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Whether you’re buying a house or a car, financing a wedding or vacation, embarking on a major home renovation, paying for rising medical costs, or even consolidating debt, you might need to take out a loan.

But what about when you’re retired?

Even though they don’t earn a traditional income from a paying job, retirees can still take out loans. Requirements for retirees to secure a loan might be a little stricter, but it’s certainly possible.

Below, we’ll dive into loans for retired people — how they work, common types, and where to find them.

What Are Retiree Loans?

A retiree loan is any loan that you take out in retirement. It doesn’t refer to one specific type of loan, but rather a collection of loan types available to anyone in retirement, as long as they qualify.

Qualifying for a loan as a retiree can be more challenging than someone who is still employed full-time, since lenders like to see steady income. But many retirees have reliable sources of income outside of a job that can help them qualify.


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

Considerations for a Loan

When considering loans for retired individuals, lenders may consider a number of income sources, as well as an applicant’s debt-to-income ratio and credit score.

Retirement Income

One of the main sources of income for seniors who no longer work is their retirement accounts. If you are retired, you might receive regular payments from an IRA, 401(k), pension, and/or Social Security.

Collectively, these accounts make up your retirement income. And they may be significant enough to take out a retiree loan, like a personal loan, car loan, or even a mortgage.

Fixed Income

Retirees may have other sources of fixed income beyond their retirement income. For example, retirees might earn income from investments, earn annuity income, or receive spousal or survivor’s benefits. Retirees may also generate revenue from rental properties.

If any of these are limited sources of income — that is, they’ll run out eventually — the lender might require proof that you’ll at least receive that income for a set number of years. Without that proof, they might not factor in that source of income when determining loan eligibility.

Some retirees continue to work, whether full- or part-time or even as a contractor. If you’ve taken up a side hustle, like driving for a rideshare service or acting as a consultant in the field from which you retired, your 1099 income may also help when applying for a loan in retirement.

Assets

Retirees who have a significant portion of their money tied up in assets may be able to leverage those assets to secure a loan. For example, mortgage lenders might offer a securities-backed loan.

Securities-backed loans offer retirees liquidity without selling their assets. Instead, the lender can claim ownership of your assets — stocks, bonds, and real estate, for instance — if you default on your loan.

Because investment values fluctuate, a lender will likely consider only a reduced value of your assets (up to 70%). This protects them in the event that your assets decrease in value during the life of the loan.

Debt-to-Income Ratio

Lenders consider more than just your income when you apply for a loan, especially in retirement. They’ll also look at your debt — and thus your debt-to-income (DTI) ratio.

Your debt-to-income ratio is a calculation of all your monthly debts divided by your gross monthly income. This might include credit card debt, mortgage payments, car loans, personal loans, and even student loans.

For example, if your monthly debts total $2,000 and your monthly income is $10,000, your DTI ratio is 2,000 / 10,000. That’s 0.20, or 20%.

The higher your DTI ratio, the less likely a lender is to approve you for a loan. While requirements will vary by lender and the type of loan you’re applying for, you’ll likely have a harder time securing a loan if your debt-to-income is 50% or higher.

Credit Score

As with any other loan, lenders will also factor in your credit score when you apply for a retiree loan. By improving your credit score, you increase your chances of getting a loan.

So what affects your credit score? Generally, five key factors can influence your rating:

•   Credit utilization

•   Payment history

•   Credit history length

•   Credit mix

•   New credit

Retirees generally have longer credit histories, especially if they keep credit cards open and have been paying a mortgage for decades. By paying your bills on time, keeping your credit usage down, and resisting the temptation to apply for new credit cards, retirees may be able to raise their credit scores ahead of applying for a larger loan in retirement.

Where to Find a Retiree Loan

Retirees can look for loans in the same places that other borrowers do. Financial institutions like banks and credit unions generally offer a wide range of loans, from mortgages and car loans to personal loans and debt consolidation loans. Your own bank or credit union is a good place to start.

