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Why Your Student Loan Balance Never Seems to Decrease

Does it seem like your student loan balance never gets any smaller? You’re not the only one—37% of American adults under 30 are paying off student loans . But why exactly does your balance appear to remain steadfast, even after months of dutiful payments? Well, the short answer is that your student loan balance increases as interest accrues.

And your loan is amortized, which means that your payments might be only covering those interest costs while the underlying loan continues to rack up new interest charges every day. Understanding how your student loans accrue interest can help you make smart choices about paying off your debt faster.

What Does A Balance Mean on a Student Loan Account?

Your student loan balance is the amount of money owed to your student loan providers, including both the principal and the interest accrued. When you first take out student loans, your balance is just the amount you’re borrowing and any origination fees. As time goes on, however, many students’ loan balances actually begin to grow.

Some loans accrue interest while you’re in school, during the six-month grace period after graduation, or in periods of deferment or forbearance. The longer you have student loan debt to your name, the more time interest has to accrue. Once your grace period is over, you might notice that your student loan balance is larger than the amount you initially borrowed.

How Do I Find My Student Loan Balance?

The first step in tackling your student loan balance is knowing exactly what you’re up against. The quickest way to determine your total federal student loan balance is to visit the National Student Loan Data System (NSLDS), which is the central database of student aid for the U.S. Department of Education. This database is the main repository of all federal student loan information, including what loans you owe.

The National Student Loan Data system uses information gathered from government loan agencies and loan servicers to keep their data up to date and is a reliable source if you’re looking for a detailed overview of your federal student loans. Their info typically includes the dates your loans were disbursed, any grace periods, and even the date you paid off any old loans.

NSLDS does not, however, aggregate data about private student loans. This means that if you took out any loans to finance your education that didn’t come from the federal government, you may need to use other means to track down your total student loan balance. For your private loan information, reach out directly to your lender. You can also review your credit report find information on all your debts, including student loans.

How Does Interest Affect My Student Loan Balance?

Most people pay a fixed monthly payment to their student loan service provider. That payment includes the principal and the interest.

The confusing part is that although your monthly payments remain the same each month, the percentage of your payment that goes to the principal amount on your loan changes over time. This means that, in many cases, when you first begin paying off your student loans, most of your monthly payments will go toward interest.

That interest adds up fast. For example, imagine you have a $100,000 student loan with a 5% interest rate. To find out how much interest you are charged every day you calculate your balance times the interest rate divided by 365.

For our example, it looks like this:

$100,000 (student loan balance) x .05 (interest rate) = $5,000

$5,000 ÷ 365 = $13.70

In that scenario, you are being charged nearly $14.00 in interest alone, every single day. Multiply that by 30 days and your student loans are accruing around $410 per month in interest. This means that if you pay $500 on your student loan every month, $410 of that payment is going toward interest, which means only $90 goes to your principal balance.

If you’re making payments under an income-driven repayment plan, things are a little different. Your payments vary according to your income, which means that your payments should never exceed a certain percentage of your salary.

The interest you are charged, however, does not change according to your income. This means that there may be situations in which your monthly payment doesn’t even fully cover the interest charges for that month, much less contribute toward your underlying principal balance. This means that in addition to not getting smaller, your student loan balance will actually grow over time, despite the payments you make.

Let’s look at the example above again. If you have a $100,000 student loan with a 5.00% interest rate, your monthly interest accrual is around $410. If, however, you’re only paying $350 because you’re on an income-based repayment plan, you wouldn’t even be covering the monthly interest costs on your loan.

That means that despite your monthly payments, your student loan balance would actually increase by $60 every month because that is the difference between the interest accruing each month and the amount you’re paying off.

Making a Dent in Your Student Loans

Once you’ve got a handle on your student loan balance and how interest impacts the balance, make an action plan for tackling your loans. When it comes to student loan repayment, it’s important to understand your options so you can make the best decisions for your financial future.

One debt payoff strategy is to focus on the highest interest loan first—also known as the debt avalanche method. Take a look at your loans and figure out which one has the highest interest rate.

This is where you would focus your payoff efforts, after you make the minimum monthly payments on your other loans every month. By focusing on the loan with the highest interest rate first, borrowers may be able to reduce the amount of money they spend on interest.

Another payoff option to consider is refinancing your student loans. If your financial situation has improved since you initially took out your loans, refinancing may be a way to obtain a lower interest rate.

