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If you have bad credit and/or challenges getting approved for a personal loan or other loan, a second chance loan may offer a great opportunity to help you work toward a stronger credit score. Read on to learn how to use a second chance loan to your advantage, the pros and cons of second chance loans, how to apply, and more.

What Is a Second Chance Loan?

Second chance lending allows borrowers who may have trouble getting a loan at another lending institution to borrow money. They are loans earmarked for those who have experienced financial difficulties in the past, such as a low credit score or a bankruptcy in their history. It’s important to note that second chance loans usually come with a high interest rate and possibly additional fees. Note: SoFi doesn’t offer second-chance loans; it does, however, offer credit card consolidation loans and emergency loans, which may help those who are facing financial challenges.

How Do Second Chance Loans Work?

Second chance loans work as a short-term financing vehicle by allowing borrowers to make regular payments that can show credit agencies that they are capable of working toward a healthier credit history. Borrowers can then obtain a new loan with more favorable terms, allowing them to pay off the second chance loan.

Some second chance loans come with an unusually short term, and the loan must be paid in full by the end of that term.

Types of Second Chance Loans

There are several types of second chance lending, including:

•   Personal loans: Personal loans usually don’t require you to put up collateral (such as a car or another item) for the loan. You may use a personal loan for just about anything, from consolidating debt to paying for something specific, like home improvements or medical bills. In the case of a second chance loan, personal loan rates may be higher than is typical, but the credit score needed for a personal loan may be lower than usual.

•   Secured loans: Secured loans require you to put up collateral in order for you to borrow. They usually have lower interest rates because you put up an asset to secure them. The downside? You risk losing the pledged asset if you stop making payments on your loan. However, successfully repaying the loan can help borrowers cultivate a better credit score.

•   Credit-builder loans: Credit-builder loans help individuals improve their creditworthiness. The money you borrow goes into a bank account while you make monthly payments. Once you pay off the loan, you receive funds, and your successful repayments are reported to credit bureaus.

•   Second chance auto loans: Second chance auto loans, also called bad credit auto loans, are designed for drivers who have trouble obtaining traditional auto loans. Auto lenders will consider your credit score, income, and other factors, though you can expect to pay a higher interest rate for a second chance auto loan.

Recommended: Personal Loans After Bankruptcy

Who Qualifies for a Second Chance Loan?

Second chance loans typically go to consumers with a bad credit history. For example, second chance auto loans go to those with a FICO® credit score under 640; those rebuilding their credit; or those who have no credit score at all (such as new graduates and young workers). Lenders consider every decision on a case-by-case basis, however. Check with a variety of lenders to learn more about your options.

Pros and Cons of Second Chance Loans

There are several pros and cons of second chance loans, which we’ve organized in a table below:

Second Chance Loans vs. Payday Loans

Payday loans are short-term loans with high fees. You usually write a post-dated check to the loan servicer for the full loan amount, then repay or have money deducted from your account. For example, if you write a $400 check and your lender charges a $50 fee, you’d receive $350 from the lender in cash.

Payday loans differ from second chance loans, which you can repay in monthly installments. You must pay payday loans in full at the end of the term (usually a week or two later, to coincide with payday).

It’s important to be careful with payday loans; payday loans can keep borrowers in debt because if a borrower fails to pay off the loan at payday, it often rolls over, automatically borrowing a greater sum to cover the first. A downward debt cycle often results. It’s also important to recognize their extremely high borrowing costs. For example, let’s say you take out a $300 loan with a 15% fee. This is equivalent to a 460% annual percentage rate (APR) — the interest and additional costs for a loan. In comparison, a new car loan usually carries a 4% and 7% APR. Read up on personal loans vs. payday loans to understand more about risk.

Recommended: How a Personal Loan Can Boost Your Credit Score

How to Apply for a Second Chance Loan

You can apply for a second chance loan through these four steps:

•   Review your credit: Check your credit scores before you apply for a second chance loan to identify areas where you might be able to improve and where there might be errors on your credit report.

