Your 6 Step Guide To Franchise Financing

Becoming a franchise owner can be a great way to fulfill your dreams of entrepreneurship. Perhaps you have the savvy to run your own business, but are not interested in starting an original venture or putting together a brand from scratch. Buying into a successful franchise operation can give you the rewards of business ownership without as many of the headaches.

When you buy a franchise, you’re not exactly buying a business. Rather, you buy the rights to utilize a business logo, name, and products. In many cases, you maintain an ongoing relationship with the main company, which supports you with things like marketing materials, training programs, and supply. Popular franchises include fast food outposts such as Subway and McDonald’s or hotels like Motel 6. Other franchises include car rental chains, hardware stores, and gyms.

Of course, to own a franchise and cash in on the benefits that come with it, you have to invest up front. And the cost isn’t exactly pocket change. Depending on the industry, opening a franchise can cost as little as $10,000 or up to several million dollars.

But most franchises require $50,000 to $200,000 to launch. Chances are you will need outside financing to launch your franchise. Here are the steps to look at if you’re thinking about getting into the franchise world:

1. Compare Cost Versus Value of Opening a Franchise

Compare the costs of opening the franchise to the expected benefits. On the cost side, include franchise fees, royalties, marketing expenses, and what you’ll pay for products. On the plus side, estimate your projected revenue, along with benefits like training, site selection, and recipes. Then decide whether moving forward seems worth it.

2. Vet the Franchisor

A Franchise Disclosure document will tell you about black marks in the company’s history, including bankruptcies and litigation. It will also help you figure out whether the company’s franchises are expanding or closing, and how the parent company is doing financially. If franchises have a high failure rate, take note. It can help to have a lawyer take a look as well and to talk to other franchisees to get their perspective.

3. Scope Out the Market

Make sure your area isn’t already overloaded with other franchises from the same company. Also, look at competitors outside of the brand who have similar businesses, and gauge their success or failure rate.

4. Figure Out How Much of Your Own Money To Invest

You don’t want to risk too much of your own funds to open a franchise. Experts suggest investing no more than 15% of your net worth. The rest can be financed by partners, the parent corporation, or loans from other institutions.

5. Apply For A Traditional Or Small Business Administration Loan

Given the cost of opening a franchise, it makes sense that many new owners need help with financing. Nearly 40% of franchise owners use a loan from a commercial bank to get started, according to the U.S. Small Business Administration.

One option is to apply for a traditional loan from a bank or credit union. Keep in mind that these financial institutions often require you to have significant collateral and a strong credit history, and they charge high-interest rates.

You may also have trouble borrowing from traditional lenders if the franchise you’re opening doesn’t have a history of brand awareness or impressive financial performance. If you’d prefer not to put up collateral (like your house), finding an alternative to traditional loans might be a better fit.

Small Business Administration loans are another option available to all business owners, including franchisees. Because the agency guarantees these loans, you may get better terms or lower interest rates from your lender. The SBA offers financing for franchises that are part of its Franchise Directory .

6. Apply For Franchise-specific Financing

If a traditional or SBA loan isn’t right for you, franchisees have some financing options that are not available to other business owners. Some franchisors offer funding themselves or partner with lenders to offer loans. There are also companies, such as BoeFly and Fundation, that specialize in funding franchises.

So there you have it, a few tips for getting started with franchise financing. Good luck!

Apply for a SoFi personal loan today. We offer loans with zero fees and low rates.


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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Is There a Student Debt Crisis in America?

Along with fireworks, the flag, and a deep appreciation of cars, the college debt crisis is unfortunately about as American as apple pie. The average student borrower has about $34,000 in loans to pay off today. The student debt crisis isn’t going anywhere either.

As of March 2018, there were 44.5 million borrowers in the United States who owe over $1.3 trillion, according to the Federal Reserve . And that’s not even the scariest part. The US student loan debt is growing bigger every day as Americans are paying more on average than they did a decade ago for school.

Between 2001 and 2016, the real amount of student debt owed by households more than tripled. This scary rise of college loans has many experts saying we’re in the midst of a student debt bubble .

In 2016, an average college student with a bachelor’s degree graduated with $28,446 in debt . Students entering college now could end up paying even more by the time they graduate.

To put it into perspective, in the past 10 years, student loan debt in the US has grown by 170% . With 45% of recent graduates carrying student debt, the class of 2018 expects to retire by 72 .