Refinancing is an option for those with federal loans, private loans, or both. However, refinancing can impact your eligibility for programs like Public Service Loan Forgiveness, so be sure to consider all of your options when deciding whether to refinance.

Thinking about refinancing your student loans? Learn more about how SoFi can help you take charge of your loans.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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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Pros & Cons of Online and Mobile Banking

These days, it seems like you can do just about anything online. From scheduling a workout class to arranging for a ride at your doorstep to ordering toothpaste instead of grabbing it from a store, our smartphones and computers make it easy.

Still, there are some folks who don’t feel comfortable conducting their banking online. Having a physical bank makes them feel more at ease, is more familiar to them, and they feel like their money is safer.

Those who prefer to do online banking may like the convenience of 24/7 access to their info. Generally speaking, they are not people who tend toward physical banking services, like depositing checks with a bank teller. For those that would like to take a more balanced look at the question of where to bank, let’s examine some pros and cons of online banking.

Once we’ve examined these pros and cons to online banking, you can make an informed decision about whether online banking is right for you. Then, we’ll talk about how to move your banking to an online-only platform.

What is Online Banking?

Consumers have a few different options when it comes to where they park their money. The traditional options are to use a commercial bank, or a credit union. A credit union is a financial co-op that is generally owned and operated by its members (as opposed to being a publicly-traded company).

Most traditional, retail banks offer mobile banking. Mobile or online banking in this sense allows you to look up your accounts and transactions online, transfer funds, and even mobile deposit checks. But that is not what we are talking about today; here, we are discussing the use of an online-only or an internet-based bank.

Online-only banks are a newer alternative to traditional banks, where consumers conduct all banking operations online. Online banks generally have no physical locations, which can help them to keep overhead costs low. In turn, they typically offer some perks over traditional banks, such as a higher interest rate on savings accounts.

Often, an online savings account that offers a more competitive rate of interest than traditional banks will limit the amount of times that a customer can move money out of an account. Restricting the number of transactions or services is another way for online banks to minimize costs. These types of restrictions typically vary by online bank.

Because not all online banks are the same, the following list of pros and cons won’t capture every nuance, but hopefully you’ll get an idea of what services are offered, and the benefits of both mobile banking and traditional banking.

Pros of Online Banking

Higher Interest Rates

As mentioned, banks without brick and mortar locations tend to offer a higher rate of interest on cash savings accounts. Currently, the national interest rate on savings accounts is 0.08% .

This is a mere $.80 per $1,000. On the other hand, an online bank is likely to pay 1% annual percentage yield (APY) or more , which amounts to $10 for every $1,000. This is a significant improvement.

No Minimum Balance

Many traditional banks still require that you maintain a minimum balance or have an established automatic deposit or they will charge you a monthly fee.

Some online financial institutions do not require a minimum amount of cash. SoFi Money®, a cash management account, is one of them; new customers can get started with no minimum balance.


Online banks are open 24 hours a day, which some customers find useful for maintaining their finances and making transactions after normal bank hours. All you need is access to the internet. When you’re working an 8-to-6 job where you can’t sneak out to chat with a teller for an hour, the convenience of banking outside working hours is a gamechanger.

ATM Access

Most online banks will be part of an online network of ATMs, such as MoneyPass or Allpoint. There is generally no fee to use the ATMs, and customers can locate them online. If they do not use an ATM network, they will typically offer to refund ATM fees up to a certain number of withdrawals.

SoFi Money: No account fees
and fee-free access to 55,000+ ATMs worldwide.

Cons of Online Banking

No Live Assistance

While most online banks provide a customer service line, they generally do not offer personal bankers. This means that there is no “live” person to help you with your banking needs, such as setting up accounts, applying for loans, getting a notary, or even just someone with whom you can discuss a simple issue or complaint.

A personal relationship with a banker could come in especially handy in the event that you are trying to secure a loan at the best rate, or have a business that you are looking to expand via borrowed funds. This is a person who knows and trusts you and could potentially make a difference in whether or not a bank will issue a loan.

Limited Access

Online banks typically keep their fees low and interest rates higher by offering limited services. They may or may not offer debit or credit cards, or the ability to deposit physical cash. Every online bank is different, so do your research on the services they offer.

Limited ATM Access

Although many online banks will have a network of ATMs that customers can access, they may not be as easy to track down as ATMs for the major retail banks.