•   Compare rates among lenders: You can compare several rates and terms among banks, online lenders, and credit unions. Check the fees and interest rates.

•   Apply: Apply through a formal loan application. Your lender may require verifying documents, such as pay stubs from your job and other identification.

•   Repay your loan: Once your lender approves your loan, you will receive the money, which you can begin repaying in installments.

How to Rebuild Credit After a Second Chance Loan

Taking out a second chance loan may help borrowers rebuild credit, but on-time payments are key. After you receive your loan, set up autopay so you don’t miss payments. “Your credit score is based on factors such as how often you pay your bills on time, how many loans and credit cards you have, what your debt is relative to your credit limits, and the average age of your accounts. It also considers negative financial events, such as judgments, collections, and bankruptcies,” explains Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

Avoid taking on more credit card debt, look for ways to pay down debt faster, and don’t close any old credit cards, which can cause your credit to drop. Also avoid opening new credit or loans and check your credit report at least once a year to ensure everything looks correct.

The Takeaway

Second chance credit funding with a second chance loan can offer the opportunity for people to recover from a financial misstep in their past. If you need money to cover a medical bill, a car, or need a plan to rebuild your credit, a second chance loan may be the way to go. But be sure to ask about the fees and interest rate so you understand the present and future costs.

Borrowers who work to maintain a good credit score will find that more borrowing options open up. Consider offers from multiple lenders to find the interest rate and terms that are best suited to your needs.

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 credit score do you need for a second chance loan?

Second chance loans are designed for borrowers with lower credit scores who have trouble getting approved for a traditional loan. If you have a credit score that falls into the “fair” category (between 580 to 669) or the “poor” category (below 580) and can’t otherwise get a different type of loan, you may qualify for a second chance loan.

Can a second chance loan improve your credit score?

Yes, a second chance loan can improve your credit score as long as you make regular, on-time payments. It’s also a good idea to avoid taking on more credit card debt, not closing any old credit cards, and avoiding opening new credit or loans. Consider checking your credit report at least once a year to ensure there are no reporting errors — people find errors on their credit reports yearly!

Are there second chance loan scams to watch out for?

There are second chance loan scams that prey on unsuspecting people. Beware of receiving unsolicited offers (especially through text messages or other informal forms of communication) and offers of guaranteed approval. Watch for hidden fees and unexpected costs, and be alert to high-pressure sales tactics. It’s a healthy sign if you feel like you are pursuing the loan, instead of the loan pursuing you.

What are alternatives to second chance loans?

If you need a quick cash infusion, you may see if you can become an authorized user on a credit card, obtain a debt consolidation loan, or opt for peer-to-peer lending from a group of investors. You might also borrow from a friend or relative, get a retirement account loan, or tap into your home’s equity. Your lender may have some other ideas after a professional considers your credit score and other qualifying factors.

Can you get a second chance loan after bankruptcy?

Yes, you can get a second chance loan after bankruptcy. However, your lender will have certain requirements you must meet in order to qualify. Check with several lenders to learn more about your options and whether second chance credit funding or another type of emergency loan makes sense for you.

Photo credit: iStock/EmirMemedovski

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-Q226-049

Gig work offers the flexibility and freedom to earn income and follow your passions. A personal loan can help you pursue your dreams and cover a wide range of expenses. In some cases, though, being a gig worker can make accessing traditional financial products more difficult.

That said, a personal loan may still be within reach: you just have to know what lenders are looking for and how to prepare. Here’s a look at personal loans for gig workers, what to know about qualifying and how to choose one.

Who Is Considered a Gig Worker?

Gig workers are often self-employed independent contractors, or freelancers who earn money by taking on short-term projects or ongoing work outside of traditional W-2 employment. Dog walking, driving for ride share companies, online tutoring, or freelance writing or design gigs are common examples of gig work.

To make a full living, many gig workers will take on more than one job at the same time. Others have a W-2 job and take on gig work as a way to supplement their income on the side.

Can Gig Workers Get Personal Loans?

