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Curious about your financial health? A good first step is to calculate your net worth and your liquid net worth. These two numbers can give you a snapshot of where you stand financially by comparing what you own (your assets) to what you owe (your liabilities). They can also offer insight into how your personal wealth is growing over time.

While your net worth gives a broad overview of your total assets minus your total liabilities, liquid net worth zooms in cash and other assets that you could convert to cash quickly in an emergency.

Liquid net worth is a valuable number to know, since it measures your financial safety net, which is your capacity to manage both anticipated and unexpected financial events effectively. Below, we’ll walk you through how to calculate your liquid net worth, along with ways to improve it over time.

What Is Liquid Net Worth?

Liquid net worth is a subset of net worth, which is your total assets minus your total liabilities. The meaning of liquid net worth is similar to net worth except that it only includes liquid assets, which are holdings that are in cash or can be converted into cash quickly.

When calculating liquid net worth, you would exclude the value of your home or car (since you likely can’t sell them quickly for cash), as well as your retirement accounts (as there is typically a penalty for withdrawing retirement funds before age 59½). However, you would include money you have in your bank accounts and any brokerage accounts.

What Counts for Liquid Net Worth Calculations?

Here are some assets that can count when calculating liquid net worth:

•   Cash

•   Money in a checking account

•   Money in a savings or money market account

•   Mutual funds, stocks, and bonds

•   Possibly jewelry and watches that could be quickly sold (and without much or any loss in value), if need be.

Mutual funds, stocks, and bonds are typically considered liquid, since you can usually sell these investments and have the transaction settled within two business days. That said, if the quick sale of an investment would significantly decrease its value, it is not considered a liquid asset. Also any asset you need to hold for a period of time before it can be issued as cash is not considered liquid.

Net Worth vs Liquid Net Worth

As mentioned, your total net worth is all of your assets (what you own) minus your liabilities (what you owe). When you determine your net worth, you add up all your assets, including non-liquid assets (such as your house, car, and retirement accounts), and then subtract all of your liabilities. The resulting number is your total net worth.

Your liquid net worth is the amount of money you have in cash or cash equivalents (assets that can be easily converted into cash) after you’ve deducted all of your liabilities. It’s similar to net worth, except that it doesn’t account for nonliquid assets such as real estate or retirement accounts.

Your total net worth gives you a picture of your overall financial strength and balance sheet, while liquid net worth shows how much money you have available that is quickly accessible in case of emergency or other financial hardship.

Both measures of net worth can give you a useful snapshot of your financial wellness, since they consider both assets and debts. Looking at your assets without considering your debts can give you a false picture of your financial situation.

Knowing and tracking these numbers can also tell you if you are moving in the right or wrong financial direction. If your net worth or liquid net worth is in negative territory or the numbers are declining over time, it can be a sign you need to make some changes and/or may want to put off making a major purchase such as a home or a car.

Why Liquid Net Worth Matters

Your liquid net worth is a measure of your ability to weather a financial storm. Imagine you need money for something important — a major home or car repair, a trip to the ER, or starting your own business after getting laid off.

You need it now… or, at least, within the next few weeks or months. Where are you going to get the money?

You might not want to look at cashing in things like your home, your car, your retirement savings, your baseball card collection, or Grandma’s wedding ring unless it’s absolutely necessary.

Those kinds of assets can be difficult to convert to cash in a hurry — and there could be consequences if you did decide to go that route.

Instead, it may be easier to tap your more liquid assets, such as cash from a checking, savings, or money market account, or cash equivalents, like stocks and bonds, mutual funds, or money market funds.

Liquid net worth is often considered a true measure of how financially stable you are because it tells you what you can rely on to cover expenses. In addition, your liquid net worth acts as an overall emergency fund.

Recommended: Emergency Fund Calculator

Calculating Your Liquid Net Worth

The difference in calculating net worth and liquid net worth is understanding which of your financial assets are liquid assets.

As mentioned, liquid assets are cash and assets that could be converted to cash quickly. The following are considered liquid assets.

•   Cash: This includes the money that is in your wallet, as well as the cash you have in any savings, checking, and money market accounts.

•   Stocks: Any equities in a brokerage account, such as stocks, index funds, mutual funds, and exchange-traded funds (ETFs), are typically considered liquid assets. While you might have to pay taxes and other fees if you sell equities to convert to cash, you could liquidate these assets fairly quickly.