There is somewhat of a misunderstanding about security at banks. Traditional banks are no more or less secure than online-only banks. Any bank that is insured by the FDIC guarantees the same amount of insurance in the event that the bank goes under, $250,0000, regardless of whether the bank is online or not. Online banks generally tend to offer similar fraud protection programs to the retail banks.

Security typically has more to do with whether the consumer uses their debit card only on protected sites, does not access their banking information on a public computer, and avoids accessing private information while on public Wi-Fi networks. Unfortunately, even people who do everything right and take all of the proper precautions still find themselves the victims of fraud. Sometimes, it can only be attributed to bad luck.

How Do I Open An Online Account?

It all depends on the bank, but these banks generally have made it easier than ever to open up accounts and transfer money over. Typically, the process can all be done online, so you don’t have to sign and return physical paperwork.

The process usually happens in two steps: First, a new account at the new bank needs to be opened. To do this, you will have to answer a series of questions, and you will likely need to provide personally-identifying information like your Social Security number, date of birth, and more.

Next is funding the account, which can be done with a check or via a funds transfer. Usually, you are able to “pull” the assets into the new bank account, sometimes by simply providing the log-in information of your “old” account. They may require some extra verification (like making and confirming small deposits) before money can be moved. Most of the time, the process can be done in the matter of just a few days.

Interested in learning more about money management account offerings? SoFi Money is an online cash management account where you can spend, save, and earn, all in one product.

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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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.


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What Is a Target Date Fund?

For a newbie, investing can feel utterly confusing. And though there are a lot of people and institutions out there who are trying to make it easier, it doesn’t erase the fact that jargon abounds.

One of the hottest buzzwords—and investing products—in the last few years has been the target date fund. While advisors are doing a lot to make investing more accessible, it doesn’t take away from the reality that a lot of people still don’t know the answer to the question, “What are target date funds?”

A target date fund is essentially a fund of mutual funds, and the goal is to provide a calculated rate of return, that’s based on a person’s age and risk profile, usually over a long period of time. Target date funds will vary by the financial institution that is offering them, but in general, target date funds will hold a mixture of stock and bond mutual funds, among other investments.

The proportion of an investor’s money allocated to stock funds and bond funds depends on your age, as designated by your “target retirement date,” which is the year you hope to retire.

Below, we will dive into the question, “What is a target date fund” and the pros and cons of target-date funds, as well as discuss whether an investor should use a target date fund. But first, a primer on some of the investment terms that are critical to understanding target-date funds and how they function.

First—A Few Investment Basics

To answer the question, “What are target date funds,” you must first understand some basics of investing. Most notably, you need to understand what a mutual fund is.

Mutual funds were created hundreds of years ago, allowing investors to pool their money together so that they could invest in a variety of business endeavors. This “strength in numbers” effect made it possible for small investors to own many different types of investments—to achieve diversification.

It’s the same idea today—pool your money together with a bunch of strangers, and you then spread that money over a wide swath of investments. (Sometimes it is helpful to think of the word “mutual” literally.)

Investors should think of a mutual fund as a big ol’ basket of investments. Those investments could be many different types of things, but mutual funds that hold stocks or bonds (or some combination of the two) are the most commonly-used types of mutual funds, especially within retirement accounts.

Now listen up, because here’s the important part: More important than the mutual fund itself is what is inside the mutual fund. If you are invested in a stock mutual fund, you are invested in stocks. If you are invested in a bond mutual fund, you are invested in bonds.

A first step new investors should take is to learn about these underlying investment types. Then, you can decide whether they have a place in your overall investment strategy.

Stocks represent a small share of ownership in a publicly-traded company. Online stock trading comes with a degree of risk, along with the potential for growth. There are many types of risk. In the case of the stock market, this risk comes in the form of volatility, or market risk.

Bonds are an investment in the debt of a company or the government. When an investor buys a bond, they are essentially loaning out that money for a designated amount of time, in exchange for a stated rate of interest.

The money the investor earns comes from the interest paid on the bond. Therefore, bonds are considered to be an investment that is more stable than stocks, but without as much upside potential.

Generally it is recommended that investors maintain some combination of stocks and bonds. Because of the affordable, instant diversification provided by mutual funds, many investors are gravitating towards using a combination of mutual funds to fulfill their stock and bond allocations.

How much you designate towards stocks and how much towards bonds depends on your personal goals, your investing timeline, and your risk tolerance. Generally, young people with a longer investing timeframe have a higher risk tolerance and therefore have a higher allocation towards stocks. Those who are closer to retirement may want more in bonds.