Where you get a retiree loan can also depend on the type of loan. For example, if you’re purchasing a new car, the dealership may help you find financing. When you work with a real estate agent to buy a home, they might put you in touch with a lender.

Common Retiree Loans

Retirees have access to a wide range of loans depending on their needs. Here are some of the most common types of retiree loans you might come across:

Home Equity Loan

A home equity loan allows you to borrow against the equity you’ve built in your house. You generally need to have paid off at least 15% to 20% of your home to have enough equity for a loan; the more you’ve paid off, the larger the loan could be.

You might use a home equity loan to fund a renovation project, medical payments, or even debt consolidation. But remember, your house serves as collateral, so it’s important to make your payments.

Reverse Mortgage Loan

Reverse mortgage loans are available to people who are 62 or older who have paid off most of their mortgage or own their homes outright. When you get a reverse mortgage, you retain the title to the home and don’t have to pay the loan (and interest) until the last surviving borrower has moved out permanently.

Reverse mortgage loans are not for everyone. Weigh the pros and cons of a reverse mortgage before moving forward.

Debt Consolidation Loan

Retirees who are struggling with various debts may choose to consolidate in a single loan, ideally at a lower interest rate. Consolidating your debt means only a single monthly payment, but it could extend the number of years it’ll take you to be debt-free.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

401(k) Loan

If you’re strapped for cash ahead of retirement, you may be able to borrow from your 401(k) account balance before you start receiving distributions. Doing so has certain tax implications to review with your accountant.

Unfortunately, you cannot take out an IRA loan, though if you’re 59 ½ or older, you may be able to make early withdrawals penalty-free.

Personal Loan

You can take out a personal loan for almost anything — wedding costs, home improvements, even credit card debt consolidation. Personal loan interest rates and terms vary depending on the length of the loan. For example, SoFi offers personal loans with low interest rates, and there are no fees required.

Just make sure you have the right credit score for a personal loan before applying. Bad credit borrowers may qualify, but the interest rates can be significantly higher.

Payday Loan

Seniors in retirement may also take out payday loans in an emergency, but keep in mind that there are a lot of risks with payday loans, including high costs.

Requirements for Getting a Personal Loan as a Senior Citizen

Lenders have similar requirements for all applicants, including retirees. The notable difference is that your sources of income will be different from an employed individual receiving a steady paycheck.

Here’s what lenders will generally look for when deciding to approve your loan application:

•   Your sources of income (retirement distributions, Social Security, investment revenue, part-time work, etc.)

•   Age (some lenders may not give out loans to borrowers who are 75 or older)

•   Credit score

•   Debt-to-income ratio

•   Collateral or assets

The Takeaway

Retiree loans refers to any loan you take out in retirement. Depending on your needs and financial goals, it may make sense to apply for a personal loan, home equity loan, 401(k) loan, debt consolidation loan, or other loan type. Retiree loan requirements are similar to those of any other borrower; you’ll just have to demonstrate other sources of income since you’re no longer employed full-time.

You’ll also need a low debt-to-income ratio and a high credit score.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What are retiree loans?

Retiree loans are any type of loan you get in retirement. Retirees may take out personal loans, mortgages or reverse mortgages, home equity loans, and even debt consolidation loans.

What are the requirements for a retiree loan?

Requirements for a retiree loan are similar to those of other borrowers. Lenders will need to see all your sources of income, and you’ll also need a low debt-to-income ratio (generally below 50%) and high credit score (requirements vary by type of loan). You’ll also need assets to back up a secured loan.

Where can I get a retiree loan?

Retirees can look for loans anywhere that other borrowers might apply for a loan. Common retiree loans include home equity loans, 401(k) loans, debt consolidation loans, and personal loans. Because retirees typically no longer have a traditional source of income (i.e., a paying job), they may have to meet additional requirements to qualify for a loan.

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Photo credit: iStock/SDI Productions

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Personal loans can be either secured or unsecured. A secured personal loan has collateral that backs the borrower’s promise to repay the loan. An unsecured personal loan does not require collateral, and the only thing backing the borrower’s promise to repay is their creditworthiness.