Will the Growth of Student Loan Debt Slow Down?

Answer: probably not. In the past 10 years, US student loan debt grew to be worth more than car loans or credit card debt. It is the second-largest source of household debt and the only kind of personal debt that grew in the wake of the Great Recession.

As US student loan debt continues to grow, experts are saying this could be a student debt bubble, as the growth of debt looks eerily similar to the housing bubble of 2008 .

Similarly to how the housing market collapsed in 2008, many worry that as student debt increases and grows larger than what a borrower could reasonably repay, there will be an increase in defaults.

A new study found that using default rates from 1996, nearly 40% of 2004 borrowers may
default on their loans by 2023 . What does that mean for 2014 borrowers, who have taken out even bigger loans than there 2004 cohorts?

How U.S. Student Loan Debt Grew So Big

Although many in the media like to bemoan the increase of people attending colleges who are not qualified, the student debt bubble has little to do with more students enrolling in university. Only one-quarter of the aggregate increase in student loans since 1989 is attributed to students attending in college.

There are a few surprising factors that are causing the unruly rise of the college debt crisis. For one, education costs are continuing to rise – and not in line with the rest of the market. The headline consumer price index between 2016 and 2017 was 2.7%, while tuitions rose by 9% at state universities and 13% at private colleges . If the cost of higher ed continues to rise more than the cost of living, borrowers will continue to feel the pain.

In addition to rising college costs, experts say the monumental amount of debt is linked very directly to the collapse of the housing market. When the housing market crashed in 2008, parents who could borrow against the value of their homes were no longer able to do so, forcing more students to take out debt in their own names.

One economist estimated that a $1 drop in home equity loans due to a plummeting house prices leads to 40 to 60 more cents in student loans.

While it helps to know you are in good company, news of the student debt bubble might have you kvetching. The only thing worse than owing thousands of dollars of money to Uncle Sam is hearing that the millions of others in the same boat might end up tanking the US economy.

Can Refinancing Help with Student Debt?

But don’t run for the hills just yet. If you’re worried about the student debt crisis, you might want to consider refinancing. By refinancing student loans, you can consolidate existing private and federal loans into one new student loan with a lower interest rate. Not only does this mean you’ll only have one payment to worry about, it means you could pay less overall.

According to the Department of Education , interest rates on student loans can range from 3.5% to 8.5%, with most in the 5% to 7% range. Not only is that extremely high – consider the typical auto loan or mortgage rate – but if your interest rates are punishing, it only means you’ll remain in debt longer.

With borrowers paying off around four student loans on average, refinancing would also mean less paperwork each month. Between 2011 and 2016, online lenders have refinanced around $6 billion in student loans . Consolidating loans is a great way to make payments more manageable depending on what kinds of debt you have.

Researching Refinancing Options

There are a wide range of student loan refinancing options available. But it’s important to do your homework as the student debt crisis grows larger, because there are many predatory companies that might take advantage of your financial situation.

A study found that when plagued by anxiety over debt, borrowers were more likely to fall for a scam. With the US student loan debt exponentially rising, this has led to an increase in bad actors. Some estimate that there are over 130 companies that run student loan scams, which could result in even more debt in your lifetime.

But that doesn’t mean refinancing isn’t right for you. Not only could it mean consolidating all your payments into one monthly bill, but you could qualify for a lower interest rate which over your lifetime could spell big savings. It also means you’ll become debt-free sooner. Can you say score?

Although there are ways to consolidate federal loans with the government, refinancing involves a private lender. All of your student loans – both federal and private – are consolidated through refinancing. A private lender typically offers a lower interest rate, depending on a number of factors like your credit score, your payment history, and how much you still owe. This lets you pay your loans off at a more competitive rate, which can translate into thousands of dollars in savings.

When refinancing, it’s also possible to change the term length of your loan. If you’re feeling tight on cash with big monthly payouts, consider a longer term. If you’d rather get rid of your student debt as soon as possible, opt for a shorter term with larger payments.

Use a student loan calculator to see how much you can gain from refinancing. All you need to know is how much you owe and what your interest rates are across both federal and private loans. At SoFi, you can request a quote without actually committing to refinancing, which makes it easier to decide on next steps.

Refinancing with SoFi can help ensure your loans are consolidated and managed properly. Similarly to how using a Certified Public Account to file taxes can save you bundles of moolah, using a reputable lender can help you save money on your student debt. SoFi can help evaluate repayment strategies and potential forgiveness options while staying on top of pesky paperwork.