•   Bonds: Like equities, any bonds or bond funds are also liquid assets. Again, you may have to pay taxes on your profits when you sell, but the translation is relatively quick.

Nonliquid assets include anything that cannot be converted to cash quickly or for their full value, such as:

•   Retirement accounts, such as 401(k)s and IRAs.

•   A house or other real estate holding (which could take a while to sell and the actual sales price is not known).

•   Cars (while you may be able to liquidate a car relatively quickly, cars generally don’t hold their original value; they depreciate).

Liquid Net Worth Formula

For a liquid net worth calculation, here are the steps to follow:

•   List all of your liquid assets: The cash and cash equivalents you could easily and quickly get your hands on if you need money.

•   Next, list your current liabilities, including credit card debt, student loan balance, unsecured loans, medical debt, a car loan, and any other debt.

•   Subtract your liabilities from your liquid assets. The result is your liquid net worth.

4 Tips for Improving Liquid Net Worth

If your liquid net worth is too low to cover at least three to six months’ worth of living expenses or is in negative territory, you may want to take some steps to bolster this number. Here are some strategies that can help boost liquid net worth.

1. Building an Emergency Fund

If you don’t already have a solid contingency fund set aside in a liquid account, you may want to start building one. Having enough cash on hand to cover three to six months’ worth of expenses can be a great place to start building your liquid net worth.

An emergency fund can help keep you from getting behind on your bills and running up high interest credit card debt in the event of an unexpected expense, job loss, or reduction in work hours.

It’s fine to build towards this slowly. Automating your savings to deposit, say, $25 per paycheck into an emergency fund can be a good starting point if money is tight.

2. Reducing Expenses

For every dollar you save each month, you are potentially increasing your liquid net worth by that amount. One way to cut spending is to take a close look at your monthly expenses and to then try to find places where you may be able to cut back, such as saving on streaming services, lowering your food bills, or shopping around for a better deal on home and car insurance.

3. Lowering High-Interest Debt

Debts add to your liabilities and therefore lowers your liquid net worth. Expensive debt also increases your monthly expenses in the form of interest. This gives you less money to put in the bank each month, making it harder to build your liquid net worth.

If you’re carrying credit card debt, you may want to start a debt reduction plan (such as the “debt snowball” or “debt avalanche” method) to get it paid down faster.

4. Increasing Investments

Investing money in the market for longer-term savings goals can increase your liquid net worth. While there is risk involved, you’ll have more time to ride out the ups and downs of the securities markets when saving for the longer term.

Recommended: Average Net Worth by Age

The Takeaway

Liquid net worth is the portion of your net worth that is readily accessible as cash or can be quickly converted to cash without significant loss of value. You calculate it by subtracting your total liabilities from your total liquid assets.

Your liquid net worth can be a valuable measure of your financial health and stability because it shows how prepared you are to handle a change in plans, an unexpected expense, or a true emergency.

One easy way to boost your liquid net worth is to start building an emergency fund. If you’re looking for a good place to start saving, you may want to consider opening a high-interest bank account.

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

FAQ

Does a 401(k) count as liquid net worth?

A 401(k) typically does not count as part of your liquid net worth because it generally isn’t easily accessible without penalties before age 59 ½. Liquid net worth refers to assets that can be quickly converted to cash without significant loss of value. However, your 401(k) does hold value and contributes to your overall net worth.

How do you calculate liquid net worth?

To calculate your liquid net worth, add up your liquid assets (cash, money in the bank, stocks, bonds, and the like) and subtract your liabilities (credit card debt, student loans, car loan, etc.). When adding up your assets, do not include real estate or retirement accounts.

What is the average liquid net worth by age?

The government tracks total net worth (not liquid net worth). According to the most recent Federal Reserve’s “Survey of Consumer Finances” (2022), the average net worth is $183,500 for those younger than 35; $549,600 for those 35 to 44; $975,800 for those 45 to 54; $1,566,900 for those 55 to 64; and $1,794,600 for those 65 to 74.

It’s important to keep in mind that outliers can skew average numbers. Median (the middle value in a set of numbers when those numbers are arranged in order from least to greatest) can be more accurate at representing the typical net worth by age.

About the author

Kelly Boyer Sagert

Kelly Boyer Sagert is a full-time freelance writer who specializes in SEO-optimized blog and website copy: both B2B and B2C for companies ranging from one-person shops to Fortune 500 companies. Read full bio.

