If you’re a borrower who’s thinking about getting a personal loan sometime in the near future, watching interest rates fluctuate and thinking about how Fed rate changes impact personal loans and savings can be pretty nerve-wracking.

That’s because even if your personal financial bonafides are in a good place, if the Federal Reserve raises or lowers its target rate — known as the federal funds rate — it could end up affecting how much interest you’ll pay on a new loan.

Though the Fed doesn’t directly set personal loan rates, its monetary policies can be an important factor in determining the rates lenders offer. Read on for a look at how Fed rate changes impact loans and cause ripple effects that influence your finances.

What Is the Federal Funds Rate?

The federal funds rate is the rate commercial banks use when they borrow and lend their excess reserves to each other overnight. But the fed rate can impact your savings, too. It can have an indirect effect on the interest rate consumers earn on certificates of deposit (CDs), savings accounts, and some other bank accounts. And it also can influence the rates banks offer on consumer loans — including personal loan rates.

When the fed funds rate increases, borrowing typically becomes more expensive. When the fed funds rate is cut, borrowing costs generally fall.

Members of the Federal Open Market Committee (FOMC) use the fed funds rate (which is actually a target range rather than one specific number) to help keep the U.S. economy healthy. If inflation is high, for example, the FOMC may decide to raise the fed funds rate in an effort to cool down borrowing and spending. If economic conditions are weakening, on the other hand, the FOMC may choose to cut the benchmark rate to stimulate borrowing and investment.

The FOMC meets eight times a year to decide whether to raise or lower this target rate, or to keep it where it is.

Recommended: History of the Federal Reserve

How the Fed Affects Personal Loan Interest Rates

When someone applies for a credit card or loan, the interest rate the customer is offered can vary significantly based on their credit score, income, the amount they borrow, and other factors. But lenders may also use the prime interest rate — the rate they charge their most creditworthy customers — as a basis to determine what to charge other borrowers, including those with personal loans.

The prime rate is not a Federal Reserve product. But when the FOMC raises or lowers its fed funds rate, it usually affects where banks set the prime interest rate.

Banks generally calculate the prime rate by adding 3 percentage points to the current federal funds rate. How do Fed rate changes impact personal loans and savings? For example, if the fed funds target rate is 3%, the prime rate would be 6%.

Here’s more on how Fed rate changes impact loans:

How Rate Changes Impact New Borrowers

You might not see a change in personal loan interest rates immediately after the Fed lowers or raises its target rate. But eventually, you may notice a cut or hike trickling down to the rates offered by various lenders.

•   If there’s a hike in the fed funds rate, for example, some lenders may opt to minimize the impact to their own borrowing costs by raising the interest rates on new loans.

•   If there’s a cut to the fed funds rate, lenders may decide to cut their interest rates on new loans to reflect the decrease in their own borrowing costs.

Again, you might not see a change right away. Personal loans aren’t directly tied to the prime rate the way variable-rate loans or credit cards are, and lenders may have more discretion regarding their pricing. Still, if you’re out there shopping for a personal loan, you may want to keep an eye on fed rate changes and consider how they could affect your costs.

Recommended: Average Personal Loan Interest Rates

How Rate Changes Impact Existing Loans

Most personal loans come with a fixed interest rate — which means the rate you agree to when you open the loan will stay the same until you pay it off. So, if the FOMC raises the fed funds rate and you already have a personal loan, you don’t have to worry about the hike increasing your monthly payments.

If the FOMC were to cut the fed funds rate, however, that move also wouldn’t have any effect on an existing fixed-rate loan’s payments. Even if your lender lowers rates for new borrowers, the interest rate you originally agreed to would remain locked in. In order to take advantage of the lender’s new lower rate, you would have to refinance to a new personal loan.

Are Personal Loan Rates Expected to Drop?

It can be difficult to predict when or if the FOMC might cut the fed funds rate, or if the interest rates consumers are offered will drop.

The Federal Reserve’s decisions about monetary policy are based on what is commonly known as its “dual mandate” to pursue both maximum employment and price stability. Toward that end, the FOMC considers several factors when determining how to manage the fed funds rate, including the inflation rate, the labor market, and overall economic growth. And the FOMC has 12 members — each with his or her own “hawkish” or “dovish” thoughts on how best to guide the economy.

What you as a borrower can have some control over, however, is what you personally bring to the table in terms of creditworthiness. Whether you decide to wait for a rate drop or to forge ahead, preparation can be key to avoiding a high interest rate on a personal loan.

How to Get a Better Personal Loan Rate Despite High Rates

Knowledge really can be a super power when it comes to getting the best available loan rate. Consider taking these steps as you prepare to apply for a personal loan:

•   Get your credit in the best shape possible. Check out your credit score and credit reports so you know what lenders will see. Correct any mistakes, and work to improve areas where you may appear financially risky. “Late payments can have a large effect on your credit score for a long period of time. Setting up autopay is one way to make sure payments are made regularly and on time,” says Brian Walsh, CFP^® and Head of Advice & Planning at SoFi. (Also keep credit card balances as low as possible, and try not to apply for another credit card or loan in the months before you apply for a personal loan.)

•   Do some comparison shopping. Hop online to check out which lenders are offering the most competitive rates. See if you can prequalify with a soft credit check that won’t bump up your credit score.

•   Look beyond the interest rate. Consider other loan details, including low or no fees, customer service, and hardship policies.

•   Be flexible. Would you be able to manage a higher monthly payment if it meant getting a lower interest rate? Compare different loan lengths and payment amounts to find your best fit.

