensive, there are many ways to pay for this vitally important procedure without chewing through your savings.

Dental Insurance

Carrying dental insurance is a great way to lower the cost of procedures such as root canal — though keep in mind you’ll be responsible for monthly premiums as well as a potential copay or coinsurance costs.

Health Savings Account

A Health Savings Account is a tax-incentivized account that can help you save and pay for out-of-pocket medical expenses more affordable. However, you must have a High Deductible Health Plan to contribute to one.

Recommended: How to Set Up a Health Savings Account

Personal Loan

Personal loans are a type of financial product that allows you to borrow money for almost any purpose, including dental or medical care. Because they’re unsecured, meaning no collateral is required, they tend to have higher interest rates than auto loans or mortgages — but the rates can be lower than those offered by credit cards.

As with most financial products, your specific rates and terms will vary depending on your credit score and other financial aspects. While rates may be higher, there are still personal loans for low-credit borrowers — and taking one out may still make more financial sense than decimating your emergency fund or putting the procedure on credit.

Recommended: What Is a Fair Credit Score — and What Does It Mean?

Credit Card

Although they usually have fairly high-interest rates, credit cards are another option for paying for necessary medical interventions in a pinch. If you can qualify for a credit card with a 0% promotional interest rate, you’ll have some time to pay the balance without interest if you can pay it off before the promotional period ends.

Other Dental Procedures a Personal Loan Can Cover

Along with root canals, personal loans can be used to cover other common dental procedures, as well, including:

•   Periodontal surgery

•   Dentures

•   Tooth bonding

•   Wisdom tooth removal

•   Dental fillings

Recommended: What Are the Common Uses for Personal Loans?

The Takeaway

Having a root canal can be an important medical intervention for your health and the survival of your affected tooth. And although the procedure is expensive, there are ways to pay for it that won’t add financial pain to your dental pain.

If you’re considering a personal loan — for a root canal or otherwise — SoFi Personal Loans offer fixed rates and no-fee options. You can check your rate in just one minute without affecting your credit score.^* Now that’s a reason to smile.

Check your rate on a personal loan from SoFi

FAQ

How much is a root canal and a crown?

A root canal procedure averages $1,400, and the restorative crown can add another $1,000 the total cost. Costs can vary depending on what part of the country the procedure is performed in and which tooth is being treated.

Why is a root canal so expensive?

Root canals are performed by licensed medical professionals who use specialized equipment. More complex situations may need to be treated by an endodontist, a dental specialist who has completed additional years of training beyond dental school.

What does a root canal cost without insurance?

The full, out-of-pocket cost of a root canal may range from $700 to $1,800, depending on a variety of factors.

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^*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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A personal loan can be a helpful financial tool when someone needs to borrow money to pay for things like home repairs, a wedding, or medical expenses, for example. The principal amount of a loan refers to how much money is borrowed and has to be paid back, aside from interest.

Keep reading for more insight into what the principal of a loan is and how it affects repayment.

Loan Principal Meaning

What is the principal of a loan? When someone takes out a loan, they are borrowing an amount of money, which is called “principal.” The principal on a loan represents the amount of money they borrowed and agreed to pay back. The interest on the loan is what they’ll pay in exchange for borrowing that money.

Does a Personal Loan Have a Principal Amount?

Yes, personal loans do come with a principal amount. Whenever a borrower makes a personal loan payment, the loan’s principal decreases incrementally until it is fully paid off.

Recommended: What Is a Personal Loan?

Loan Principal vs Loan Interest

The loan principal is different from interest. The principal represents the amount of money that was borrowed and must be paid back. The lender will charge interest in exchange for lending the borrower money. Payments made by the borrower are applied to both the principal and interest.

Along with the interest rate, a lender may also disclose the annual percentage rate (APR) charged on the loan, which includes any fees the lender might charge, such as an origination fee, and the interest. As the borrower makes more payments and makes progress paying off their loan principal amount, less of their payments will go towards interest and more will apply to the principal balance. This principal is referred to as amortization.

Recommended: What Is the Average Interest Rate on a Personal Loan?

Loan Principal and Taxes

Personal loans aren’t considered to be a form of income so the amount borrowed is not subject to taxes like investment earnings or wages are. The borrower won’t be required to report a personal loan on their income tax return, no matter who lent the money to them (bank, credit card, peer-to-peer lender, etc.).

Recommended: What Are the Common Uses for Personal Loans?

Loan Principal Repayment Penalties

As tempting as it can be to pay off a loan as quickly as possible to save money on interest payments, some lenders charge borrowers a prepayment penalty if they pay their personal loan off early. Not all charge a prepayment penalty. When shopping for a personal loan, it’s important to inquire about extra fees like this to have a true idea of what borrowing that money may cost.