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SOBNK-Q325-061

“No credit check” loans or quick loans for bad credit can look mighty attractive. However, products like payday loans and auto title loans can have major drawbacks, including short repayment periods and sky-high interest rates.

In fact, short-term loans can be so expensive that borrowers often end up paying exponentially more than they would if they’d financed the purchase some other way. And many loan holders end up re-borrowing, starting a vicious cycle that can quickly spin out of control.

What Are No Credit Check Loans?

No credit check loans, as their name implies, are loans that offer quick cash to borrowers without requiring a credit check. This means the lender doesn’t review your credit history or credit score when deciding whether to give you a loan. However, not requiring a credit check makes these loans risky for the lender, which is part of how they can justify high interest rates and fee schedules.

And when we say high, we mean high. It’s not hard to find payday loans with effective interest rates of about 400%, and sometimes they go much higher.

Recommended: What Is Considered a Bad Credit Score?

No Credit Check Loans: Borrower Beware

Rather than a set interest rate, payday loans will often charge $10 to $30 for every $100 borrowed. If a payday lender charges $15 for a $100 two-week loan, that’s the equivalent of a 391% APR.

Here’s how those numbers can work out when it comes to real money. If a payday lender charges $10 for every $100 borrowed, you would owe $50 in interest for a $500 loan, and the $550 would be due on your next payday. If you are unable to repay the loan in full when it’s due, you will typically get hit with a fee, and then the cycle repeats itself. After a few months of rollovers, you can end up owing more in interest than the actual loan amount.

Another word to the wise: The fine print on short-term predatory loans can include a variety of fees, including change fees, mandatory subscription charges, and early repayment fees. These fees can quickly add up. On average, borrowers end up paying $520 in fees on a two-week payday loan for $375.

It’s clear to see how these loans, though small in size, can lead to big financial problems. Even under the best of circumstances, it can be difficult to get ahead of short repayment terms and steep interest rates and fees.

Recommended: What Is Consumer Debt?

Who Offers No Credit Check Loans?

Two of the most common types of these no-credit check loans are payday loans and auto title loans.

•   Payday loans As you might have guessed, payday loans are designed to be repaid on the borrower’s next payday — generally within two to four weeks. Because payday loans do so often carry predatory interest rates and terms, some states have limited the size and interest rate of payday loans, but even small loans with lower interest rates can lead to financial trouble.

•   Auto title loans Also referred to as “title loans,” these are another common type of short-term personal loan that doesn’t require a credit check. In the case of a title loan, the borrower gives the lender the title of their car as collateral for a cash loan of up to about 50% of the value of the car. The borrower is still allowed to drive the car, but the loan principal plus interest is generally due within 30 days — again at astronomical rates. If the borrower is unable to pay the loan, they risk having their car repossessed.

Other lenders offer similar types of short-term, high-interest rate personal loans, sometimes advertising online loans with “no credit check required” or “guaranteed loan approval.”

Even if they aren’t called payday loans or title loans, borrowers would be wise to pay attention to the loan’s terms and conditions, particularly interest rates, fees, and expected repayment schedules.

Generally speaking, too-good-to-be-true financial products are often just that. Staying informed about the full implication of the loan’s terms and doing the math to work out how much you will end up paying over time can help borrowers avoid a potentially disastrous financial situation.

Recommended: Can You Get a First-Time Personal Loan With No Credit History?

Alternatives to No Credit Check Loans

As financially harmful as no check credit loans can be, there still might be instances in which borrowers need quick access to money. Fortunately, there are some alternatives worth consideration.

•   For starters, borrowers might turn their attention to why they need the money in the first place. Short-term loans are often taken out to repay existing debt, an approach that might result in the borrower going even further into debt to try to scramble out of the hole.

   In this scenario, attempting to negotiate the existing debt with current lenders might be a better tactic. Sometimes, credit card issuers and other lenders might offer repayment options to ease the immediate financial burden. It’s a tactic that’s worth asking a creditor about.

•   Another option: borrowing from friends and family. While this can come with its own set of pitfalls, family loans are unlikely to create the same kind of debt spiral short-term cash loans might.

   In order to keep things friendly, you’ll want to set out a formalized loan agreement with interest rates and terms, similar to what you’d expect to sign for a traditional loan from a financial institution. This avoids any confusion and helps keep the transaction as objective as possible.