•   Consider a co-signer. If you know someone with good credit who is willing to co-sign your loan, it may help you qualify for a lower rate. (Especially if you don’t have much of a credit history.) Keep in mind, though, that the lender will hold you both responsible for repaying the loan.

The Takeaway

Understanding the factors that can influence your personal loan interest rate can help you get the best possible rate quote. The federal funds rate can have an indirect effect on the interest rates banks offer — including the rates on personal loans. So stay on top of news from the Fed if you’re considering applying for a loan.

But you can also get control over your personal loan costs by taking good care of your credit, shopping online for the best lender and rate, and avoiding unnecessary fees.

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

FAQ

How is the federal funds rate determined?

The Federal Open Market Committee (FOMC) meets roughly every six weeks to determine whether the federal funds rate should be increased, cut, or stay the same. Committee members base their decisions on several factors, including the inflation rate, the labor market, and overall economic growth.

Do Fed rate cuts automatically lower my personal loan rate?

If you already have a personal loan with a fixed interest rate, a cut to the fed funds rate won’t affect your rate at all. If you’re still out there looking for a loan and wondering are personal loan rates expected to drop, consider that a rate cut might eventually lower the interest rates lenders are offering, but not always, and it could take a while to see a rate drop.

How do Fed rate changes affect savings account rates?

Fed rate changes can influence the prime rate, which can impact the interest rate consumers earn on certificates of deposit (CDs), savings accounts, and other types of bank accounts. Savings account interest rates tend to rise if the Fed raises rates and fall if the Fed lowers rates.

How long does it take for personal loan rates to respond to Fed changes?

Because the connection between the fed funds rate and personal loan rates is indirect, it can be difficult to predict when, or if, a Fed cut or hike will trickle down and affect lending rates.

Should I wait for rates to drop before taking out a personal loan?

You may want to keep an eye on market changes if you’re thinking about applying for a personal loan. But if you need a personal loan and you’re on a tight timeline, don’t focus on how high interest rates affect personal loan rates. Instead, try to work on factors over which you have some control, like raising your credit score and lowering your debt levels.

Photo credit: iStock/STEEX

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-Q326-070

Whether to borrow from a 401(k) or take out a personal loan is a decision that will depend on your unique financial situation and goals. There are several variables to consider. For instance, when you borrow from a 401(k), you pay interest to yourself vs. to a lender — but 401(k) borrowing nevertheless reduces your retirement savings. A personal loan can often offer more cash, but taking out a personal loan can impact your credit score.

Here, learn more about these options for accessing cash so you can make the right decision for your needs.

Understanding 401(k) Loans

Retirement plans such as your 401(k) are designed to tuck away money toward expenses you’ll face later in life. And while you didn’t initially open and contribute to a retirement account to take money out prematurely, if you’re in need of some funds, you might consider a 401(k) loan.

Yes, it’s entirely possible to borrow against your 401(k). While it depends on the specifics of your employer’s plan, you might be able to access up to half of what’s vested in your account, or $50,000, whichever is less, during a 12-month period. And if your vested balance is $10,000 or less, you can borrow the whole vested amount if your employer allows it. So someone with a vested balance of $40,000 could borrow a maximum of $20,000, and someone with a vested balance of just $7,000 could take out $7,000.

Usually, you’ll have up to five years to pay back your loan amount, along with interest. The interest rate and terms of the repayment depend on your employer’s plan. When you repay the 401(k) loan, the principal and interest go back into your account.

How 401(k) Loans Work

Taking out a loan from your 401(k) or the retirement vehicle known as a 403(b) doesn’t require a credit check nor does it show up on your credit report as debt. As mentioned, you’re essentially borrowing from yourself. There’s no third-party lender involved, so there are fewer steps in the application process. Plus, your loan payments go straight back into your retirement plan.

Restrictions and 401(k) withdrawal rules can vary according to your employer’s plan, so it’s probably a good idea to talk to a benefits administrator or rep from the retirement account for specifics.

Pros and Cons of Borrowing From Your 401(k)

Looking at the advantages and downsides of borrowing against your 401(k) can help you decide whether a 401(k) loan or personal loan is the right financing choice for you.

Pros

First, consider the upsides of borrowing from your 401(k) account:

•   Doesn’t require a credit check: Because you’re taking out a loan against yourself and there’s no outside lender involved, a 401(k) loan doesn’t require a hard credit inquiry, so it won’t negatively impact your credit score.

•   Easier to obtain: These loans can be easier to get, and you don’t have to jump through as many hoops (including the credit check mentioned above) as other forms of financing.

•   Lower interest rate: While this hinges on your credit, borrowing against your 401(k) often comes with a lower interest rate than other financing options, such as taking out what’s known as a personal loan or using your credit card. This means it can cost you less in interest.

Interest rates are set by the fund administrator and are usually the prime rate but may be higher. As of August 2026, the prime rate is 6.75%.

•   Won’t show up on your credit report: Another plus of a 401(k) loan is that it doesn’t show up on your report as a form of debt, so you won’t have to worry about your payment history impacting your credit in any form.

•   No penalties or taxes: As long as you don’t default on the loan, you won’t have to pay the taxes and 401(k) early withdrawal penalties that come with making early distributions. (This is a benefit of taking a 401(k) loan vs. taking a 401(k) distribution, which will trigger taxes and possibly penalty fees if you are under the age of 59½.)

•   Interest goes back to you: While you have to pay interest on your 401(k) loan, that money goes into your retirement account.