The borrower’s personal loan agreement will state if they will need to pay a prepayment penalty for paying off their loan early. If a borrower finds that they are subject to a prepayment penalty, it can help to calculate if paying that fee would cost less than continuing to pay interest for the personal loan’s originally planned term.

How Can You Pay Down the Loan Principal Faster?

It’s understandable why some borrowers may want to pay down their loan principal faster than originally planned as it can save the borrower money on interest and lighten their monthly budget. Here are a few ways borrowers can pay down their loan principal faster.

Interest Payments

When a borrower pays down the principal on a loan, they reduce how much interest they need to pay. That means that each month as they make a new payment they reduce their principal and the interest they’ll owe in the future. As previously noted, paying down the principal faster can help the borrower pay less interest. Personal loan lenders allow borrowers to make extra payments or to make a larger monthly payment than planned. When doing this, it’s important that borrowers confirm that their extra payments are going towards the principal balance and not the interest. That way, their extra payments work towards paying down the principal and lowering the amount of interest they owe.

Shorten Loan Term

Refinancing a loan and choosing a shorter loan time can also make it easier to pay down a personal loan faster. Not to mention, if the borrower has a better credit score than when they applied for the original personal loan, they may be able to qualify for a lower interest rate which can make it easier to pay down their debt faster. Having a shorter loan term typically increases the monthly payment amount but can result in paying less interest over the life of the loan and paying off the debt faster.

Cheaper Payments

Refinancing to a new loan with a lower interest rate may reduce monthly loan payments, depending on the term of the new loan. With lower monthly scheduled payments, they may opt to pay extra toward the principal and possibly pay the loan in full before the end of the term.

Other Important Information on the Personal Loan Agreement

A personal loan agreement includes a lot of helpful information about the loan, such as the principal amount and how long the borrower has to pay their debt. The more information the borrower has about the loan, the more strategically they can plan to pay it off. Here’s a closer look at the information typically included in a personal loan agreement.

Loan Amount

An important thing to note on a personal loan agreement is the total amount the borrower is responsible for repaying.

Loan Maturity Date

A personal loan’s maturity date is the day the final loan payment is due.

Loan Interest Rates

The loan’s interest rate and APR should be listed on the personal loan agreement.

Monthly Loan Payments

The monthly loan payment amount will be listed on the personal loan agreement. Knowing how much they need to pay each month can make it easier for the borrower to budget accordingly.

The Takeaway

Understanding how a personal loan works can make it easier to pay one-off. To recap — What is the principal amount of a loan? The principal on a loan is the amount the consumer borrowed and needs to pay back.

Consumers looking for a personal loan may want to consider a SoFi Personal Loan. With competitive interest rates and a wide range of loan amounts available to qualified borrowers, there may be a personal loan option that works for your financial needs.

Learn more about SoFi Personal Loans today

FAQ

What is the principal balance of a loan?

The principal balance of a loan is the amount originally borrowed that the borrower agrees to pay back.

Does the principal of the loan change?

The original loan principal does not change. The principal amount included in each monthly payment will change as the amortization period progresses. On an amortized loan, less principal than interest is paid in each monthly payment at the beginning of the loan and incrementally increases over the life of the loan.

How does loan principal work?

The loan principal represents the amount borrowed. Usually, this is done in monthly payments until the loan principal is fully repaid.

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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.

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

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Without the proper research and consideration, taking out a personal loan can be a bad idea.

Personal loans are a type of lending instrument offered through banks, credit unions, and online lenders. They’re paid back, with interest, in installments, and there are few limitations to how the loan funds can be used. They’re also typically unsecured, meaning you don’t have to put up any property as collateral for the loan.

A personal loan is an important financial tool if you can find one from a reputable lender at a reasonable interest rate, and you can commit to making loan payments on time. However, if you only qualify for a loan with a high-interest rate or you feel you may have trouble paying it back, you may want to think twice before applying.

Recommended: What Is a Personal Loan?

Are Personal Loans Bad?

There are potential advantages and disadvantages to personal loans.

•   Personal loans generally offer a wide range of borrowing limits, typically between $1,000 and $100,000.

•   There is flexibility in how the funds can be spent, unlike a mortgage, which you must use to buy a house, or an auto loan, which must be used to purchase a car.

•   Proceeds of personal loans can be used for a variety of purposes, from paying down credit card debt to making home improvements and more.

•   Unsecured personal loans are offered by many lenders. There is no need to put any of your assets up as collateral for the loan, nor do you risk losing them should you default.

Recommended: What Are the Common Uses for Personal Loans?

It’s important to weigh these benefits against potential disadvantages, and determine if it’s bad to get a personal loan for your financial needs.

•   Personal loans may not offer the lowest possible interest rate of other available lending products. For example, you might be able to get a better rate on a home equity loan or a home equity line of credit (HELOC) if you have enough equity in your home. That said, both of these lending instruments use your house as collateral, so if you default, you could risk losing your home.