A DIY investor would then purchase the mutual funds that correspond with their desired allocations. For example, if an investor wanted a portfolio of 80% stocks and 20% bonds, they could buy one or two mutual funds to fulfill each of these different investment categories.

What Are Target Date Funds?

With investment basics out of the way, we can now answer the question, “What is target date fund?”

A Target Date Fund is a fund of funds. Generally, a target date fund will hold a combination of stock funds and bond funds. The investor picks their approximate “target retirement date,” and buys the corresponding fund, which will have an appropriate mix of stock and bond funds according to their age.

For example, a 30-year-old could choose a target date fund with the year “2055” because that would correspond with a retirement age of approximately 67.

In general, a younger investor would choose a target date fund with a farther-out date. An older investor, who is closer to retirement, would choose a sooner date. This does not mean that you have to retire in that exact year. It is simply a way to gauge your age and how close you are to retirement, and therefore how aggressive or conservative your investment mix should be.

A target date fund provides three primary services:

1. You Can Buy a Ready-made Portfolio with One Click

Some investors might find the DIY approach simple, and others will find it difficult. For those that don’t want to be bothered with designing their own portfolio, a target date fund could be a suitable option. With the purchase of one fund, a target date fund provides a holistic, diversified investment portfolio.

2. Annual Rebalancing Is Done for You

Given the uneven nature of growth in the markets, one fund might grow out of proportion with the other funds. This is normal and natural. When this happens, investors should sell shares of the fund that is outperforming and re-invest in the fund that is underperforming.

This way, the portfolio maintains the desired mix of investment types. This is called rebalancing your investments, and can be done every month, quarter, year, or every few years. A target date fund takes care of all rebalancing.

3. Shifts Towards a More Conservative Allocation over Time

Personal finance experts generally recommend that investors shift their investment portfolios into a more conservative allocation the closer they get to retirement. Often, this means replacing some of the stock funds with bond funds. A target date fund builds this trajectory into the strategy, so it’s done for you.

Pros of Target Date Funds

It’s Easy

When it comes to investing, a target date fund is pretty dang easy. Investors only need to continue buying more and more of the fund, which can be done using an automatic reinvestment function.


For small investors, mutual funds are a more cost-conscious way to invest than if they were to buy their own individual stocks. A good target date fund will pass along these savings to their investors. (Although, not all target date funds are particularly cost-friendly. See Cons, below.)


Because mutual funds are these baskets of investments, they are inherently diversified. A target date fund provides additional diversification by mixing together different asset types.

Diversification is one of the core tenets of investing, and target date funds provide that diversification in an easy, affordable way.

Cons of Target Date Funds

Not All Target Date Funds Are Created Equal

Some target date funds use index mutual funds. Other target date funds use managed mutual funds. Managed mutual funds charge higher fees and attempt to outperform the market average—and usually fail . This comes at a cost to the investor, who could have paid less to earn more via index funds.

Before you use a target date fund, take a look at its holdings. What kind of funds do you see? If they are index funds, they will quite literally say “index” in the name of the fund. And as always, if you have questions, consult a professional.

Lack of Control

Some investors won’t like a target date fund because they don’t get to control the mix of investments, when target date funds rebalance, and how quickly they shift to a more conservative allocation.

Should I Use a Target Date Fund?

If you’re looking for an easy, hands-off way to invest, a low-cost target date fund could be a great option for you. In fact, many retirement plans are now automatically participants into a Target Date Fund.

A target date fund might not be for everyone, though. For one, investors might want to reconsider a target date fund if the only option available in their 401k or at their brokerage bank is a high-cost, managed fund. Other investors might feel uneasy at the lack of investment guidance with this approach.

For investors who like the idea of using low-cost funds to invest, but would prefer access to a financial advisor, a SoFi automated investing account is a great option. SoFi offers financial advisors as complementary to the service. Best of all, you only need $100 to get started.

That way, you can have the benefits of both worlds. Investors get low-cost index funds, diversification, automatic rebalancing, and a custom mix of aggressive and conservative investment types—and an advisor that can answer questions about the investment portfolio or your financial situation.

Ready to put a plan into place for your future? Learn more about $0 for access to a financial advisor through SoFi Invest®.

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.
Diversification can help reduce some investment risk. It cannot guarantee profit or fully protect in a down market. The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC.