The collateral requirement is the main difference between secured and unsecured personal loans, but there are other differences that may inform your decision about which type of loan is best for your financial needs.

What Is a Secured Personal Loan?

A secured personal loan is a loan for which the borrower pledges collateral that the lender can take possession of if the borrower fails to repay the loan. Put in simpler terms: If you default on your car loan, for example, the bank can repossess your car. For the lender, collateral equals a certain level of security.

Collateralized loans are common for mortgage and auto loans. A home is collateral for a mortgage, and a vehicle is collateral for an auto loan. They are somewhat less common for personal loans, though.

A personal loan isn’t tied to a particular asset in most cases, so there’s not an obvious item to pledge as collateral. The asset pledged must be owned by the applicant, and the lender will evaluate its value to be sure it’s equal to the amount of money being loaned. In some cases, a physical asset such as a vehicle is put up as collateral, but the collateral could also be an asset like a savings account or certificate of deposit.

Pros of Secured Personal Loans

While it may seem like the lender benefits more with a secured personal loan, there may also be advantages for the borrower.

•   Lenders typically see secured personal loans as less risky than their unsecured counterparts because there is an asset to back the loan if the borrower defaults.

•   Borrowers may get a lower interest rate on a secured personal loan than they might on an unsecured personal loan.

•   Secured personal loans can be a good way for borrowers to build credit, as long as they make regular, on-time payments.

Cons of Secured Personal Loans

Things that a borrower might see as a drawback to a secured personal loan might be a benefit to the lender. But each party to the loan agreement takes risks.

•   The lender is able to recoup its losses by seizing the collateral if the borrower defaults on their secured personal loan. However, it may take a while to liquidate that asset. If the collateral is a physical asset, such as a vehicle, it may take some time to find a buyer willing to pay the price the lender has set.

•   For the borrower, the main drawback to a secured personal loan is the possible loss of the asset pledged as collateral if they default on their loan.

•   The application and approval process may include more steps for a secured personal loan than an unsecured one because the asset’s worth will need to be valued.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

What Is an Unsecured Personal Loan?

A personal loan that is backed mainly by the creditworthiness of the borrower is an unsecured personal loan. Sometimes called a signature loan, an unsecured loan does not require any collateral to guarantee the loan.

Defaulting on an unsecured personal loan can certainly have a negative effect on the borrower’s credit, but there wouldn’t be an asset to lose in addition.

Pros of Unsecured Personal Loans

Like their secured counterparts, unsecured personal loans can have benefits for both lender and borrower.

•   Lenders may be able to charge a higher interest rate on an unsecured personal loan because there isn’t any collateral to secure the loan. (This is a drawback for the borrower — see below.)

•   The borrower won’t lose an asset if they default on an unsecured personal loan.

•   The application process for an unsecured personal loan is generally much quicker than for one that’s secured because there is no asset to be valued.

•   Funds may be disbursed the same day or within a week, depending on the lender.

Cons of Unsecured Personal Loans

It may be relatively easy to find lenders who offer unsecured personal loans, but there are aspects that may be considered drawbacks.

•   Interest rates on unsecured personal loans may be higher than for secured personal loans because there is no asset backing the loan.

•   Some lenders may have minimum credit score requirements for approval of an unsecured loan, so applicants with poor credit may not qualify.

•   If the borrower defaults, their credit score may be negatively affected.

•   Applicants with lower credit scores may not qualify for loan amounts as high as those with higher credit scores.

Recommended: Personal Loan Calculator

Choosing Between Secured and Unsecured Personal Loan

There are lots of reasons for considering a personal loan in general, but choosing between a secured and an unsecured personal loan means taking some specifics into account.

Do You Have Collateral?

One of the main things to consider when thinking about applying for a secured personal loan vs. an unsecured personal loan is whether you have an asset of value that you’d be willing to risk.

If you do have such an asset, you may want to compare lenders who offer secured personal loans. Some online lenders offer secured loans, but they’re more commonly available through banks or credit unions.