A personal loan is a type of installment loan that can be used for almost any purpose. For instance, you could use one to consolidate credit card debt, fund a new small-business venture, or accomplish home improvement projects. Lenders offer you a lump sum that you then payback each month with interest. Anyone can get a personal loan, though getting a personal loan while self-employed can be a little more challenging.

Challenges Gig Workers Face When Applying

Before approving you for a loan, lenders typically review your financial picture to confirm you have enough steady income to make payments on time. This process may be a bit more involved for gig workers, who may have to prove more sources of income than traditional W-2 employees. That said, lenders regularly approve gig workers who can demonstrate a regular flow of monthly income.

Recommended: Emergency Loans

How to Qualify for a Personal Loan as a Gig Worker

There are several typical personal loan requirements. Lenders will need verification of identity, proof of stable income, and a strong credit history. You’ll need to be a U.S. citizen, at least 18 years old, and provide a government-issued ID such as your driver’s license, passport, or Social Security card.

When you apply for a personal loan, your lender will pull your credit score from one of the three credit reporting bureaus: Experian®, TransUnion®, and Equifax®. Applicants with higher scores are more likely to get approved and are typically offered more favorable interest rates. Those with lower scores may find it harder to get approved, and if they are, they may be offered higher interest rates.

What Documents You’ll Need

All applicants for loans need to prove their income, but for gig workers this can be a trickier process. For gig-worker loans, gather one to two years worth of tax returns, several months worth of personal or business bank statements, as well as 1099s and any W-2s you might have. If you do work through a gig app platform, you can download your payout histories and include those as well.

How to Choose the Right Personal Loan as a Gig Worker

There are several factors to consider when choosing a personal loan. First, only borrow what you need. The larger the loan, the more you’ll typically pay in interest over time.

When comparing options, look closely at both interest rates and APR (annual percentage rate). The personal loan interest rate reflects the cost of borrowing the principal, while APR includes interest and mandatory fees, giving you a more complete picture of the loan’s true cost.

Also consider the loan term, which is the number of months you have to repay the loan. Longer terms usually carry lower monthly payments, but higher interest rates. So these can be more costly in the long run than shorter terms with higher monthly payments and lower interest rates.

Finally, some lenders charge prepayment penalties if you want to pay back your loan early. Check the fine print, and if possible, choose a lender that doesn’t include this restriction.

Tips to Improve Your Approval Odds

There are several levers you can pull to improve your odds of qualifying for personal loans for gig workers.

Lenders will typically look for a personal loan credit score of at least 610. If your score falls below that, it’s worth taking time to try to bump it up. Your credit score is based on your history of making on-time payments, the amount you owe, the length of time accounts have been opened, your credit mix, and whether you’ve been seeking additional credit recently.

To cultivate a good score, focus on paying your bills on time, reducing the amount of debt you carry, and avoiding seeking new credit in the run up to your loan application.

Your lender may also look to see if you have a good debt-to-income (DTI) ratio for a personal loan. This is how much debt you carry (your regular monthly debt payments) divided by your gross monthly income. Lenders typically look for a DTI of 36% or lower, although applicants who are using a personal loan to consolidate credit-card debt may be approved with a higher DTI.

Other Loan Options for Gig Workers

Personal loans aren’t the only options available to gig workers. If you’re looking to fund a business of your own, you might consider a business loan, or even a micro loan to provide working capital or buy inventory, supplies, and equipment for example.

If you just need a quick cash infusion, there are fintech and gig-focused lenders who work around gig workers’ financial situations offering flexible alternatives, even for those with less-than-perfect credit. Before signing with an alternative lender, be sure you fully understand the terms of repayment, fees and interest.

One thing to avoid: predatory lending products, such as payday loans. These may seem like a fast fix, but they often charge exorbitant fees and can trap you in ever increasing cycles of debt.

The Takeaway

A personal loan may fit as a loan for gig workers, it may just take a bit more preparation than for traditional employees. With the right documents, a solid credit profile, and a clear sense of what you need, you will be in a strong position to find the loan that works for you.

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 income documentation do gig workers need to apply for a personal loan?