Cons

Now, review the potential downsides of taking out a 401(k) loan:

•   Not all 401(k) plans allow loans: Many plans do offer the ability to take out a 401(k) loan, but not all of them. Check with your plan administrator to learn whether this is even a possibility for you before planning on getting funds via this method.

•   You might have to pay back the loan right away: Should you lose your job or change jobs, you might be required to pay the remaining balance on your loan quickly. That can be a tall order, especially after a major financial blow such as a job loss.

•   Smaller retirement fund: When you take money out of your retirement plan, that means losing out on the money in an account designated for your nest egg. Because the clock will be set back, it may take you longer to hit your retirement savings goals.

•   Missing out on potential earnings: Taking money out of your 401(k) means losing out on any potential growth on that money if it were sitting in the account instead. Although you pay yourself interest on the loan, the earnings on your returns could be more than the interest.

•   Possibility of taxes and penalties: If you don’t pay back your debt in a timely manner, you could owe taxes and penalty fees on it. That’s because it becomes a 401(k) distribution vs. a loan if you don’t keep up with your payments.

•   Lower loan amounts: How much you can borrow from a 401(k) account has limits. Currently, you can borrow up to half of what’s vested in your account to a maximum of $50,000. If you have less than $10,000 vested, you can borrow the full vested amount. That may or may not suit your needs.

•   Longer funding times: If you’re approved, you’ll typically receive your 401(k) loan within two weeks of submitting your application.

Overview of Personal Loans

Personal loans are a type of installment loan where you’re approved for a certain loan amount and receive the entire amount upfront. Personal loan amounts vary from $1,000 to $100,000 (some large personal loan amounts go even higher), but the exact amount depends on your approval.

You’re responsible for paying off the personal loan during the repayment term, which is usually anywhere between one and seven years. The time you have to pay off the loan depends on the lender and the specifics of your loan.

Personal loans also come with interest (typically, but not always, at a fixed rate). Your rate depends on factors such as the lender, your credit score, your debt-to-income ratio, and other aspects of your finances. As of May 2026, the national average for a 24-month personal loan at a commercial bank is 11.86%.

Types of Personal Loans

There are different types of personal loans to learn about so you can decide which one might be best for you:

•   Secured personal loans: Secured personal loans are loans that are backed up by collateral, such as a car, home, or other valuable property. Should you fall behind on your payments, the lender can seize your collateral to recoup the money. While you risk a valuable possession, secured loans usually have lower credit score requirements and other less stringent financial qualifications. Plus, you can get a higher amount than with an unsecured personal loan.

•   Unsecured personal loans: Unsecured personal loans are loans that don’t require any collateral. They usually have higher credit score requirements and more strict approval criteria than their secured loan counterparts. Unsecured vs. secured personal loans usually have lower amounts available.

•   Fixed-rate personal loan: A fixed-rate personal loan can be unsecured or secured. The interest is the same throughout your loan term, which makes for predictable monthly payments.

•   Variable-rate personal loan: A loan with a variable vs. fixed interest rate, however, can see the interest charges go up and down throughout your repayment term. This means the amount you’ll end up paying in interest on the loan is unknown. Plus, budgeting might be harder, as your monthly payments could change.

Personal loans offer a lot of flexibility. You can use them for most any purpose, from funding a major home improvement project to making a big-ticket purchase to financing a wedding or vacation. In some cases, personal loans are geared toward specific purposes:

•   Home improvement loans: A home improvement loan is an unsecured personal loan that can be used for repairs on normal wear and tear, general maintenance, or toward a renovation project.

•   Debt consolidation loans: Debt consolidation loans are used to take multiple loans and lump them together into a new, single personal loan. The main benefits are that debt consolidation loans can potentially lower your interest rate, monthly payment, or both.

Advantages and Disadvantages of Personal Loans

Next, take a look at the pluses and minuses of personal loans.

Pros

•   Quicker access to funding: You might be able to tap into the funds of your personal loan as soon as one hour after approval, though you’ll likely receive funds within 1-5 days. So, if you need money in a flash, this could be a good option for you.

•   Flexible amounts and repayment terms: Unlike 401(k) loans, where there’s a maximum borrowing limit of $50,000 and a repayment term of five years, personal loans have a wide range of borrowing amounts and repayment periods. You’ll likely have a better chance of finding a personal loan that’s a good fit for your time frame vs. with a personal loan.

•   Lower interest than other financing options: The interest rate of a personal loan can range from around 6%-36%, and the average rate on 24-month personal loans at commercial banks stands at 11.40% as of February 2026. While they might not be lower than the 401(k) loan rate, personal loan rates can be lower than using a credit card or payday loan to make purchases.

Cons

•   Impacts your credit score: When you take out a personal loan, the lender needs to do a hard pull on your credit. This usually reduces your credit score by a few points and will impact your score for a few months.

Also, since your payments are reported to the credit bureaus, if you fail to keep up with payments, your score could be dinged. Finally, taking on a loan also drives up your credit utilization, which can also negatively impact your score.

•   Fees and penalties: Some personal loans have origination fees, which can add to your loan amount and your debt. Plus, you might incur late fees. On the flip side, the lender could charge a prepayment penalty if you’re ahead of schedule on your payments. This is to recoup any losses they would’ve earned on the interest.

•   Additional debt: While a 401(k) loan is an additional financial responsibility, personal loan debt means making payments and owing interest that doesn’t go back to you. Instead, you’ll be on the hook for payments until the loan is paid off.