Lenders may offer higher loan amounts for a loan backed by collateral than for one that isn’t, so if you need to borrow a large amount, it might be worth looking into a secured personal loan.

What Are You Planning to Use the Funds For?

Personal loan funds can generally be used for a wide variety of things, like debt consolidation, unexpected medical expenses, home improvement costs, and more.

If you need funds to pay multiple vendors or contractors — common in the case of wedding or home improvement costs — or you plan to consolidate other high-interest debt, an unsecured personal loan might be the right choice for you.

If you plan to purchase a specific item that might be considered an asset, however, the lender may want to attach that asset as collateral on the loan, thus making it a secured loan. Examples of this might be a secured personal loan to purchase land or to buy a boat.

What Type of Lender Is Right for the Loan You Need?

Another factor to consider when choosing between a secured or unsecured personal loan is the type of lender you’d rather work with.

Unsecured loans may be available through banks, credit unions, or online lenders. Not every financial institution offers unsecured loans, however.

Secured loans are more commonly offered by banks and credit unions — it’s less common to find one through an online lender.

If you have a savings account or certificate of deposit at your bank that you’d be willing to put up as collateral, it might be worth looking into a secured loan with your current bank.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

Qualifying For a Personal Loan

There are different factors that go into qualification for a personal loan.

Each lender may have its own credit score, income, or debt-to-income ratio requirements, in addition to other factors. If you’re applying for a secured personal loan, each lender may have its own requirements for valuation of collateral.

It’s a good idea to compare lenders so you’ll have an idea of what they commonly require for an applicant to qualify for a personal loan. With that knowledge, you can better evaluate your own credit for the likelihood of being approved — or not.

Reviewing Your Credit Report

You can get a free copy of your credit report annually from each of the three major credit bureaus: Equifax™, Experian™, and TransUnion™. It’s a good idea to check all three because not all lenders report payment history to all three bureaus. The credit bureaus don’t share information with each other, so getting a complete picture of your credit may mean looking at all three reports.

Your credit report contains personal information about you and information about past and current credit accounts in your name.

Personal information includes:

•   Name, current as well as any other names you may have gone by in the past

•   Addresses, current and previous

•   Birthdate

•   Social Security number

•   Employer

Lenders typically report:

•   The total amount of the installment loan or line of credit

•   Your record of on-time payments

•   Any missed payments

If you’ve had any bankruptcies, foreclosures, or repossessions, they will likely be included on your credit report as well.

If there is missing, incomplete, or incorrect information on your credit report, you can file a dispute with the credit bureau. It’s a good idea to clear up any errors before you start applying for a loan so you don’t have any unexpected roadblocks on the way to qualification.

If, in the process of reviewing your credit report, you find that you don’t have much of a credit history or your credit isn’t up to qualification standards, you may decide to take some time to work on improving your credit situation. That could mean increasing your income, lowering your expenses, paying down or consolidating existing debt, or just learning how to better manage your overall finances.

Recommended: How to Get Approved for a Personal Loan


The Takeaway

There are situations where an unsecured personal loan might be the right financial tool for you, and there may be others that would be better suited to a secured personal loan. The main difference between the two types of loans is that one requires collateral — a secured personal loan — and the other doesn’t — an unsecured personal loan. Deciding between the two depends on the borrower’s willingness to risk the loss of collateral, as well as their overall creditworthiness.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Almost everyone needs to finance car repairs sooner or later. It might be a breakdown on the highway, a fender bender at the supermarket parking lot, or perhaps (ugh) someone steals your catalytic converter.

Whatever the case, car repair bills can be significant and arrive without warning, stretching your budget to the max. If you’re in this situation, consider these five strategies to pay for urgent repairs and get back on the road again.

Strategies to Pay for Car Repairs

If you get hit with a large car repair bill or are thinking ahead and know a big-ticket item is coming up, consider the following ways to pay for the work that needs to be done.

1. Dip Into Your Emergency Fund

You may have heard it said that you should keep an emergency fund easily accessible for precisely this situation — an unexpected expense. But should you really use your emergency fund to pay for car repairs?