Scared of the looming student debt bubble? Consider refinancing your student debt with SoFi for one easy monthly payment and potentially thousands in savings.


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.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.

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What is the Student Loan Default Rate?

Ever since America surpassed $1 trillion in student loan debt six years ago , everyone from economists to politicians to columnists have been wringing their hands about it.

There are plenty of reasons for the high level of debt, but one is significantly higher tuition costs. A college education has become more and more necessary, but because of the recession, college students took on debt right when wages were stagnating, making the debt harder to repay.

It’s no surprise then that many borrowers have stopped making payments, falling into a state of delinquency, or worse, default. So what is the student loan default rate, and why should you pay attention to it? Recent data shows that the three-year default rate is at 11.5%, up from 11.3% the year before.

When you convert that to actual people, here’s what it looks like: In October 2013, 5 million students started repaying their student loans, and just under 581,000 of those people defaulted as of 2016.

The History and Importance of the Default Rate

The three-year rate is a highly watched number, because it’s the figure the U.S. Department of Education uses to determine if colleges and universities qualify to receive federal student aid. In fact, it’s such an important number that colleges have hired consultants to manipulate their student loan default rates to make them look better.

While the default rates have trended down over the last two decades, the Great Recession that began in 2007 put pressure on borrowers and interest rates. Today’s rate is about twice what it was in 2006, but in 1990, during the dot-com bust, default rates topped 22% .

When you look more closely at the government’s reporting , you see that not all default rates are the same. For instance, rates at private colleges are lower than at public colleges and universities. Some of the worst default rates are associated with community colleges, and borrowers at non-profit colleges are defaulting at an alarming rate .

More than 98% of requests for loan cancellation came from students who attended a for-profit college.

The reason so many students sought relief was they felt defrauded or mislead, according to an analysis of education department data. Meanwhile, for-profit students tend to take on more debt and are less likely to find higher-paying employment that non-profit students enjoy.

Student loans are generally direct loans from the government, but a portion today are provided by private lenders. Before 2007 when financial regulation was lax, high interest rate, private loans were abundant. But since the Great Recession, several actions helped shore up the market, including requiring creditworthy co-signers.

Recently, the private student loan default rate has leveled off at a respectable 10% , similar to the overall default rate. But before the recession, nearly a quarter of borrowers who took out loans defaulted.

What is the Average Student Loan Default Period?

While the federal government focuses on the three-year default rate, it may be even higher over the life of the loan. Education Research Analyst Erin Dunlop Velez, with RTI International, crunched the numbers over 20 years and found the average loan default came around the five-year mark. What’s more, only half of undergraduate borrowers studied had paid back their loans in 20 years.

When you convert the percentages into real numbers, a lot of people have given up. Nearly 5 million Americans have defaulted on their loans, and one report suggests 3,000 borrowers default every day.

Don’t let your loans go into default.
See how student loan refinancing can help.


The Difference Between Defaulting on a Loan and Being Delinquent

While defaulting on a loan is the worst-case scenario, many more student loan borrowers have fallen behind on their payments.

Being in default depends on each lender, but borrowers participating in the Federal Direct Loan program or the Federal Family Education Loan program are considered in default if they miss nine months of payments. Borrowers can face a number of consequences if they default on a loan, including losing the opportunity to defer payments or choose a repayment plan.

It may also wreck your credit, and you may have to give up tax refunds or other federal benefits that the government will apply to your loan. Finally, your lender can sue you, and if that’s the case, you may even be responsible for the court fees.

A delinquency, while perilous, is a much better place to be since you still have time to start making payments again and restore your relationship with your lender. With federal student loans you’re considered delinquent if you miss just one month’s payment , and you will remain delinquent until you resume payments and make up the past due amount.

If it’s been 60 to 90 days since your last payment, the lender can report you to credit agencies, and that can affect your ability to borrow again. And with a bad credit report, you may have trouble getting credit cards, home loans, and even arranging for utilities or homeowner’s insurance.

Overall, roughly the same number of borrowers are late on their payments as default. The student loan delinquency rate was 11% at the end of 2017, but that figure may be lower than reality.

It doesn’t reflect the number of borrowers who are technically still behind on their payments but are in their grace period or getting other assistance.