Recommended: Personal Loan Calculator

Key Comparison Factors

Here are key factors to compare when evaluating borrowing from a 401(k) vs. personal loan:

•   Interest rate: The higher the interest rate, the more you’ll pay for the same amount of borrowed money.

•   Repayment term: The shorter the repayment term, the higher the payments. Conversely, the longer the repayment term, the lower the payments (but you’re likely to pay more interest over the life of the loan).

•   Impact on retirement savings: You’ll want to weigh the different ways a loan can eat into your retirement goals. For example, a 401(k) loan will shrink your retirement fund. However, if you take out a personal loan, you may have less cash available to put toward retirement since you need to make your monthly payments.

•   Credit score implications: Understanding how taking out either loan can impact your credit score is important, especially if you are building your credit score. A 401(k) loan doesn’t require a hard credit pull nor will payments show up on your credit report. A personal loan, however, does require a hard credit inquiry, and late payments will end up on your credit file and can lower your score.

•   Tax considerations: If and when you’ll be taxed is also something to consider. As for whether a personal loan is taxable, the answer is usually no. But a 401(k) loan could be taxable if you fail to meet certain loan requirements, such as sticking to your repayment schedule.

401(k) Loan vs. Personal Loan: Side-by-Side Comparison

Here’s a quick reference guide to the rules of borrowing with each method.

Scenarios: When to Choose Each Option

If you are contemplating the choice of taking a 401(k) loan vs. personal loan, reviewing these scenarios could help you make your decision.

401(k) loan

Going with a 401(k) loan might make more financial sense in these scenarios:

•   You’re far off from retirement. You likely have time to pay back the loan and replenish your account, which can help you hit your target amounts within your desired time frame.

•   You can repay the loan in five years. If the time frame and loan amount aren’t suitable and you fall behind with payments, the amount you owe can be treated as a distribution, and you’ll be hit with early withdrawal penalties and taxes.

•   Your credit score doesn’t qualify you for a personal loan with favorable terms. A hard credit inquiry isn’t part of tapping funds from 401(k) retirement savings.

•   You don’t want to borrow from a lender (with a 401(k) loan you are, in a sense, borrowing from yourself), and you feel confident you can stay on top of your payments.

Personal loan

A personal loan might be the stronger choice in these situations:

•   You want quicker access to the funds. You may be able to apply, be approved, and access personal loan funds within just a few days. A 401(k) loan can take a couple of weeks to move funds into your bank account. You will, of course, need to meet the lender’s criteria, such as minimum credit score and debt-to-income requirements.

•   You are hoping to borrow more than the $50,000 cap on 401(k) loans. A personal loan may allow you to access twice that amount.

•   You feel you might be changing jobs soon or that your job is in jeopardy. If you leave or lose your job, a 401(k) loan could be due in less than the five-year term.

With either option, you want to make sure you have a steady income to repay the loan. It’s important to prioritize paying off the loan. Otherwise, you may potentially get hit with fees and/or damage to your credit score.

Recommended: Using Your 401(k) to Pay Off Debt

Long-Term Financial Impact

Borrowing from a 401(k) vs. taking out a personal loan can have a different long-term impact on your money situation. In deciding between the two, you’ll want to take a close look at the following:

Effect on retirement savings: Taking out a 401(k) loan means a reduction to your retirement fund, potentially a loss in growth in your investments, and possibly also a setback to your retirement goals. While a personal loan doesn’t have the same impact on your retirement savings, making loan payments each month can mean you’ll have less money available for a tax-advantaged retirement account.

Potential opportunity costs: Taking on more debt, whether against your retirement account or a loan through a lender, means your money will be tied up in debt repayments. In turn, you might miss out on opportunities to boost your finances, whether that’s putting money toward education, a business venture, your savings, or an investment account.

Debt management considerations: With a 401(k) loan, you’ll want to feel comfortable that you can shore up your retirement funds by paying off the amount within five years. You’ll be required to make payments at least once a quarter. With a personal loan, the monthly payment and repayment term can vary, but you’ll want to make sure both are a good fit for your budget and goals.

The Takeaway

Personal loan or 401(k) loan? In deciding whether to borrow a 401(k) loan or a personal loan, you’ll want to understand the basics of how each works, their respective advantages and disadvantages, and what factors to consider before landing on the best choice for you. A 401(k) loan can avoid the potential negative credit impact of a personal loan, for instance, but there is a limit to how much you can borrow, which could sway your decision.

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 happens to my 401(k) loan if I leave my job?

If you lose your job or change workplaces, you might be required to pay back the remaining balance on your 401(k) quickly. If you are deciding between a personal loan and a 401(k) loan and feel you might be changing jobs soon, a personal loan could be the better option.

Can I take out multiple 401(k) loans?

Most plans only allow you to have one 401(k) at a time, and you must pay it back before you can take out another one. However, it’s worthwhile to check with your plan administrator, as you might be allowed to take more than one, as long as the total between the two doesn’t go over $50,000 or half of your vested balance.

How does borrowing from 401(k) vs. personal loan affect my credit score?

A 401(k) loan doesn’t require a hard pull of your credit nor do your payments show up on your credit report, and it therefore doesn’t affect your credit score. A personal loan does trigger a hard credit inquiry, and late or missed payments on your personal loan can negatively impact your score. Taking on a personal loan increases your credit utilization ratio, which may lower your score, but it could also diversify your credit mix, which could be good for your score.

Is a 401(k) loan better than a personal loan?