Dipping into your emergency fund might be a solution if you don’t have other cash available to pay for repairs. And, for many people, having a vehicle up and running is vital to their work and personal lives. In this way, it is a valid reason to tap your emergency fund.

What’s more, using your emergency savings instead of reaching for your credit card could save money on interest and other applicable costs.

Of course, if you dip into your emergency fund, you may need to spend time building it back up so you’re prepared for any other emergencies.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

2. Use Your Insurance

Is your car repair related to an accident? If so, your car insurance may help. It’s designed to protect you financially by covering some of the repair costs for vehicle damage and the medical bills related to any injuries.

The type of coverage and circumstances can vary.

•   For example, comprehensive insurance may help with some costs even if the accident didn’t involve another car or if the damage was caused by an unexpected event, like a tree falling on your hood.

•   Collision insurance doesn’t typically cover damage caused by normal wear and tear. This means that your coverage may not include things like theft, vandalism, or weather damage.

•   There is one type of insurance — what’s known as mechanical breakdown insurance (MBI) — that covers some types of repairs. Therefore, if you have damage caused by routine use of the vehicle and you have an MBI policy, you may want to check to see if the repair is covered.

Before going this route, consider whether using your insurance will actually be cheaper than paying out of pocket. Making an insurance claim could cause your insurance rates to rise.

It’s wise to understand how your car insurance works. The specific instances that your insurance will cover should be laid out in your insurance policy. The amount of your policy deductible as well as the repair and type of coverage will likely be some factors you review with your insurance carrier.

3. Try to Negotiate

Whether you have to replace multiple tires after driving over road debris or you have to install new brakes due to normal wear and tear, you may be looking at a hefty repair bill.

The good news is that car dealerships aren’t the only places where you can haggle over your car. Local car repair shops might be willing to cut you a deal to win your business.

•   Consider asking the repair shop for a written quote explaining precisely what is wrong with your vehicle, how the mechanic plans to fix it, and what the cost will be.

•   Once you have this written estimate in hand, you may want to get a second opinion. Sometimes auto mechanics will offer you a discount on a quote from another shop to get your business.

•   You could also ask the mechanic to limit their quote to only the essential repairs to ensure that they don’t try to upsell you on prematurely replacing all your tires when the problem you need addressed is your power steering.

4. Put It on a Credit Card

It can be important to protect yourself against excessive credit card debt, but if you need to shell out hundreds, or even thousands of dollars for a quick car repair, you may find yourself reaching for that plastic lifeline.

You may feel as if you don’t have options, but proceed with caution. Using a credit card may come at a high price. Credit cards can carry high-interest rates that, if not paid off in a timely manner, can drive up the original cost of the car repair. If you can’t pay off your credit card debt right away, you may end up spending much more for your repairs by the time you make your final payment.

5. Consider a Personal Loan

Another option for paying for car repairs when you have no cash on hand may be taking out a personal loan. Personal loans are sometimes overlooked as a way to come up with cash fast, but in the right circumstances, a personal loan can come in handy.

A personal loan can often offer lower interest rates vs. options such as using your credit card. This could help you save money when facing unexpected car repairs.

•   A personal loan is typically an unsecured installment loan, which means that you borrow a set amount and pay it back in equal monthly installments over a fixed period. “Unsecured” means that the loan is not tied to any physical piece of property through a lien, but instead offered to borrowers based on factors like creditworthiness.

•   Another benefit of using a personal loan to pay for car repairs is the relatively quick application process. While you’ll need to meet certain qualifications set by your chosen lender in order to secure financing on a personal loan, some lenders disburse loan funds within a few days.

Depending on your situation, a personal loan might be the right option when it comes to helping you get back behind the wheel and onto the road.