Gig workers should provide as much information about their income as possible, including tax returns, pay stubs, bank statements, 1099s, and W-2s (if applicable). Gig-worker loans can require a bit more documentation than those for salaried workers, but it’s not impossible to get a personal loan as a gig worker.

Can gig workers get a personal loan with bad credit?

It is possible to get a personal loan with bad credit, however it may be difficult and choices may be limited. What’s more, loans to individuals with poor credit represent a greater risk to the lender, so the lender will often charge a higher interest rate to compensate. This makes borrowing more expensive. If it’s possible to wait, it may be worth taking steps to improve your credit score before taking out a loan.

Can you use a personal loan to grow your gig business?

You can use a personal loan to grow your own gig business, but it’s important to read the fine print on the loan agreement. Some personal loans expressly forbid commercial use. Make sure the loan you’re considering allows you to use it for business purposes. And give careful consideration to borrowing money to invest in a business — even if it’s your own. You’ll have to repay that loan, with interest, whether or not the business succeeds.

How does inconsistent income affect your loan terms as a gig worker?

Lenders see inconsistent income as a risk when it comes to gig workers’ loans. As a result, you can expect a lender to offer loan terms that may include a higher interest rate, shorter repayment term, and a lower borrowing limit.

Does applying for a personal loan hurt your credit score?

When you formally apply for a personal loan, your lender will make what is known as a “hard inquiry” on your credit report. This can cause a small temporary dip in your credit score. However, if you manage your loan well, it can ultimately have a positive effect on your credit score.

Photo credit: iStock/Pekic

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-Q226-048

Paying off debt ahead of schedule feels like a financial win, but with some personal loans, it could actually cost you money. Certain lenders charge a loan prepayment penalty when you pay off your loan early, which can offset or even exceed the interest savings you were counting on.

Before you put that extra cash toward your loan balance, it’s worth taking a closer look at the fine print to make sure early repayment is actually the right move for you.

What Is a Prepayment Penalty?

When you take out a personal loan, your lender charges interest. This is how it earns revenue on the money you borrow. However, if you pay off the loan early — partially or in full — that revenue stream dries up. To compensate, a lender may charge a prepayment penalty for the money it’s missing out on.

How Do Prepayment Penalties Work on Personal Loans?

Personal loans are a type of installment loan. They can be used for a variety of purposes. You might use one as a credit card consolidation loan, for example. Or you could use one as a home improvement loan.

You’ll pay it back the loan in regular monthly payments that include interest. Penalties for paying off a personal loan early will typically vary by lender.

How Prepayment Penalties Are Calculated

In general, prepayment penalties are calculated in one of three ways: as a percentage of the loan balance, as a fixed fee, or as an equivalent of a certain number of months worth of lost interest. Depending on the method your lender uses, the penalty could range from a few hundred to a few thousand dollars, so it’s important to know what you’re dealing with before making any extra payments.

Are Prepayment Penalties Common on Personal Loans?

Prepayment penalties are relatively uncommon for personal loans, though some lenders do charge them. They are much more common for mortgages, where lenders stand to lose years of interest revenue if a borrower pays off early. Personal loans, by contrast, tend to involve smaller amounts and shorter terms of just a few years, so the stakes for lenders are lower. This is why you’ll often see offers for a no prepayment penalty personal loan.

Recommended: Personal Loan Origination Fees

Benefits and Drawbacks of Paying Off a Personal Loan Early

The primary benefit of paying off a personal loan early is the potential to save money on interest. Imagine you took out a $20,000 loan with a 10% interest rate that you’re paying back over five years. Your monthly payment would be approximately $425, and over 60 months you’d make $25,500 in payments including interest.

If you paid an extra $100 a month, you’d pay off your loan 15 months early and you’d make a total of $23,625 in payments, including interest. That’s a savings of $1,875.

That said, if there is a loan prepayment penalty, paying off your loan could cost you more than it saves you. In the example above, if you had a prepayment penalty of $2,000, you would be in the hole $125 if you prepaid the loan. The bottom line: It is very important to know what your prepayment penalty is, and to do the math, before you make any prepayments.