Which borrowing method is right for you is a very personal choice. Many financial experts recommend against 401(k) borrowing because it delays your progress in saving for retirement and steep penalties result if the loan isn’t paid back on time. However, if you are confident in your job security and sure you can make the loan payments, you’ll likely pay a slightly lower interest rate than you would with a personal loan, and the interest you pay will go back into your own 401(k) account.

What are the risks of borrowing from a 401(k)?

A very real risk of borrowing from a 401(k) is that you will experience an unexpected setback — such as a job loss — that makes the loan repayment due immediately. If you don’t have the funds available to repay the loan, it will be treated as a withdrawal. And if you are under 59½, you’ll owe both taxes and a 10% penalty on the outstanding balance of the loan. A secondary risk of borrowing this way is that you will miss out on any investment gains that might come from having the money in the 401(k).

Photo credit: iStock/JulPo

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-Q326-075

How to Calculate Home Equity

Making monthly mortgage payments can feel like chipping away at an iceberg, especially in the beginning. Savvy homeowners take heart that each payment earns them a little more ownership in their property. But do you know exactly how much ownership, commonly called “equity,” you currently have? Understanding how to calculate home equity can help you feel a growing sense of satisfaction as you make those mortgage payments.

Simply put, home equity is the difference between the value of a property and the outstanding balance of all mortgages, liens, and other debt on the property. Read on to determine how to calculate equity in your home, what you can do to increase your equity, and how you can leverage that equity to make it work harder for you.

Calculating Your Home Equity in 3 Steps

As noted above, home equity is the difference between your home’s current value and the outstanding balance of your mortgage and other debt on the property. It’s a simple equation:

1. Find Your Home’s Value

To estimate your home value, you can use the purchase price of your home, but that doesn’t account for any appreciation in value. You can build equity in your home by paying down your mortgage, but also by making renovations. Or it may build naturally over time as home values in your area increase.

For a precise calculation of your home equity, you’ll need to know your home’s current value with appreciation. You can get an estimate of your home’s value with an online property tracking tool. These calculators approximate the appreciation of your home by comparing it with similar properties in the area. While helpful, these tools can’t provide an exact measure.

To determine your real-time home value, you’ll need to request an official appraisal. You might do this through a mortgage lender if you are thinking about borrowing with your home as collateral. The lender will order an inspection and evaluation of what your home is worth in the current market. The appraiser may ask you for documentation of any work you’ve done on your home to come to a more exact figure.

2. Determine How Much Is Left on Your Mortgage

Calculating home equity also involves knowing what you owe on your current home mortgage and any other debts against the property. You can find your mortgage payoff amount (which is different from your balance) on your lender’s online portal. Add to that the outstanding amount you owe on any second mortgages, liens (for unpaid taxes or child support, for example), home equity lines of credit, and any other loans that use your home for collateral. The sum of these items is your home debt, the last figure in the equity equation.

3. Subtract Remaining Debt From Your Home’s Value

The final step is to subtract your home debt from your home value. The result is how much equity you have. To convert this dollar amount to a percentage of home equity, divide it by the estimated value of your home.

Using the Loan-to-Value Ratio to Represent Home Equity

The LTV is the percentage of your home’s value that is borrowed — it’s like the opposite of equity. You can calculate your LTV by dividing your outstanding home debt, discussed above, by your home’s appraised value:

For example, if your home is worth $375,000, and you still owe $200,000, your LTV is 53%. (200,000 ÷ 375,000 = 0.53) This means you still owe 53% of the equity in your home. Subtract 53 from 100 to see how much equity you have built in your home: Your available equity is 47%.

Why LTV Ratio Matters for Borrowing and Refinancing

Knowing your LTV ratio is important because lenders set maximum LTVs, typically 80%, for home equity loans. This means homeowners cannot borrow — through a mortgage and loans secured by the home — more than 80% of their home’s value.

Examples of Home Equity Calculations After 1, 3, 5, 10 Years

The table below shows how much equity a fictional homeowner accumulates over the first 10 years of their mortgage. Your initial home equity is determined by your down payment. The average down payment among American homebuyers was 13.2% of the home’s purchase price in April 2026. This table assumes an initial home value of $300,000 and a down payment of 20%, with annual appreciation of 10%, a mortgage APR of 7.50%, and a monthly payment of $1,678.11. The LTV is rounded to the nearest whole percentage. (The actual annual appreciation for American homes over the last 10 years on average was 6.6%.)

Recommended: How Much Will a $300,000 Mortgage Cost You?

What Is a Good Amount of Home Equity?

Common wisdom says that it’s smart to keep at least 20% equity in your home. This is why many lenders limit your LTV to 80%. To borrow against your home, then, you’ll typically need more than 20% equity. (That’s also why lenders usually require private mortgage insurance when a homebuyer doesn’t put down a 20% deposit on a home before purchasing.)

Fortunately, that’s not a problem for most homeowners. Research firm ICE Mortgage Technology estimated that as of 2025, Americans have $213,000 of “accessible” home equity on average, over and above the recommended 20%. This is mostly due to rising home values.

Recommended: How Home Ownership Can Help Build Generational Wealth

How Much Home Equity Can You Take Out?

The amount of equity you can take out depends on the lender and the type of loan. However, most lenders will allow you to borrow 80%-85% of your home’s appraised value. The other 15%-20% remains as a kind of financial cushion.

A homeowner who doesn’t want to take out a home equity loan but needs cash might consider a Home Equity Line of Credit (HELOC). A HELOC allows owners to pull from their property’s equity continually over time. Borrowers can take only what they need at the moment. HELOCs use the home as collateral, which might not appeal to all borrowers. Some lenders allow HELOC borrowers to borrow slightly more against their home’s value, up to 90%.