What Options are Available to Make My Loans More Affordable?

If you are delinquent or think you may be heading that way, you can seek forbearance, which is a federal benefit to stop making payments for a period of time, however interest may still accrue. You can also seek out a federal income-based repayment program that ties your monthly payment to how much money you make.

If you’re not tied to one of those programs, you can refinance your student loans, which can trim your current interest rate. You can use the SoFi student loan calculator to see if refinancing makes sense to you.

Before you sign up to refinance, you should understand your current loans and term options. For example, you can choose a fixed-rate loan to keep your payments the same for the life of the loan. Or you can chose a variable rate loan, where the interest rate fluctuates with the market.

There are also different term options available when you refinance. A shorter term means you’ll get out of debt quicker but may have higher monthly payments, or you can lengthen the term with the goal of lowering your monthly payment, however with this option you will be paying more interest over the life of the loan.

Ready to do something about your monthly payments so you don’t have to worry about student loan default rates? Find out whether refinancing your loans with SoFi is right for you.


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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Is it Smart to Use a Personal Loan to Pay Off Student Debt?

When it comes to student loans, graduates find all kinds of creative ways to stay on top of them. Some people decide to launch crowdfunding campaigns because they believe complete strangers will be willing to help them pay off their loans. Others choose to take on a full-time job and six side hustles and pledge to repay their loans within the year.

But just because these strategies might work for others doesn’t mean that they will work for you! If you find yourself with only one $20 donation from your Aunt Nell and burned out from your side hustles, you might be willing to try anything.

Maybe you heard of people taking out a personal loan to pay off their student loans, but have wondered whether that’s a good idea? Have they uncovered a secret way to fast-track their student loan repayment that you don’t know about? Or are you better off leaving your loans as is or taking out a private student loan to refinance them? We break down the benefits and drawbacks of taking out a loan to pay off student loans.

Starting to Repay Your Student Loan Debt

Before we get into what you can do to repay your loans, it might be helpful to talk about what your repayment might look like. When you graduate from college, the good news is that you don’t have to start repaying your loans right away.

Student loans have a grace period built in. With most loans, this period is six months, but with some it can last as long as 9 months. While your loans are in the grace period, you are still being charged interest on them, so some people decide to make payments on that interest alone so that the balance does not grow.

If you’re unable to pay your loans after the grace period is over, you have options. With federal student loans, you may be able to defer your loans for a number of reasons including if you’re returning to school, are unemployed, are experiencing extreme economic hardship, are on or have recently been on active duty service in the military, and several other reasons.

If you don’t qualify to defer your loans, you might be able to forebear your loans. To qualify for forbearance, you need to be experiencing financial difficulties, medical expenses, changes to employment, or other reasons that your student loan servicer approves. With both deferment and forbearance, you don’t have to make payments on your loans, however, if you have certain types of loans you might not be charged interest on them if your loan is in deferment.

But what happens if you just can’t afford your payments but don’t fit any of those criteria? A lot of people end up being in that crowded boat and struggle to make their student loan payments every month. It might be because you’re underemployed and presently making latte art at your local coffee shop, or just that you have an entry level job in your field but aren’t making enough money yet.

As your salary increases, you will likely be better placed to pay your loans but, in those first few years after you leave school, you’ll likely be turning to clipping coupons as though they will save you. Luckily, there are other ways you can lower your payments.

Basing Payments Off Your Monthly Income

Are you struggling to cover your rent and buy ‘actual food’ and not just rice and beans? If you’re yearning for room in your grocery budget for a bunch of grapes or the occasional spaghetti with meat sauce, then you might be interested in how you can lower your monthly payments on your federal student loans. It’s easy! You can do so by enrolling in one of the many income-driven repayment programs that are offered.

There are various repayment plans to choose from that allow you to limit your monthly payments to just 10% to 20% of your monthly discretionary income. That will often reduce your monthly payments to a more manageable level and allow you to at least buy eggs every once in a while.

After 20 to 25 years of on-time student loan payments, your loans qualify to be forgiven under these repayment plans. If you’re interested in signing up for one of these plans, you should contact your student loan servicer to find out more.

Can You Use a Personal Loan to Pay Off Student Loans?

While it is possible to use a personal loan to pay off your student loans, many lenders will decline your application if they know you will be using the loan for this purpose. There are specific rules around using personal loans for paying for school so it is important to talk to your lender to determine if it is possible for your individual situation.