•   Credit unions are another source of small-dollar, payday loan alternatives — and importantly, credit unions are subject to a federal interest rate cap and other limits that keep these loans from becoming exorbitantly expensive.

•   Although they’re generally not an ideal solution, credit cards may carry lower interest rates than short-term cash loans. Some borrowers might also be able to utilize a promotional 0% interest rate period in order to aggressively pay off debt during the promotional period without paying interest.

•   Another alternative is a traditional personal loan from an online lender. While these loans usually do require a credit check and specific approval requirements, some online lenders will extend loans to applicants with imperfect credit histories. Rates are typically higher. However, they likely won’t be nearly as high as payday loans.

   You may be able to get a better rate by applying for a secured personal loan (which requires using an asset as collateral) or including a co-borrower on the loan agreement.

Recommended: How to Apply for a Personal Loan

The Takeaway

While no credit check loans can certainly be attractive, their high interest rates and associated fees can make them costly over time. Borrowers may not be able to repay the loans plus interest in the short repayment term required, which could lead to a debt treadmill scenario and, possibly, negative credit history consequences.

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

Can I take out a loan without a credit check?

Some lenders will let you take out a loan without a credit check, but you will likely pay very high interest rates and fees, which could trap you in a cycle of debt.

What types of loans don’t require a credit check?

Typically, payday loans, auto title loans, and other peer-to-peer lending don’t require credit checks. However, make sure you understand the interest rate and terms to avoid your debt increasing.

What is the easiest type of loan to get quickly?

Typically, the easiest type of loan to get quickly is a payday loan or no credit check loan, but these tend to have extremely high interest rates and/or fees, so proceed with caution.

Photo credit: iStock/FG Trade

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SOPL-Q325-038

Applying for a loan can be relatively simple, as long as you understand the options available to you, meet the lender’s requirements, and have the necessary paperwork in order ahead of time. The process can be straightforward, whether you are applying at a bank, credit union, or online lender. Here’s what you need to know.

1. Prequalify for a Personal Loan Through Multiple Lenders

The first step in applying for a personal loan is to get prequalified. You can get a personal loan from a few different sources, including a bank, credit union, or an online lender. Each has its pros and cons.

Personal Loan From a Traditional Bank

One drawback of getting any type of personal loan from a traditional bank is that it can take longer to be approved compared to an online lender. However, banks have greater lending power, so you might be able to get a larger loan. Plus, many banks will not charge an origination fee.

Personal Loan From a Credit Union

Credit unions are likely to offer low APRs and fees — two advantages if you’re already a member of one. However, there are potential tradeoffs. Smaller credit unions tend to have limited digital offerings compared to national banks, and it may take borrowers longer to get approved for a personal loan.

Personal Loan From an Online Lender

With an online lender, your personal loan application is approved and managed entirely online — there is no opportunity to sit down with a loan officer. Depending on whether you’d prefer to apply for a loan online vs. in person, this could be either an advantage or a disadvantage.

If you visit an online loan aggregator site, you can apply for preapproval and receive multiple loan options. From there, you can easily compare the rates and terms, but be sure to confirm the fees and charges.

Does Preapproval Hurt My Credit Score?

In order to be preapproved for a personal loan, a lender will check your credit history. Typically, the lender will only perform a “soft” credit inquiry, which will not affect your credit score. A preapproval determines if you’re eligible for a loan before you formally apply. It can give you a general idea of how big a personal loan you qualify for and the approximate rate.

Applying for a loan triggers a “hard” credit inquiry, which could pull down your credit score because you have applied for additional credit.

You can check with a lender to find out what type of check they will do to preapprove you for a personal loan.

Recommended: Personal Loan Glossary: Loan Terms to Know Before Applying

What Do I Need to Prequalify for a Personal Loan?

To qualify for a personal loan, you will need to first determine how much you want to borrow and how much you can afford to pay each month to pay off the loan. How much you can pay each month will determine the term (length) of the loan.

How much you want to borrow will depend on what you want to use the money for. While there are few limitations on how to use personal loan funds, it’s wise to borrow as little as possible because you will be paying interest on what you owe.