Another surprising drawback of prepaying your personal loan: paying off a loan early can hurt your credit score. That’s because it will likely impact factors such as your credit mix and your credit utilization.

How to Find Out If Your Loan Has a Prepayment Penalty

To find out whether an existing personal loan has a prepayment penalty, start by checking your promissory note. This is the contract you signed when you closed on your loan. Search digital documents for phrases like “prepayment” or “early repayment.”

You can always call your lender and ask directly whether your loan has a prepayment penalty or ask for a loan pay-off statement, which will detail how much it will cost to pay off your loan, how much money you could save on interest, and any prepayment penalty.

Recommended: Using a Personal Loan for Major Life Events

How to Avoid Prepayment Penalties

The best way to avoid loan prepayment penalties is to steer clear of loans that include them. Lenders are required to disclose all fees before you accept a loan. So when you’re shopping for one, be careful to check the fine print, checking loan documents for a prepayment clause.

If you already have a loan, and it has a prepayment penalty, you may still have options. Check your loan documents. While you may be penalized for paying the loan off in full, you may be allowed a partial payoff that would allow you to pay a little bit each month without penalty.

Prepayment penalty terms may also shift over the life of your loan. For instance, while there may be a penalty early in the loan term, you might get the chance to pay off your loan in full closer to the end of your loan term without penalty. As a result, if you are considering prepaying your loan, you might want to wait a couple years for the penalty to decrease.

The Takeaway

Prepayment penalties are relatively uncommon for personal loans, but they do exist, and ignoring them could cost you. Before making any extra payments, be sure to check your loan’s promissory note or contact your lender to understand what fees may be involved.

If your loan does have a penalty, run the numbers and make sure the fees don’t outweigh the advantages of early payments. When shopping for a personal loan, look for loans without prepayment penalties, so you have the flexibility to pay it off on your own terms.

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 difference between a hard and soft prepayment penalty?

A hard prepayment penalty is a fee charged when you repay a loan early by any means at any time. A soft prepayment penalty, on the other hand, is applied only when you refinance your loan or pay off a significant portion of the balance during the first years of your term.

Can you negotiate away a prepayment penalty?

It is absolutely worth contacting your lender to negotiate this fee, and your lender may reduce it. Because of the nature of the fee, however — lenders are using it to recoup lost revenue — it may be unlikely that your lender will waive the fee entirely.

Do all lenders charge prepayment penalties on personal loans?

Not all lenders will charge a loan prepayment penalty. In fact, they are relatively rare for personal loans. So if you are looking to borrow, shop around for a no prepayment penalty personal loan.

Will paying off a personal loan early hurt my credit score?

Paying off a personal loan early could hurt your credit score. That’s because your credit score is based on factors, including credit mix and credit utilization. Paying your loan off early can have an impact on these. However, whatever drop you experience in your score should be relatively small and temporary.

Is it still worth paying off a personal loan early if there’s a prepayment penalty?

Yes, it’s worth paying off your personal loan early if the amount you save in interest payments is more than the amount of your penalty.

Photo credit: iStock/Pekic

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-Q226-047

Moving is part of many people’s lives. Maybe you’re heading to grad school a couple of towns away. Or perhaps you have a job offer hundreds of miles away that you’re excited to accept.

Whatever the reason, the logistics of getting your stuff from the old place to the new one will need wrangling. Here, you’ll learn more about your options for moving, how much it may cost (from a couple of hundred dollars to thousands), and how to afford the expense.

DIY Moving Costs

Yes, you could move yourself. This can be a smart decision for a small, local move, and it can help keep costs within your budget.

Exactly how much this might cost will be based on several factors:

•   Cost of transportation: Can you borrow a friend’s van, or do you need to rent one?

•   Cost of the packing materials you use: recycled boxes and old newspapers vs. the pros’ higher-end and job-specific supplies

•   How much stuff you’re moving and whether you need to figure out insurance for any pricey items

•   How far you’re going

•   Whether you need to store some things temporarily

As you might guess, packing up the contents of a dorm room and moving it half a mile away to the apartment you’re renting with friends will cost one amount. Supplies might cost, say, $100.