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Divorce and Debt Responsibility: What Happens to Your Debt When You Separate?

If you’re getting divorced, one of your concerns will most likely be how the divorce will impact your personal finances. Although each case is unique‑and this article should not take the place of consulting an attorney—this post will share helpful information and important questions to ask as you navigate the divorce process.

One commonly asked question is: “Am I responsible for my spouse’s debt after separation?” The answer to this question will vary, depending upon your personal circumstances and the state you live in. States generally follow either community property rules or common law property rules.

Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in Alaska, you and your spouse may have signed an agreement making your assets community property, but if you didn’t sign this agreement, Alaska follows common law property rules—as does every other state excluding the nine states that adhere to community property law.

The rest of this post will share more information on the distinctions, as well as some answers to other questions about divorce and debt responsibility. We’ll share strategies for consolidating your debt through personal loans, refinancing your student loans in your new name (if applicable), and much more.

Community Property vs Common Law Property Rules

If you live in a state where community property laws apply, both spouses are typically responsible for debts incurred while married. In fact, most debts are considered to be the responsibility of the “community” (the two married partners) even if only one of them signed the paperwork.

After a legal separation takes place, debt in these states is typically owed only by the person who took on that debt. Exceptions are made if the debt was taken on, pre-divorce, to maintain a joint asset, such as a new HVAC system on a home; if what was purchased was needed for family necessities; or if the couple keeps joint accounts.

But what if one or both members of a married couple took out student loans before the marriage? In this case, the debt very well might not be considered part of community debt, although it could if the spouse signed on as a joint account holder.

If your state follows common law for property , debts taken on by one spouse are, typically, solely that person’s debts. Exceptions can include ones that benefit the marriage, such as childcare, food or clothing, and shelter or household items considered necessary.

Both parties are typically responsible if they both signed a contract agreeing to make payments, or if both names are on a property title to property or a shared account. This can also be true if both spouses’ income was considered when a creditor was making a lending decision.

End of Debt Accrual

A crucial question to have clarified is when, exactly, during the separation/divorce process will you stop incurring marital debt in your state? In California, as one example, a person stops being responsible for his or her spouse’s debt on the date they separate. Every state is different so it is best to consult with an attorney.

Note that, even though state law may draw the line on your liability for a spouse’s debts because of separation or divorce considerations, creditors may still have a legitimate case for pursuing payment from you if repayment of the debt falls behind.

Plus, let’s say that according to the divorce decree, your soon-to-be ex-spouse will be responsible for payments made on a credit card. If your name is on that credit card, the court would order your ex-spouse to make payments—but, if he or she doesn’t actually make the payments on time, it can still affect your credit in a negative way.

Talk to your attorney about options available to get your name off of any accounts with debts assigned to your ex-spouse, including having your ex-spouse refinance the loan so that it is solely in his or her name. You and your ex-spouse could agree to each ask creditors to remove one another’s names according to the dictates of the divorce decree, but creditors are not required to comply.

In response to your request, a lender could, for example, ask you to apply individually for credit to see if you can manage the debt based on your income and credit history only; if satisfied with your ability to repay the debt, the lender might agree to remove your ex-spouse’s name. If one spouse has higher income and/or better credit history than the other, requests might be approved for one and not the other, making the situation more inequitable.

Additional Considerations

Courts may assign debts that are considered necessities to the party believed to have the ability to pay them. This may or may not be divided equally, especially in common law property states where the goal is equitable division, rather than equal division of property.

No matter which one of these legal structures your state follows, debt typically follows the asset. In other words, if you get a car, you’ll probably also be responsible for paying it off. This also means that, if you end up with more property than your ex-spouse after the divorce, you may be taking on a greater percentage of the debt.

If you and your spouse signed a prenuptial or postnuptial agreement that lays out division of debt in case of divorce, your situation probably won’t mirror the typical divorce in your state.

Because laws about divorce and debt responsibility differ by location, it’s important that the attorney you consult is experienced in the laws of your state. Some couples find that using a mediator to amicably divide debts and assets is preferable to having a judge make the calls. Some mediators are also attorneys, which can be helpful.

Managing Debt After a Divorce

Once the dust clears after a divorce, you’ll need to take stock of what you owe, balance-wise, and what monthly payments you are responsible for. You may discover that payments are higher than what you can comfortably afford each month, now that you’re only relying upon just one income.