When you fill out the application, the lender will ask you for personal information. Typically, this includes:

•   How much you want to borrow and for what purpose

•   Proof of your net income and assets

•   Your contact information and Social Security number

2. Compare Your Options

Getting preapproved from various lenders is critical if you want to try to get the best rates and terms. The preapproval will show you the amount of the loan you qualify for, the APR, term, and any origination fees. By comparing multiple lenders, you can find the loan that will cost you the least. Be sure to check all the fees that may apply.

If you’re trying to get more favorable loan terms, you may want to explore adding a cosigner who has a strong credit score. Doing so may help the lender view you as less of a risk, and they may be inclined to offer you a lower interest rate. However, keep in mind that if you make late payments or default on the loan, the cosigner’s credit will suffer, as will your own.

3. Gather Required Documents

Before you sit down to fill out an online application or visit a bank or credit union, gather all the documents you will need. These personal loan requirements will likely include:

•   ID, such as your driver’s license or passport

•   proof of address, such as a recent utility bill

•   proof of employment and earnings (paystub)

•   your Social Security number

•   your education history

4. Apply for a Personal Loan

Once you have all your documents on hand, you are ready to fill out either an online or in-person loan application. If you are applying online, you will be required to scan the documents and upload them with the application.

Recommended: Exploring the Pros and Cons of Personal Loans

How Long Does It Take to Get a Personal Loan?

The amount of time it takes for your loan application to be approved and processed depends on the lender. Online lenders tend to be the fastest. Submitting the application online only takes a few minutes, provided you have all your documents on hand, and approval can take one or two business days. You can expect to see the funds deposited into your bank account within one to three business days of approval.

Banks and credit unions, on the other hand, tend to be slower. You may need to apply for a loan in person and, depending on your relationship with the institution and your financial history, getting approved could take up to a few business days. You might need to wait up to seven business days to receive the funds.

Does Everyone Get Approved for a Personal Loan?

Not everyone is approved for a personal loan. Lenders consider your credit score, payment history, income, and debt-to-income ratio when deciding whether to approve someone for a personal loan.

Credit Score

The higher your credit score, the lower your interest rate will likely be. This is because if your credit history is good, the lender considers you low risk. A high interest rate can reassure a lender that they are avoiding the risk of lending to someone who might default on the loan. A score of anywhere from 580 to 640 or more is generally considered enough for a borrower to potentially qualify for a loan from some lenders. If your credit score is low, consider bringing on a willing cosigner with a better credit score.

Payment History

How you’ve managed loan payments in the past is something that a lender will consider. If you have paid off loans on time and made timely credit card payments, the lender may consider you low risk and could be more likely to approve your application. If you have a history of late payments, however, you might find it more difficult to get approved for a loan.

Income

Lenders want to make sure you can pay back what you borrow. They’ll look at your income to make sure it is steady and that you can afford to make the payments each month. Some lenders might request your W-2 tax forms, bank statements, or recent pay stubs. Others could require verification from your employer of stated income and to confirm current employment.

Debt-to-Income Ratio

Your debt-to income (DTI) ratio shows how much you are already paying toward debt each month and is an indicator of how well your current income can cover an additional monthly loan payment. If you have no spare cash left over after paying existing debts, such as credit cards and mortgage, you likely cannot make the payments on a personal loan. A DTI ratio of 36% or lower is considered favorable for a personal loan.

What Do You Do If You Are Denied a Personal Loan?

There could be many reasons your loan was declined. Your credit score might not be high enough, your DTI ratio could be too high, or perhaps you failed to provide the right paperwork. Find out why your loan was denied so that you can fix the problem.

If your loan application is declined,you can receive a free copy of your credit report. Check that the information on the report is accurate. See if you can build your credit score by opening new accounts that report to the credit bureaus (if you’re trying to establish your credit), maintaining low balances, and making on-time payments.

Note that applying too often for new loans or accounts triggers hard credit checks, which can lower your credit score. Another option is to find a cosigner. A cosigner with a good credit rating might help you to secure a personal loan with a favorable rate.

If you have a high DTI ratio, you might have to pay down some of your existing debt in order to receive a loan with good rates. Alternatively, you might consider taking out a smaller personal loan and supplementing the rest from other sources.

The Takeaway

When it comes to applying for a personal loan, you have a few different sources to explore, and you’ll want to look for the most favorable loan rates and terms available. You’ll also want to gather essential documents before you fill out the application. If your loan application is declined, find out what the issue was so you can fix it and secure a personal loan.