First, let’s look at why someone would ever use a personal loan to pay off student loans. The first benefit is that you can potentially reduce the amount of interest that you’re paying if you qualify for a lower rate on your personal loan.

You might also be able to qualify for different loan terms lengths—potentially reducing your monthly payments by spreading them out over a longer period of time. Another benefit is that, unlike student loans, personal loans can be discharged in bankruptcy. That means that if you’re ever unable to repay your personal loans, you can declare bankruptcy and get rid of them. In contrast, student loans can rarely be discharged in bankruptcy.

But that’s where the benefits stop in using a personal loan to pay off your student loans. By doing so, you lose some protections that you get from student loans such as your grace period and the ability to defer or forbear your loans. If you have federal student loans, you also lose the opportunity to use income-driven repayment plans to repay your loans and to take part in any student loan forgiveness programs.

Also, it might be difficult to qualify for a personal loan to pay off your student loans since they won’t be able to confirm that you’ll pay off your student loans. The lender will calculate your student loans and the loan you’re applying for as part of your debt-to-income ratio when deciding whether to lend to you.

That could lead you to being approved to borrow less, not at all, or at a higher interest rate. In contrast, when you use a refinancing loan to pay off debt, the debt that you’re refinancing does not get counted in your debt-to-income ratio since they only include the loan you’re applying for in the equation.

Why Refinancing Your Student Loans Might Be a Better Plan

When it comes to either reducing your monthly payment on your loans or paying less in interest, your best bet might not be to get creative and take out a personal loan to repay your student debt – but just refinance your student loans with private student loans.

Refinancing your student loans means that you take out student loans in order to pay off your existing student debt. When you do this, you can often save money because you’re more likely to qualify for a lower interest rate on your student loans than if you took out a personal loan. That’s because the debt can’t be discharged in bankruptcy so that secures the debt and allows lenders to give you a lower rate.

You can also get a longer-term length and space out your payments so that you owe less each month. This will likely mean that you’ll pay more in interest over the life of your loans, however, it could allow you to ensure you can afford your loans and some occasional canned salmon while you’re not making as much early in your career. Check out this student loan refinancing calculator can help show how much you may be able to save each month.

While refinancing your student loans can help many students save money, you should think twice before you refinance your federal student loans. That’s because you lose out on the ability to have your student loans forgiven or to qualify for income-driven repayment plans.

You’ll also lose out on the ability to defer or forbear your student loans in certain circumstances – depending on the student loan refinance provider. That’s one of the benefits of refinancing your student loans rather than taking out a personal loan. While private student loan lenders don’t offer the same benefits as federal student loans, many offer deferment or forbearance in certain circumstances–unlike with personal loans.

It’s important to note that it might be difficult to qualify for student loan refinance right out of school since you might not be making enough or have a long enough credit history. For that reason, you might need to get a co-signer in order to qualify to refinance your loans or wait until you build your credit up enough in order to qualify. Usually, the higher your credit score is, the less you’ll pay in interest.

Ultimately, refinancing your student debt is often the better option over using a personal loan to refinance that debt. That’s because you can get lower rates and better terms.

Want to refinance your student loans? Find out what rate you qualify for by answering just a few short questions.


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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Balance Transfer Cards vs. Personal Loans: Which is Better for You?

Mounting credit card debt can sometimes feel impossible to get out from under. Emergencies come up, things happen, and sometimes it’s easiest to reach for a credit card to cover unexpected expenses. Yet when you carry debt on your credit card, even if you make the minimum payments each month, interest still accrues and adds to what you owe.

If you’re struggling to pay off credit card debt, you’re far from alone. Revolving consumer credit rose to over $1 trillion in January, according to the Federal Reserve , and credit card debt has become the form of debt most widely held by families in the U.S . Fortunately, there are a few good solutions to getting rid of your credit card debt for good.

When faced with high-interest credit card debt, it can make sense to pay it off with either a balance transfer credit card or a personal loan. Both can consolidate all your credit card debt into one place at a lower interest rate, which can save you money and helps you deplete your balance without racking up high-interest charges.

But which of those two options makes sense for you? To answer that, you need to know what a balance transfer credit card is and how a balance transfer works. And you need to know the ins and outs of personal loans. Let’s get into it.

What is a Balance Transfer Credit Card?