Homeowners looking to fund renovations often explore home equity loans or HELOCs to access funds at more competitive rates than they would get with a home improvement loan, allowing for flexible financing of their projects.

Pros of Borrowing from Home Equity

As noted above, homeowners often find borrowing against their home equity to be an attractive way to obtain funds for a large expense such as home improvement or a child’s college education. Home equity loans and HELOCs often have lower interest rates than unsecured loans, such as personal loans or credit cards.

Cons of Borrowing from Home Equity

Of course, the most obvious downside of borrowing using your house as collateral is that if you fall behind on your payments, you risk losing your home. Another factor to consider: Adding a large home equity loan to your credit report can reduce your credit score by increasing your credit utilization.

The Takeaway

Calculating home equity involves subtracting your mortgage payoff balance (found on your lender’s website) from your home’s current value. To get the most accurate idea of your home’s market value, you’ll need an appraisal, which can cost $314-$424. Knowing how to calculate equity in your home can be a first step in determining how to use that equity to fund renovations or another important expense.

SoFi now offers home equity loans. Access up to 85%, or $750,000, of your home’s equity. Enjoy lower interest rates than most other types of loans. Cover big purchases, fund home renovations, or consolidate high-interest debt. You can complete an application in minutes.

FAQ

Can you access home equity without refinancing?

You don’t have to refinance to tap into your home equity — you can apply for a home equity line of credit (HELOC) or a home equity loan. A HELOC provides a flexible credit line that you can borrow against as you need it, usually with a variable interest rate. A home equity loan provides a lump sum with a fixed interest rate, perfect for big, one-time expenses.

Does home equity increase automatically as property value rises?

Your equity rises as the value of your home increases. This assumes you don’t borrow additional funds using your home as collateral.

Is it a good idea to take equity out of your home?

Whether it’s smart to take equity out of your home with a home equity loan or a cash-out refinance depends on how you use the funds and how diligent you are about repaying what you borrow. For example, some homeowners use a home equity loan or home equity line of credit to fund renovations that increase their property’s value, while others use an equity-based loan to pay off higher-interest debt. Both of these can be a good move, provided you continue to make timely payments on the loan.

Do I need to put 20% down as a down payment?

A 20% down payment isn’t essential for a home purchase. For qualified first-time homebuyers especially, down payments can start as low as 3%, though the larger your down payment, the lower your monthly mortgage payments. If you put down 20% or more, you avoid having to pay for private mortgage insurance (PMI), but if you can’t hit the 20% mark, homeownership is still within reach.

Is home equity a hedge against inflation?

Owning real estate can be an inflation hedge, as property values and rental income generally tend to increase with inflation (though not in every local market). But owning a home also involves work, and homes aren’t always easy to sell quickly. Putting money into a real estate investment trust (REIT) can offer exposure to real estate without the need to own a physical property.

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Long-term personal loans can be an attractive borrowing option if you’re facing large expenses, like significant medical bills or home repairs. Paying off a personal loan long term allows borrowers to spread out repayment into manageable installments. Long-term loans often 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 Personal Loan?

As you explore what are long-term loans, you’ll quickly see that personal loans aren’t the only example of this type of lending. Mortgages and private student loans are also examples of long-term loans. Mortgages, for instance, are frequently repaid over as many as 30 years.

How Long-Term Personal Loans Differ from Short-Term Loans

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.

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.

Pros 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.

Lower 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. To compare costs, it’s important to look at total interest paid over the life of the loan.

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.

Cons of Long-Term Personal Loans

Like any form of consumer debt, long-term personal loans have some potential drawbacks worth considering.

Potentially Higher Interest Rates

Although long-term, unsecured personal loans may have smaller monthly payments, they can sometimes carry higher interest rates than shorter-term, unsecured personal loans. And unsecured loans typically have higher interest rates than secured loans.

Personal loan interest rates currently range from about 6.50% to as much as 36.00% annual percentage rate, or APR. The average personal loan interest rate in mid-2026 is 12.38%.

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 any personal loan prepayment penalty 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 leave you unable to repay the personal loan.

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.

How to Compare Long-Term Personal Loan Offers

Don’t just look at the interest rate a lender is offering you. Consider the personal loan APR vs. interest rate. Including fees in your comparison by looking at the APR will help level the playing field between lenders.

Another factor to consider is the personal loan term length. Generally, the shorter the repayment term the higher the monthly payment will be — but the lower your interest costs will be over the life of the loan.

Alternatives to Long-Term Personal 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 paying off a personal loan long term, 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.

What are long-term loans that aren’t personal loans? Home equity loans also have a lengthy repayment term. In this case the loan is secured by the equity the borrower has in a home that they own. These loans can have lower interest rates than personal loans, but if you can’t make your monthly payments, you risk losing your property to foreclosure.

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.

Your credit score and/or financial situation can suffer if you make late payments or miss payments altogether. 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.

Is a long-term personal loan a good idea?

A long-term personal loan can be a good idea if you have a specific need for funds (such as to pay off high-interest credit card debt) and you can obtain a personal loan with a loan term and interest rate that make your monthly payments manageable.

How do long-term personal loans differ from short-term loans?

Long-term personal loans have repayments terms that can stretch from five to seven years, while short-term loans have a tighter timeline. Monthly loan payments are usually lower with long-term loans than they are with short-term ones, however total interest costs on a long-term loan are often higher than those on a short-term loan.