•   Personal loans sometimes have fees or penalties that can increase the cost of borrowing. For example, origination fees on personal loans tend to be between 1% and 5%. Some lenders may charge prepayment penalties to ensure they don’t lose future interest payments if you pay off your loan early.

•   When you take out a personal loan, you’re increasing your overall debt. If you have other debts, comfortably affording all your monthly payments can become a challenge. And missing payments or making late payments can have a negative impact on your credit score.

Recommended: What Is Considered a Bad Credit Score?

Pros and Cons of Personal Loans

Here’s a look at the pros and cons of personal loans at a glance:

Pros of Personal Loans	Cons of Personal Loans
Wide range of loan amounts, usually between $1,000 and $100,000.	Interest rates may be higher than other types of loans, such as home equity loans or HELOCs.
Use of funds is flexible. Borrowers can use money from personal loans toward almost any purpose.	Fees and penalties can make borrowing more costly.
They are generally unsecured loans, which is beneficial to those who don’t want to put up collateral.	They increase your debt, potentially putting a strain on your budget.

When Can It Be a Good Idea to Get a Personal Loan?

So when is a personal loan a good idea?

Debt Consolidation

One reason to take out a personal loan is as a credit debt consolidation loan to pay down high interest credit card debt. The average credit card interest rate currently hovers just above 16%. That means if you carry a credit card balance from month to month, you could be accumulating ever greater debt. The average finance rate for a 24-month personal loan at commercial banks is currently about 9.41%, according to the Federal Reserve .

Consolidating high interest credit card debt with a lower-interest-rate personal loan may make your monthly payments more manageable and potentially save you money in interest payments over the life of the loan.

If you use a personal loan to pay down credit card debt, it’s a good idea not to use those credit cards to incur even more debt.

Home Improvement

Using a personal loan to make improvements to your home may also be beneficial as home improvements can increase the value of your home, possibly offsetting the cost of borrowing.

When Can It Be a Bad idea to Get a Personal Loan?

There are a number of cases when you may wonder “is getting a loan bad.”

No Credit Check Loans

Most loans — including most personal loans — require a credit check. This helps your lender understand your creditworthiness, or how likely you are to repay your debts. Generally speaking, the healthier your credit, the more favorable your loan interest rates and terms. Those with poor or limited credit may find it difficult to qualify for a loan.

No credit check loans, on the other hand, look at your bank account balance or require you to pledge some asset as collateral to secure the loan.

The problem is, that these loans also tend to be extremely expensive, with interest rates well over 100%, which is considered to be predatory. There’s a pretty good chance that borrowers who rely on no-credit-check loans won’t be able to pay their bills on time, which could trap them in a cycle of debt.

Recommended: How To Avoid Falling Victim To Predatory Loans

Cheaper Alternatives May Be Available

Before taking out a personal loan, consider whether there are cheaper alternatives. We’ve already mentioned home equity loans and HELOCs. You might also consider a no-interest credit card, which charges 0% interest for an introductory period typically lasting between 12 and 20 months. If you can pay off your debt in this time period, this may be a good option. But whatever balance you don’t pay off in time may revert to the card’s regular rate.

You Are Not Good at Managing Debt

If you’re not good at managing debt, think twice before taking on more. And if you use your personal loan to consolidate credit card debt, having a repayment plan can keep you from racking up new credit card bills.

Discretionary Spending

Borrowing money for discretionary spending, such as vacations or an engagement ring isn’t a good idea. While these things are nice, they are not necessary and not worth jeopardizing your financial wellbeing. Instead of borrowing to pay for big-ticket items like these, saving for them as a part of your regular budget is a good idea.

Borrowing Money for Investments

Similarly, it is not a good idea to borrow money to make investments. By nature, investments are risky, and you are not guaranteed a return. Should the investment lose money instead of gain, you’ll be responsible for paying off your debt regardless of the investment loss.

The Takeaway

So are personal loans bad? The bottom line is personal loans can be incredibly useful tools for purposes like consolidating credit card debt, making home improvements, and more.

Any time you’re considering a loan, it’s important to understand if it will meet your needs, what it will cost you, and whether there are any better alternatives out there.

SoFi Personal Loans are available to qualified applicants for a wide range of amounts and have no fees required. Checking your SoFi interest rate takes just one minute and you could also get funded the same day that you’re approved.

Learn more about SoFi Personal Loans.

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Your credit score is based on the information about your debts and payments reported by lenders to the three main credit bureaus — Experian, Equifax, and TransUnion. The credit reporting bureaus typically ask to receive information once per month. So, credit card companies will usually report card payments to the credit reporting bureaus at the end of your card’s monthly billing cycle, also known as your statement date. Credit card companies typically spread statement dates throughout the month.