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

FAQ

Does everyone get approved for a personal loan?

Individuals may be denied a loan from a lender because they do not meet the requirements. A lender will consider your credit score, payment history, income, and debt-to-income ratio when deciding whether to qualify you for a loan. You also are required to submit documentation, such as proof of identity, residency, income, and your Social Security number.

What do you do if you are denied a personal loan?

If you are denied a personal loan, find out the reason why. Lenders are required to issue an adverse action notice informing you why you were denied. The most common reasons are a low credit score, a poor payment history, a high debt-to-income ratio, insufficient income, or failure to provide the right documents. If your credit score is too low, check your credit report for inaccuracies. Then, you might have to take steps to build your score.

How long does it take for a personal loan to be processed?

A bank or credit union might take up to a week to deliver funds to your account. However, online lenders deliver funds within one to five days once you are approved.

Photo credit: iStock/PeopleImages

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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.

SOPL-Q325-026

Long-term personal loans can provide an attractive option if you’re facing large expenses, like significant medical bills or home repairs. By spreading out repayment over a longer period of time, long-term loans may allow for lower monthly payment amounts that can make major costs more affordable.

However, long-term loans can have drawbacks, too. They may have higher cumulative interest than short-term loans. What’s more, they can be difficult to qualify for since they’re often unsecured. Learn the full story here.

What Is a Long-Term Loan?

As its name suggests, a long-term loan is one whose repayment period, or term, is fairly lengthy. Generally, long-term personal loans carry terms between 60 and 84 months, or five to seven years, though some lenders may offer terms up to 10 years.

Mortgages and private student loans are also examples of long-term loans. Mortgages, for instance, are frequently repaid over as many as 30 years.

In this article, the focus is on long-term, unsecured personal loans, which borrowers can use for a variety of purposes. These loans can allow consumers to make big purchases or pay expensive bills by paying the total off over several years’ time.

Benefits of Long-Term Personal Loans

There are plenty of reasons why a long-term loan might be a worthy consideration for large expenses.

Large Loan Amounts

While short-term loans and credit cards may cap out at a few thousand dollars, long-term, unsecured personal loans are available at much higher amounts — up to as much as $100,000.

So depending on what you need the money for, a long-term personal loan might give you more leverage than other types of funding.

Affordable Monthly Payments

Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.

However, that doesn’t mean a long-term loan is less expensive in the long run.

Flexibility

Unlike secured loans, which are tied to a physical piece of collateral or the need to be used for a specified purpose, unsecured personal loans can be taken out for a wide range of uses. Common reasons borrowers take out personal loans include:

• Home renovations or repairs.

• Medical expenses.

• Wedding loans or funeral expenses.

• Debt consolidation.

Affordable Monthly Payments

Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.

However, that doesn’t mean a long-term loan is less expensive in the long run.

Drawbacks of Long-Term Personal Loans

There are also some drawbacks worth considering before you apply for an unsecured personal loan.

Potentially Higher Interest Rates

Although long-term, unsecured personal loans may have smaller monthly payments, they may carry higher interest rates than shorter-term, unsecured personal loans. And even at the same interest rate, they cost more over time.

Personal loan interest rates can currently range from as little as 6.49% to as much as 35.99% annual percentage rate, or APR.

For example, imagine you take out a $10,000 loan at an interest rate of 10%. To repay the loan in a single year, you’d have to pay $879 per month, but you’d only pay a total of $550 in interest over the lifetime of the loan.

To repay the loan in seven years, you’d pay only $166 per month, but you’d also pay $3,945 in interest along the way.

So while long-term, unsecured personal loans can make large purchases feasible, factoring in the total cost over the lifetime of the loan before you sign those papers is also important.

Long-Term Debt

Along with higher interest rates, long-term loans do, obviously, mean going into debt for a longer period of time — unless you plan to pay off your loan early. A thorough review of the loan agreement will disclose prepayment penalties or other fees that can be costly in their own right.

Furthermore, the future is unpredictable. Five to seven years down the line, that promotion you were counting on might fall through or another life circumstance might supersede your repayment plans.

If you find yourself in a situation where you need to borrow more cash, it can be difficult to increase your personal loan amount.

Although unsecured personal loans can be helpful when life throws big expenses your way, they’re still a form of consumer debt, and, ideally, minimizing debt is a smart thing to do.