In that case, are there any loans that you can pay off and still have enough of a savings cushion in the bank? You might, for example, have a loan with a relatively high monthly payment but, if you only have a few payments left, paying off the loan may help.

If not, consider consolidating your high-interest credit cards and loans into one payment through a lower-interest personal loan. That way, you can focus on paying down just one loan, one that can come with more favorable repayment terms. Consolidating debt with a personal loan could significantly free up cash flow, right when you need it after a divorce.

If you are currently paying off student loans, you may consider refinancing your student loans as a way to free up cash flow post-divorce. At SoFi, you can refinance student loans in a different name; important if, as one example, you take back your maiden name after your divorce.

Tackle post-divorce debt at SoFi today with a divorce loan. Apply for a personal loan and/or refinance your student loans to free up cash flow at the start of your new life.

This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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 on credit.
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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Getting a Personal Loan While Self-Employed

Officially checking out of the traditional business world and becoming self-employed is truly a thrill. Striking out on your own and being your own boss means running your own schedule, deciding which work you want to take on, and potentially never putting on pants again (hello working from home!).

But every upside must have a down. And a major downer of leaving a traditional 9-to-5 is navigating your personal finances as a sole proprietor. From invoicing, to estimating taxes, it’s all on you—because you’re the boss now.

Qualifying for a personal loan while self-employed could also present some challenges. Self-employed individuals may have a need for a personal loan, but may find it difficult to produce traditional documentation, like W2s or pay stubs, used to verify income.

But fear not, my self-employed friends. There may be options to fit your loan needs after all. But before we get into that, it’s crucial for you to understand exactly what you’re getting with a personal loan.

What Exactly Is a Personal Loan?

A personal loan can be used for any personal expense, including home improvements, a work sabbatical, or consolidating your credit card debt. If you’re considering making a big purchase, like buying an engagement ring, a personal loan can be an alternative to using a credit card, if you don’t have the means to pay the balance off right away.

Whether you’re ready to propose, or you’re trying to build an addition on your house, a low-rate personal loan might be a flexible financing option.

Essentially, a personal loan can be used to cover anything in your, well, personal life. Personal loans are either unsecured, meaning a lender won’t require collateral, or secured, usually by the asset purchased with the loan.

Unsecured loans are usually approved based on the financial standing of the borrower, and typically include their credit history and current income.

Personal loans may be funded in one lump sum, then are paid off with equal payments for a specific period of time. For example, if someone took out a $10,000 loan, which they would receive in one single payment, they could then pay it back in installments of $500 a month until the loan (plus interest) was repaid. Typically, personal loans are paid back within one to seven years.

Why Would Someone Need a Personal Loan?

As we’re sure you’re aware, there are a multitude of reasons someone might apply for a personal loan. Whether you’re looking to consolidate your credit card debt, or you need to finance an addition on your house before welcoming a new baby, a personal loan is an adaptable financial tool. Taking out a personal loan still means taking on debt, though, so you should only consider taking one out if it’s absolutely necessary—and you’re in a financial position to pay it back.

Do a Lot of People Take out Personal Loans?

Go ahead, ask 10 of your friends if any of them have ever taken out a personal loan. Odds are at least a one of them will raise a hand. How do we know this? Well, according to a 2016 Bankrate survey , one in 10 American adults said they were either “very likely” or “somewhat likely” to take out a personal loan that year. And about 13.7 million consumers had a personal loan in 2015 .

Furthermore, according to the Federal Reserve , personal loans at all commercial banks in the United States hit a whopping $1.47 trillion in August. And that number is trending upward.

How Can I Qualify for a Personal Loan as a Self-Employed Person?

For many lenders, traditional documentation used to verify income includes pay stubs and W2s. However, self-employed people can have some difficulty producing these documents, because they often aren’t W2 employees. Even if you don’t have traditional income verification documents, you may still be able to qualify for a personal loan with SoFi.

You’ll need to prove that you have consistent income, of course, and produce income-related documentation, such as tax or bank statements. But SoFi understands that a full-time job isn’t the only qualifier of financial stability. SoFi will also consider factors like your credit score, education, and whether you have a cosigner.

Loan eligibility depends on a number of additional factors, including your financial history, career experience, and monthly income versus expenses. So go ahead, what are you waiting for? Be your own boss.

Getting a personal loan when you’re self-employed doesn’t have to be a huge headache. Check out SoFi personal loans today.

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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 on credit.
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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