Photo credit: iStock/Melpomenem

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

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Personal loan amounts can range from $1,000 to $100,000 depending on the lender and your qualifications. These loans can offer flexible funding for an array of uses, such as home improvement projects or debt consolidation.

Whether you’re looking for a large personal loan or a small one, typical personal loan requirements are usually the same. Here, learn more about how much lenders typically offer, what factors play into the size of a personal loan that you can get, and when it makes sense to get a personal loan.

Personal Loan Amounts: What Do Lenders Typically Offer?

How much can you get for a personal loan? Amounts vary by lender, but typically start at $1,000 and go as high as $100,000.

The amount you actually get approved for depends on a handful of criteria, which you’ll delve into in more detail below.

Where to Find Large Personal Loans

Traditional banks, online-only banks, and credit unions all offer large personal loans, sometimes as much as $100,000 and in some cases even more. Credit unions may cap borrowing at $50,000.

Where to Find Small Personal Loans

Banks—including brick-and-mortar banking institutions and online-only ones—may also offer personal loans as small as $500 or $1,000. When seeking a small personal loan, don’t confuse personal loans with payday loans. The latter are small loans with a tight repayment schedule, high borrowing costs, and a reputation for keeping borrowers in a cycle of debt. The borrower is typically expected to repay the loan on their next payday.

What Factors Determine How Much of a Personal Loan You Can Get?

The amount a lender offers and the amount you qualify for aren’t always one and the same. There’s a handful of financial and credit criteria that can impact the loan amount, rates, and terms. If you’re wondering, “how much personal loan can I get?” It helps to understand the main factors that affect your number:

Credit Score

In general, the higher your credit score, the larger the loan amount, and the more favorable the terms and interest rates. On the flip side, the lower your credit score, the smaller the loan amount, and the less favorable your terms and interest rates.

Lenders usually have credit score requirements. The minimum required credit score for a personal loan varies but can start at 580. To qualify for better personal loan interest rates and terms, you usually need a credit score of at least 670 and, ideally, 700 or better. Good news: If you obtain a personal loan and make on-time payments consistently, borrowing with a personal loan can help your credit score.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. It’s expressed as a percentage. For example, say your monthly income (before taxes, withdrawals, and other deductions are taken out) is $10,000, and your total debt obligations are $4,000. In that case, your DTI is 40%.

For the most part, lenders would like to see a DTI no higher than 36%. But if you have a high credit score, you might get approved with a slightly higher DTI.

Lender Amount Limits

The amount you can borrow may be limited by how much funding you can receive from your lender. If your credit is stellar, you have low DTI, steady employment, and a good income. But if the lender’s max personal loan amount is $50,000, then the most you can potentially borrow is $50,000.

Applying as An Individual or Jointly

If you’re applying for a personal loan with another applicant and their credit is strong, you might be eligible to borrow more money than you would be if applying solo. However, not all lenders let you apply jointly, so you’ll want to check beforehand.

Income and Employment History

How much you can borrow also depends on your income and employment history. If you bring in a certain amount of money and have steady work for the last few years, that could boost the approval amount.

Some lenders may give more weight to your income and employment history. If yours are excellent, you might be able to get a higher loan amount with a lower credit score and a higher debt-to-income ratio.

Minimum Income Requirements

There typically isn’t one single minimum income that is required for a personal loan. The amount needed will depend on a variety of factors, such as the amount of funding you are seeking (higher figures mean more income is likely required) and your credit history. The lender wants to feel secure that you are going to be able to repay the loan.

Collateral

Not all personal loans require you to provide a valuable asset, such as your home or car, to back up the loan. But if you’re looking into a secured loan, you might be able to get a higher max amount on your personal loan than if you went the unsecured loan route.

Using collateral and getting a secured loan means you could get a bump in your personal loan amount. Remember, not all lenders offer secured personal loans. If a lender does offer both secured and unsecured loans, you can compare quotes from the same lender for either option.

Loan Purpose

A lender might only allow you to use the loan for certain purposes. For instance, some lenders specialize in credit card debt consolidation loans. Lenders that offer greater flexibility might have limits on how much you can borrow depending on the loan purpose.

For example, the limit on using the loan proceeds for childcare expenses and large purchases might be different than if you’re planning to use the funds toward a major home improvement project.

Having a Cosigner

A cosigner is someone who adds their name to a loan application and assumes responsibility should the borrower not be able to make payments. If your own qualifications for a personal loan aren’t strong, having a cosigner may allow you to borrow. It’s important for the cosigner to understand that if the primary borrower makes payments late (or misses them entirely), the cosigner’s credit score will be affected.

Recommended: $10,000 Personal Loan

How Much of a Personal Loan Can You Afford to Borrow?

Determining how much you can borrow requires you to know your financial situation, how much you’d like to borrow, and what you can reasonably afford to pay off on a regular basis.

To start, jot down the repayment term and rate you anticipate receiving. If you get prequalified, that can give you a fair estimate on your loan amount.

Next, you’ll want to figure out the following numbers:

•   Income before taxes

•   Additional income you get on a regular basis (i.e., rental property income, alimony, disability benefits)

•   If you’re filing jointly, you’ll also need to include the other applicant’s income and other details

•   Tally up your existing debt. This might include credit card debt, other personal loans, a car loan, or student loan debt.

That can help you figure out how much you can afford for your monthly payment.