Qualification Difficulties

Long-term, unsecured personal loans may have more stringent qualification requirements than other types of credit. That’s because, from the lender’s perspective, they’re riskier than loans for smaller amounts or those that come attached to physical collateral.

Along with your credit score and history, a potential lender might also require proof of income and employment or a certain debt-to-income ratio (DTI). Depending on the stability of your financial situation, you may or may not qualify for the best interest rates and terms or be considered eligible to take out the loan at all, at least without a cosigner or co-borrower.

Alternatives to Long-Term Loans

Ideally, the best way to pay for a large purchase is to save up the cash and pay for it without going into debt at all. Of course, this may not always be possible or realistic.

If you’re not sure about taking out a long-term, unsecured personal loan, there are other alternatives to consider. However, each of these comes with its own risk-to-reward ratio as well.

You might consider borrowing money from friends and family, but those important relationships can suffer if your repayment doesn’t go as planned. A written repayment agreement can go a long way toward making the transaction as transparent as possible, with expectations of both parties clearly outlined.

Another option might be saving part of the money you need and applying for a short-term, unsecured personal loan for the remainder. This means delaying a purchase until savings can accumulate, and might not work if the money is needed sooner rather than later.

Recommended: A Guide to Unsecured Personal Loans

The Takeaway

Long-term loans are those whose repayment periods generally span between five and seven years, which can help borrowers fund expensive purchases while making affordable monthly payments.

However, the longer-term can also mean more interest charges over time, making these unsecured personal loans more expensive relative to shorter-term lending options. And like any form of consumer debt, they carry risk.

Your credit score and/or financial situation can suffer if you find yourself unable to repay the personal loan.

That said, when used responsibly, long-term, unsecured personal loans can be a smart financial choice, particularly if you shop around for a lender who offers affordable, fixed interest rates, low fees, and great customer service to ensure you’ll always be in the know and in control.

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 a disadvantage of long-term borrowing?

When you take out a long-term loan, even one with a low interest rate, it can cost more because you’ll be paying interest for a longer period of time.

What is the risk of a long-term loan?

Aside from mortgages, that can help you build wealth, loans taken out over a long term mean you will take many years to repay the debt. This means you may wind up paying the creditor more interest, perhaps even more than the amount you borrowed.

What are the pros of a personal loan?

Personal loans can get you a lump sum of cash quickly to use for almost any purpose, from a major dental bill to a home renovation. They tend to have lower interest rates than credit cards.

Photo credit: iStock/Melpomenem

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-Q325-027

The definition of market manipulation, according to the Securities and Exchange Commission (SEC), is a deliberate, illegal interference in markets to alter the price of securities and defraud investors. In short, market manipulation is just what it sounds like, and unfortunately it’s not uncommon — but it can be difficult to prove.

There are numerous schemes that people use to manipulate market outcomes, including pump-and-dump and poop-and-scoop.
Given the legal perils, and the chance that investors could get caught up in some form of market manipulation, it’s critical to have a basic understanding of what it is and what it can look like.

What Is Market Manipulation?

According to the U.S. Securities and Exchange Commission, the definition of market manipulation is the “Intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities, or the Intentional interference with the free forces of supply and demand.”

For example, any action to impact the supply or demand for a stock and drive a stock’s price up or down by artificial means constitutes stock market manipulation.

The SEC views market manipulation as harmful, since the practice “affects the integrity of the marketplace.” According to the regulatory agency, financial market prices “should be set by the unimpeded collective judgment of buyers and sellers.” Anything else would undermine the orderly execution and trustworthiness of the markets.

The SEC has warned market leaders that investors will “stay out of your market if they perceive that it is not fair and is subject to market manipulation.”

Recommended: What Are Securities in Finance?

What Are Examples of Market Manipulation?

There are several methods that market manipulators use to interfere with markets, creating investment risk for those who fall victim to their schemes.

“Pump-and-Dump”

The pump-and-dump scheme is a common form of market manipulation. It occurs when a market participant who holds a specific investment knowingly issues false or misleading statements about the underlying company in order to pump up the price.

When investors fall for the information and buy the stock, the manipulator can either short the stock, or wait for the optimal price point and then sell the stock before the truth emerges, and investors dump their holdings.

For example, a market manipulator may start a rumor that a publicly traded company is going to be bought by a larger company. If enough investors believe the rumor, more investors buy the stock (whether via an online investing platform or through a brokerage), pushing up the stock price.