Loading up the contents of the sweet bungalow you’ve been living in for a couple of years and depositing your worldly possessions at a new place 1,000 miles away will be a much more involved and expensive undertaking. Packing materials alone could be a few or several hundred dollars, and renting a moving truck could be anywhere from $120-$2,300, depending on the vehicle size, the length of the trip, and the local cost of living. Also, you’ll likely have to pay to stay somewhere overnight and spend at least a couple of hundred dollars on gas, dollies, and insurance.

💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Full-Service Moving Costs

If you decide a full-service move meets your needs, you’re probably going to want to gather some estimates so you can nail down the details and be ready when it’s time to go. Some pointers as you do so:

•   Check ratings and references carefully. There are plenty of instances of fraud and scams in this realm, and it’s wise to protect yourself.

•   Booking your truck four to six weeks in advance is typically a good rule of thumb — maybe even further out if you’re moving in the busy summer months.

•   Professional moving companies can give you an estimate based largely on how many rooms of furniture you have. Many have websites, so you can often get a quick estimate online. A typical local (or fairly local, not long-haul) move for a three-bedroom home costs about $900-$2,000.

The average moving costs if you relocate cross country can easily be twice that or more, about $4,000-$8,000 for distances of 1,000-2000 miles. Keep in mind, specifics will vary. Oversized or extremely heavy items might cost you extra, as could lots of stairs or things that need to be taken apart and put back together.

Recommended: Average Personal Loan Rates

Extra Moving Costs to Think About

Then there are the extras that go along with getting out of one place and into another.

•   Transportation: If you’re taking your car across the country, you’ll probably want to get a tune-up before you go. And then there’s gas, hotel stays, and eating on the road. Having a car transported instead of driving it yourself could cost anywhere from $1,000 to $2,000.

If you’re in a hurry and decide to fly, that’s another expense. And if you’re taking a pet, you may have to add a little bit more to your overall bill, depending on the mode of transportation you choose for your furry friend.

•   Getting into your new home: Don’t forget about deposits you might have to make at your new location. That could be anything from first and last month’s rent and a pet deposit at a new apartment, to utility deposits at a new house.

•   Home repairs and cleaning: Be ready to pay for some home repairs on both ends of your move. You may have to make some quick fixes to get out of your rental without losing the deposit or maybe even major repairs if you’re selling a home. When you get to your new location, you could find some unexpected problems. Or you may just want to hire someone to come in and clean so you can cross that off your ever-growing moving to-do list.

•   Starting out fresh: You’ll probably need to buy some things at your new home (like curtains, curtain rods, hangers, bedding, etc.) that are easily overlooked. Then there’s that fridge to fill. All those little costs can add up.

•   Cash for tips: You’ll likely need to withdraw money from an ATM to thank people for their help when you move. Tips for the movers. Tips for the handyman or housekeeper who helps you get things in shape. Tips at your hotel. Tips for waitstaff at the restaurants you’ll be eating at until you get your new place up and running, or at the very least, tips for the pizza delivery guy.

Recommended: Typical Personal Loan Requirements Needed for Approval

Financing Your Move

If you have enough room on multiple credit cards, you could go that route, but should you? Interest rates can be considerable.

Or would a personal loan make more sense for you to cover all those costs, big and small?

Remember, even if you’ll be reimbursed by your employer, it’s very likely you’ll be paying at least some moving costs up front, since moving expense deductions are generally not available for the majority of taxpayers under current IRS rules (except for certain members of the U.S. Armed Forces). And the longer those expenses sit on a credit card, the more interest racks up.

The Takeaway

Even if you have a small amount of stuff and aren’t moving very far, moving takes time, energy, organization, and money. With the average professional move costing a couple of thousand dollars, you may want to plan carefully for this expense. It’s likely not a good reason to dip into your emergency fund, so you may want to save in advance or consider a personal loan. If you qualify for a personal loan, your interest rate may be lower than a credit card, which can free up some cash and reduce your financial stress.