A balance transfer credit card is when you transfer all your existing high-interest credit card debt to a new credit card. Generally, when selecting to do a balance transfer to a new credit card consumers will a apply for a new card with a lower interest rate than they currently or a card with an introductory 0% APR.

This introductory period can last anywhere from six to 21 months, and varies by lender. By opening a new card that temporarily charges no interest, and then transferring your high interest debt onto that card, you can save money because your balance will no longer accrue interest charges as you pay it off.

You can transfer debt from one credit card or multiple credit cards onto your new interest-free card. Paying off your credit card debt can be easier without the compounding interest, because you can pay off your balance without it growing every month during the introductory-rate period.

But you need to hear one crucial warning: After the introductory interest-free or low-APR period ends, the interest rate generally jumps up. That means if you don’t pay your debt off during the introductory period, it will start to accrue interest charges again, and your balance will grow.

How do Balance Transfers Work?

It’s easy to understand, in theory, what a balance transfer credit card does, but how do balance transfers actually work? The logistics can be a little more complicated.

There are a number of types of balance transfer credit cards out there, varying in their interest-free introductory periods, credit limits, rewards, transfer fees, and interest rates after the introductory period. You’ll want to compare the fees and credit limits, to figure out which balance transfer card works best for you.

Related: Personal Loan vs. Credit Card

Once you apply and are approved, then you can transfer your existing credit card debt onto your new card. You can only transfer as much debt as is covered by your credit limit onto the new balance transfer card.

It typically takes one to two weeks for your new credit card company to contact your existing cards and transfer the balances. Until the transfer is complete, you’ll need to make any payments you have due, so you don’t incur missed payment penalties. You’ll also still need to close out your old credit cards once the debt is transferred and they have a zero balance.

What’s the Difference Between a Balance Transfer Card and a Personal Loan?

Another option to pay off high-interest credit card debt is to use a personal loan. A balance transfer card transfers credit card debt onto a new credit card at a low or nonexistent interest rate—but the interest rate rises at the end of the introductory period.

A personal loan, however, can be used to pay off a wider range of existing personal debt, credit card or otherwise. And when you can choose a fixed interest rate, which means the interest rate you sign on for is the one you’ll have for the duration of the loan—it won’t go up.

You can usually take out a personal loan for a wide range of amounts (SoFi offers personal loans from $5,000 to $100,000). Depending on your credit, financial situation, and the state you live in, interest rates, terms, and the amount you can borrow may vary.

The application process typically requires a credit check and a look at your financial history and current employment. Once you’re approved, you can use your personal loan to pay off your high-interest credit card debt.

Basically, you use the personal loan to pay off your credit cards, and then you just have to pay back your personal loan in manageable monthly installments. A personal loan can allow you to pay much less interest on your debt; Credit cards charge an average of 16% interest, whereas

Choosing Between a Balance Transfer and Personal Loan

Both a personal loan and a balance transfer essentially help you pay off existing debt by consolidating what you owe into one place. The difference comes in how each works and how much you’ll ultimately end up paying (and saving).

Balance transfer credit cards can require a high credit score to qualify, which can be a challenge if your current credit card debt is affecting your credit score. Most balance transfer credit cards also charge a balance transfer fee, typically 3% to 5% of the balance you’re transferring, which adds up if you’re transferring a large amount of debt. Some balance transfer credit cards will offer an introductory period without transfer fees and with 0% APR, but you’ll want to do the math on how much you’ll save in interest versus how much you’ll pay in transfer fees.

For many people, a balance transfer credit card also comes with the additional concern of starting a new cycle of credit card debt. If you don’t pay off the debt on the new card, then it could hurt your credit score.

Additionally, if you fail to pay off the debt during the no-interest period, you could be back where you started; your balance will start to accrue compound interest based on the new card’s APR.

With personal loans, however, you can choose to have a fixed interest rate that doesn’t balloon. You will agree to a repayment term with your lender, which could be up to a few years. All you have to do with a personal loan is make the monthly payments.

Additionally, while personal loans can come with origination fees, and other fees some personal loans don’t have origination fees or prepayment penalties. And you won’t have to worry about transfer fees at all with a personal loan. Personal loans can also be used for personal expenses, which means you can pay off other higher-interest debt (like a car loan) by bundling it into the personal loan amount you request.

If you have high-interest credit card debt that you’re ready to get rid of, check out SoFi personal loans today.



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
.

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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