Recommended: $50,000 Personal Loan

How to Calculate Your Borrowing Power

If you’re mulling over the possibility of debt consolidation, you want to gauge how much you’d save on interest or how much your monthly payment will be lowered by rolling over your existing debt to a new one.

You can break out a calculator and punch in basic numbers, such as the loan amount, interest rate, and repayment term, to figure out what your monthly payment shakes out to.

Online Loan Calculators and Prequalification

Another option: Let tech do the work for you. You can use a handy personal loan calculator to simplify this process and perhaps comparison-shop a bit using online tools.

You may find that you can prequalify for a loan online, too, which gives you a picture of what you might qualify for in terms of loan amount and interest rate. This is not a binding agreement and doesn’t involve a hard credit pull, but it can help you approximate what options may be available.

Recommended: Pros and Cons of Personal Loans

When Does a Personal Loan Make Sense

Personal loans do have the word “personal” in them. So whether it makes sense for you to take out a personal loan depends on your unique situation and circumstances.

Here are some scenarios where getting a personal loan might be a good idea:

•   You need a large sum upfront. If you need a chunk of cash for a big-ticket purchase or to fund a home renovation, a large personal loan can provide you with the money to cover a purchase.

•   You have a good credit score. The higher your score, the higher the loan amounts and the better your rates and terms will most likely be.

•   You’re using the funds for something you really need. If you need the money to cover a financial shortfall, unexpected emergency, or much-needed home remodeling project, it could be a sound move to take out a personal loan.

•   You need the money quickly. The processing and funding times for a personal loan can be a lot faster than other funding choices, such as a home equity loan or home equity line of credit, or HELOC.

•   You want to consolidate high-interest debt. If you qualify for a lower interest rate, lower monthly payments, and more flexible repayment terms, it could make financial sense to take out a debt consolidation loan.

When a Personal Loan May Not Be the Best Option

Now, consider instances when a personal loan may not make sound financial sense:

•   You can’t keep up with monthly payments. If you’ve looked at your situation, done the math, and realized that you’ll have a hard time staying on top of your monthly payments, then a personal loan might not be the right choice for you at the time.

•   You have time to save for your major purchases and goals. If you aren’t in a financial pinch and don’t need the money right away, you might be better off saving the amount needed instead. That can allow you to sidestep paying interest.

•   You don’t need to take out a large amount of money. Unless you have good reason to take out a sizable amount of cash, then it probably doesn’t make financial sense to get a personal loan. Other options, such as a personal line of credit, might be a better move.

Recommended: 401K Loan vs. Personal Loan

Alternatives to Personal Loans

If you’re on the fence about taking out a certain type of personal loan, know that other options exist. Here are other routes to take:

Credit card. If you’re already shouldering a lot of credit card debt and are paying a lot in interest fees, this might not be the best choice for you. But if you need to borrow a small amount — and can reasonably pay off your balance in a short amount of time — then a credit card can provide easy access to funding.

Personal line of credit. Don’t need a lump sum upfront and anticipate needing to tap into funds for different purposes? Then a personal line of credit, which is similar to a credit card, might be a better fit.

Peer–to-peer loan. If you’re struggling to qualify for a personal loan with a traditional lender, you might have better odds of getting approved for a peer-to-peer (P2P) loan. Instead of being funded by a financial institution, P2P loans are funded by individuals who serve as investors and are loaning the money. The lending criteria for P2P loans tend to be less stringent than traditional loans.

Home equity loan or home equity line of credit (HELOC). If you’re a homeowner who has built equity in your home, you could qualify for a home equity loan or home equity line of credit (HELOC). Because you are offering your home as collateral, you typically can qualify for higher loan amounts. Plus, home equity loans or HELOCs tend to have less stringent lending criteria.

If possible, consider waiting to take out a personal loan until you’ve worked on building your credit, reduced your debt loan, are earning a higher income, or have a more stable employment history.

Recommended: Can a Personal Loan Hurt Your Credit?

The Takeaway

The question of how much can you get a personal loan for will be answered differently depending on a handful of factors, such as what’s available from the lender, your credit score, debt-to-income ratio, and employment history. Plus, it’s important to get your head around what you can reasonably afford to pay each month.

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

FAQ

What is the maximum personal loan amount?

Most lenders offer a personal loan maximum amount of $50,000 to $100,000. But just because a lender offers that doesn’t mean you’ll get approved for it. You’ll also want to be mindful about not taking on more than you need and can pay back on time.

How much is too much to ask for a personal loan?

There’s no specific number that constitutes “too much” for a personal loan, up to the maximum which is typically $100,000. That said, if you’re thinking, “how big of a personal loan can I get?” but you don’t have a good reason to take out such a large sum of money, that’s a sign your loan goals are too large. Another red flag: you can’t afford the monthly payments.

Does the size of a personal loan affect a credit score?

As your personal loan payments are reported to the three major credit bureau agencies, the size of your personal loan can impact your credit. For example, your payment history is the largest contributing factor, and if you take out too large a loan and struggle to make payments on time, that can negatively impact your score.

Can I get a personal loan if I have existing debt?

Yes, it’s possible to get a personal loan if you have existing debt. Prospective lenders will review your ability to repay the personal loan and see whether you’ve handled debt responsibly in the past. An example of getting a personal loan with existing debt could be a mortgage holder getting a personal loan to buy new furniture.

How can I increase my chances of getting approved for a larger loan?

You may be able to increase your personal loan maximum amount by building your credit score, increasing your income, shopping around with different lenders, and having a co-applicant or co-signer on the loan.

Photo credit: iStock/Ridofranz

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

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