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

Is it cheaper to move yourself or hire professional movers?

DIY moves are usually more affordable for short-distance relocations, especially if you can borrow a vehicle and use inexpensive packing supplies. However, costs for truck rentals, gas, insurance, and lodging can add up quickly for long-distance moves, sometimes making professional movers a more practical option.

What factors affect the total cost of a move?

The total cost of a move depends on distance, how much stuff you have, transportation method, and whether you hire professional movers or do it yourself. Additional factors such as packing materials, insurance, storage, and seasonal demand can also significantly increase the final price.

Why do moving costs often end up higher than expected?

Moving costs often rise because people forget to budget for extra expenses beyond transportation, such as lodging, deposits, and utility setup fees. Unexpected needs such as furniture replacements, home repairs, and daily travel expenses during the move can also quickly add up.

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-Q226-105

Loan stacking is the process of applying for multiple loans within an extremely short timeframe to get a lot of money fast. It typically occurs with borrowers applying online for funding, and both individuals and businesses may pursue this path to secure cash.

While loan stacking isn’t technically illegal, it can lead borrowers to take on more debt than they can comfortably repay, potentially wreaking havoc on their credit scores. Meanwhile, lenders stand to lose a lot of money via loan stacking, as borrowers may default on these loans at a higher rate than with single loans. For this reason, some have policies against it written into their loan terms.

In short, loan stacking is probably not a smart move, even if you’re trying to shore up your finances quickly. Here’s a closer look at this practice.

Defining Loan Stacking

Loan stacking is defined as taking out multiple loans in a short period of time in order to access large amounts of money. It typically happens via securing loans online.

While many consumers have multiple personal loans or credit cards, loan stacking is different because of the speed with which the loan applications are submitted and processed.

Some people and businesses may be legitimately trying to secure multiple loans (say, they’ve discovered they can’t increase the amount of a personal loan they already have and urgently need to fund major home repairs).

However, others who engage in loan stacking may have no intention of ever repaying the loans and just want access to large amounts of cash fast. This can constitute loan stacking fraud.

How Loan Stacking Works

Given the speed with which many online lenders approve applications — faster, sometimes, than hard inquiries can show up on a credit report — borrowers may be able to secure multiple loans from different lenders in quick succession. When that happens, the borrower may be approved for large amounts of credit that they might not otherwise have qualified for. (A lender might have declined to offer a loan if the applicant’s credit report reflected the other loans being sought.) With a significant amount of debt secured, these borrowers could default on one or all of their loans.

That said, many financial institutions are wise to the ways of loan stacking and may include language against it in the fine print of the contract you sign to apply for the loan.

That means that if you’re engaging in loan stacking, you’re breaking the contract, which could nullify it or, in extreme cases, constitute fraud.

Recommended: What Are Personal Loans Used For?

Risks and Consequences of Loan Stacking

If you feel you need a lot of money in a short amount of time, loan stacking can be tempting. However, there are some serious risks and consequences to consider.

•   Increased debt burden: Obviously, if you borrow a lot of money, you’re going to owe a lot of money — more than you may be reasonably able to pay off. This can add to your financial stress and keep you from other goals, such as saving for the down payment on a house.

•   High interest costs: The vast majority of loans will cost you money over time. Even if you qualify for interest rates on the lower end of the spectrum, when you have multiple loans at the same time, interest can quickly add up.

•   Potential default: If you fail to repay your loans on time, they may go into default and be sent to collections. This can negatively impact both your credit score and your financial well-being. Collections agencies can call you to collect a debt, but they’re prohibited from repeatedly or continuously calling to harass you, and must stop contacting you if you request in writing that they do so.,

•   Negative credit impact: Aspects of loan stacking can negatively affect your credit score over time. (The amount you owe, for instance, accounts for 30% of the calculation. Getting a stack of loans will send debt higher and likely lower your score.) High interest charges and surging debt levels can cause you to make late payments or miss them altogether, further harming your three-digit number.