Once the price hits a certain level, the aim is to sell shares of the stock and pocket a potentially significant profit. Those investors who don’t sell are left with a stock that could drop in price when they realize the underlying company isn’t being bought out.

The Poop-and-Scoop Scheme

The so-called poop-and-scoop scam is the reverse of a pump-and-dump. Here, fraudulent rumors are spread with the aim of pushing down a security’s price. Again, the stock could be shorted or bought at a low point, and sold when the rumors abate and the price rebounds.

The “Wash” Method

Wash trading is a form of market manipulation where a group of investors acting in tandem buy and sell the same stock repeatedly over a period of a few days or even a few hours.

By and large, an “active” trading period of a stock is considered a sign of an increase in value, and the stock may swing upward as more investors notice the stock is being actively and even aggressively traded.

This scheme, also known as “painting the tape,” makes it seem as if investors are trading stocks actively when they’re not.

Trade “Spoofing”

The practice of trade spoofing is also known as “layering,” and occurs when market manipulators set trading orders with brokers they have no intention of executing.

In financial markets, it’s common for market orders to be public. When large orders to buy or sell a certain security are made, other investors jump aboard hoping to piggyback the unexecuted trade, thus drumming up more interest — and more investors — in the security.

Market manipulators leverage that momentum trading, and wait until the time is right to buy or sell the security as other investors’ trader orders are fulfilled.

With the “spoof” finalized, the investors who wound up actually executing their trades may then see the stock move against their intended price target. Meanwhile, the “spoofer” has cancelled the trade and taken a profit on the artificial stock price, by buying or selling the security based upon intended market movement.

Marking the Close

When a market manipulator buys a security at the close of the trading day, and pays more than the bid level, or the asking price of the security, that manipulator could be “marking the close.”

As the price of a stock at day’s end is usually a reliable marker for the investment’s price performance going forward, other investors often jump in and buy the stock. The market manipulator leverages the gain and locks in a profit by quickly selling the stock once its price moves upward.

Recommended: 5 Investment Strategies for Beginners

How to Avoid Market Manipulation

It’s not always easy to see the “red flags” that signal an active market manipulator. However, beginner investors who are aware of common scams may be able to avoid falling victim to their scams.

Invest for the Long Term

Since market manipulators often profit from day-to-day stock movements, investors with long-term portfolios, who don’t engage in market timing, are largely insulated from the impact of market manipulators’ schemes.

Avoid Penny Stocks

Penny stocks, nano stocks, and micro-cap stocks are often the lowest priced securities on the market and are often low-float stocks, which makes them highly volatile and more vulnerable to the price movements engineered by market manipulators.

Larger stocks, on the other hand, such as mega-cap stocks, are less vulnerable to market manipulation due to their trading volume and the level of public scrutiny that they are subject to.

Conduct Due Diligence

When alerted to a potential research report, Internet chatroom or social media comment, or other sources of potentially false or misleading news, resist the urge to immediately trade on the information. That’s exactly what market manipulators expect investors to do, and they profit from impulsive market actions.

Instead, stay calm and do your research to see if there’s any validity to the news–or red flags to indicate manipulation.

Know the Scams

Awareness of schemes such as pump-and-dump or spoofing can make it easier for you to spot them in action.

The Takeaway

Market manipulation is the act of artificially moving the price of a security and profiting from that movement. Even sophisticated investors can fall victim to market manipulation, but understanding how such schemes work can help you spot and avoid them.

Knowing the basics of market manipulation, and how to sidestep it (if possible) can be another tool in an investor’s toolkit. It’s also worth noting that regulators are on the hunt for it, too. If you have further questions, it may be beneficial to speak with a financial professional.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

FAQ

What is the criminal punishment for market manipulation?

Potential punishments for market manipulation depend on the specifics of the crime, the charges, and a potential conviction, but they can involve hefty fines and many years in jail, in some circumstances.

How do big investors manipulate the stock market?

It’s possible that some bad actors spread rumors or false news about market movements in an attempt to influence sentiment, spoofing the markets, or engaging in pump-and-dump schemes.

How do short sellers impact stock prices?

It’s possible that short sellers can drive the value of a stock down, improving the short sellers’ positions, in the short-term.

Photo credit: iStock/HAKINMHAN