Here’s a closer look at how payments are reported to the credit reporting bureaus as well as how factors like on-time payments can affect your credit score.

How Credit Card Payments Are Reported to Bureaus

As mentioned above, credit card issuers typically report to credit bureaus on your regular billing cycle. Each credit card may report at different times, and they may report to some of the major credit bureaus and not others. Reporting is up to the lender’s discretion, so it is also entirely possible that they won’t make a report at all.

Credit bureaus may collect a variety of information, including:

•   Personal information, such as name, address, date of birth, Social Security number, and employer

•   Credit account information, such as balances, payments, credit limits, credit usage, and when accounts are opened or closed

•   Credit inquiries

How Credit Scores and Reports Are Updated

The credit reporting bureaus will generally update your credit score as soon as they receive information from your credit card company. That means that your credit score could change relatively frequently as you make credit card charges, especially if you have multiple credit cards.

Also, because credit card companies only report credit activity periodically, there can be a bit of a lag in how long it takes for a payment to show on your credit card report. When you read your credit report it may not match your current account balances, instead reflecting the last information reported to the bureaus. This situation may be particularly irksome if you’ve paid off debts in hope of boosting your credit score. Fortunately, your information should be updated during the next reporting period.

However, if you notice that no changes are made after a number of months, it’s worth contacting your lender to make sure changes are reported correctly. If they can’t resolve it, you can contact the credit bureau.

Recommended: Charge Cards Advantages and Disadvantages

How Credit Card Balances Affect Credit Score

Credit reporting bureaus may collect information about your credit card balance. There is a popular misconception that carrying a credit card balance from month to month will help you improve your credit score. However, this is a myth. In fact, carrying a balance can actually hurt your score.

An unpaid balance is not necessarily seen as a bad thing. However, credit utilization — how much of your available credit you’re using — can have an impact on your score. If your balance exceeds 30% of your borrowing limit, it may have a negative impact on your score. Those who keep their credit utilization below 10% tend to have the highest credit scores.

It’s best to pay off your credit card balance each month to protect your credit score and to avoid racking up costly interest charges, which can cause your credit card debt to balloon.

How Applying to Credit Cards Affects Credit Score

Before you apply for a credit card, it’s important to know the difference between a hard and soft inquiry. When you apply, you will trigger what’s known as a hard inquiry when a lender requests to see your credit report. In contrast, a soft inquiry occurs when you check your own credit or use a credit monitoring service, for example. Hard inquiries will generally have a negative impact on your credit score, while soft inquiries will not.

Hard inquiries suggest that you are in the market for new credit. That may seem like a no-brainer. But in the eyes of other lenders, a hard inquiry suggests that you may be in some sort of financial stress that makes you a bigger risk for borrowing money. This is especially true if you have many hard inquiries in a short period of time.

Luckily, the hard inquiry stays on your credit report for only two years, and its effects fade relatively quickly.

In general, it’s wise to avoid causing many hard inquiries in a short period of time. There are some exceptions to that rule. If you’re shopping for a mortgage, auto loan, or new utility providers, multiple inquiries in a short period — typically 14 to 45 days — are usually counted as just one inquiry.

How On-Time Payments Affect Credit Score

Your payment history is one of the biggest factors that goes into calculating your credit score. As a result, making payments on time is one of the best things you can do to maintain a strong credit score or to improve your score.

Even a single late payment can have a negative impact on your score, though the missed payment likely will not show up on your credit report for 30 days. If you can make up the payment within that time period, your lender may not report it, though you may still be subject to late penalties.

It’s also important to understand that if you only make a partial payment, that will still usually be counted as late and reported as such to the credit bureaus.

To make sure that you pay bills on time, consider setting up a budget to help control your spending. You might also automate your bill pay to ensure you don’t miss any payment due dates. But if you do so, make sure that you have enough money in your account to cover your credit card balance.

Recommended: When Are Credit Card Payments Due

The Takeaway

The credit reporting bureaus collect all sorts of financial information from your various lenders to create your credit score. Your credit card company likely reports your card activity about once a month. Understanding what information has an impact on your score, and the impact of on-time payments and credit inquiries, can help you keep your score as high as possible and help keep credit card costs down.

Applying for a credit card through SoFi won’t affect your credit score, though an approved application may trigger a hard inquiry.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What time of the month do creditors report to credit bureaus?

Creditors may report to the credit bureaus at any time of the month, though credit card companies will usually make their reports at the end of the billing cycle.

How often do companies report credit?

Credit card companies usually report to the credit bureaus once a month. However, they do so at their own discretion.

How long after paying off debt will your credit score improve?

Your credit score should improve after paying off a debt as soon as that debt payment is reported to the reporting bureaus, usually within 30 days. If your payment doesn’t show up on your report after a few months, contact your lender to make sure it was reported correctly.

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Photo credit: iStock/iamnoonmai

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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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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 .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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