In these ways, loan stacking can have significant negative implications for your financial and overall well-being.

Recommended: Understanding Personal Loan Interest Rates

Legal and Ethical Considerations

Along with the negative ramifications on your financial standing and credit report, there are also legal and ethical reasons to think twice before loan stacking.

•   As mentioned above, some lenders have explicit policies against taking out multiple loans at the same time. While loan stacking may not technically be illegal, this means that you’d be breaking the lender’s rules.

•   If you carefully read the fine print on the application, you may see that you’re required to disclose existing debts and liabilities, such as a personal loan, a home equity line of credit (HELOC), or other loans or credit lines. These disclosure requirements mean that if you provide false or incomplete information, it may be considered misrepresentation on the application. At the very least, the lender may have grounds to take action, including voiding the contract, if it discovers what you’re doing.

•   In more serious cases (say, in which other crimes occur), fines, legal fees, and even jail time could be involved.

Alternatives to Loan Stacking

If you’re making the wise decision to avoid loan stacking, there are alternatives that could help you get the financial relief you need without the risks that this tactic carries.

•   Taking out debt consolidation loans: If the reason you’re looking to borrow money is to pay off other money you’ve borrowed, debt consolidation might be the right answer. This involves taking out a new personal loan to consolidate your debt (or balance transfer credit card) to pay off your existing debt and simplify your life by making just a single payment each month.

This financial move, if it involves personal loans, may offer the added bonus of lowering your overall interest rate.

•   Participating in credit counseling: Bad credit habits are unlikely to resolve themselves without intervention. This means that even if you successfully pay down your debt, you might find yourself right back in the same “I owe too much” place in a few months or years. Credit counseling can help you get out of debt and ensure you avoid it going forward.

Counseling is often offered as a complimentary service or for a low fee by nonprofit organizations. A certified counselor can help you assess your situation and take steps to better manage your money.

•   Negotiating with current lenders: Even if they don’t advertise it, many lenders will negotiate with you to help lower your monthly payments or extend the time you have to repay your loan. Extending a loan can involve paying more interest over the life of the loan, but it may be a wise move if money is tight and you’re struggling with debt.

•   Exploring other funding sources: Taking out a single, large personal loan might be a better idea than loan stacking. In addition, you could also look into borrowing funds from friends and family or peer-to-peer (P2P) lending, a method of borrowing in which people borrow and lend money to one another without a bank being involved.

If you’re considering loan stacking, it may be a smart step to consider these alternatives and find one that fits your current situation.

Recommended: How to Apply for a Personal Loan

The Takeaway

Loan stacking, taking out multiple loans online from different lenders in a short time frame, can be a dangerous move that can worsen a bad financial situation. It can lead to considerable debt and hefty interest charges, harming your credit score and your financial and emotional status.

If you need cash quickly, other options, such as securing a single personal loan, may be a better path forward.

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

Is loan stacking legal?

While loan stacking is technically not illegal, some lenders may have explicit policies against it. This means you may not be qualified for additional credit or borrowed funds if the lender sees that you’ve recently successfully applied for another loan. Additionally, using someone else’s name or personal information to apply for a loan is identity theft or identity fraud, which is a crime.

Can you stack personal loans?

While it’s certainly possible to have more than one personal loan, loan stacking on purpose can backfire. If you borrow more than you can afford to pay back on time, you can tank your credit score. Furthermore, these days, many lenders are wise to loan stacking, and they may not approve your application if they see another recent hard credit check on your file.

What are the risks of loan stacking?

Loan stacking can quickly put the borrower deeply in debt, potentially making it impossible to repay the loans in a timely fashion, which can be devastating for their credit score and financial well-being. Additionally, since many lenders see loan stacking as a risk to their business, some have beefed up their underwriting process to prevent loan stacking, so you may simply be denied. Finally, if you falsify any information on your loan application or apply for multiple loans with no intention of repaying them, you may be guilty of application fraud, which can lead to fines and other consequences.

Photo credit: iStock/porcorex

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