Recommended: Smarter Ways to Get a Car Loan

The Takeaway

If you need to pay for car repairs, you have a few options to consider, from tapping your insurance (if appropriate) to using your emergency fund to taking out a personal loan. If the latter seems like the right move for you, shop around to find the offer that’s the right fit 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. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Credit card churning describes when you open and then close a credit card to snag sign-up rewards. Given how much competition there is for your business as a card holder, there are many enticing offers out there of cash, points, miles, and more. Some people may be tempted to try to grab those freebies and bonuses, but this practice comes with pros and cons.

Read on to learn about credit card churning and whether it’s something you should ever try.

What is Credit Card Churning?

Credit card churning occurs when you open and close credit cards for the sole purpose of earning a sign-up bonus. The trick is to do it over and over again, with several credit cards. The end goal is to earn as many rewards as you can. In other words, maximizing your eligibility for points and prizes.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Types of Sign-up Bonuses

Of course, there is no such thing as a free lunch or a free reward. Being rewarded usually costs you. In order to earn the credit card rewards, you are typically required to spend a certain amount of money on that credit card, and it has to be done within the first few months (in most cases, three months).

The way you’re lured into a sign-up bonus is by earning a large amount of rewards by spending only a small amount. This usually happens only with a new credit card as a “welcome” offer. If you are careful about what and where you spend, you may be able to save money and get rewarded in the meantime. However, as you’ll learn below, this practice can also have its downsides.

Can You Win at Credit Card Churning?

If you want to try to get rewarded via credit card churning, there are some important best practices to be aware of.

Pay Off Your Balance in Full Each Billing Period

This is a good tip even if you’re not gunning for reward points. If you don’t pay off your balance at the end of the month, the rewards you earn will wind up being a net loss as interest rates take their toll. There is no bigger credit card churning buzzkill than taking months or even years to pay off the debt you accumulate racking up charges to earn a sign-up bonus.

While on this subject, remember that paying off your credit card balance in full every month will keep away the interest charges that accrue when you don’t make a full monthly payoff.

Look at it this way: When it comes to credit card churning, it’s you against the credit card companies. You want to reap their rewards but not open yourself up to suffocating debt and high-interest charges.

Credit card churning can work if the consumer hits the rewards thresholds, but practice responsible spending. If you’re someone who doesn’t manage credit card debt well or tends to overspend just to cash in on the rewards, it might be better to steer clear of credit card churning.

Make Your Credit Card Payment on Time

Don’t be even a day late. Late fees can be a budget buster, and they can damage the credit rating you’ve worked so hard to keep strong. If other credit providers see a pattern of late payments, and they may not be so fast to offer you their credit card, which means no rewards, or give you their best rates.

An excellent way to avoid late payments is to schedule automatic payments through your debit card, or checking or savings accounts. This way, you just set it and forget it!

Have a Plan for Your Rewards

Enjoying the rewards you earn may mean so much more to you when you have a short-term goal for how to use them. Perhaps the points are for airline miles or a vacation destination. Maybe you can use them toward a new wardrobe or the latest electronics. Keeping your eyes on the prize will prevent you from squandering your reward points on something forgettable or regrettable. Stay strong.

Don’t Bite Off More Than You Can Chew

Fight the temptation to get greedy. New credit cards with amazing reward offers are a dime a dozen. They’re like buses: another one will come along soon.

Think about where you may be in a few short months if you take on too many credit cards and too much debt. That won’t be worth any amount of reward points. Only use the number of cards that you can tolerate without sinking yourself.

Focus on Credit Card Fees

Credit card companies tend to be selective about what they promote to you. The reward offer may come with annual fees, transfer fees, and other charges. If your card requires an annual fee, ask yourself if acquiring it is worth the reward points.

Shop Around

Be extremely selective in choosing your rewards-based credit cards. The competition among credit card companies for your business is intensely competitive. Take your time and wait for the best offer.

Be Wary of No-Interest Credit Cards

It certainly sounds tempting to get a credit card that charges zero interest, and as long as you plan to pay off your balance in full every month, you’re already ahead.

However, this type of offer for a balance transfer credit card can bite you on the back end with extremely high-interest rates when the period expires or a “transfer charge” when transferring your high-interest credit cards.

Charges like that could equal the same amount of money you would be paying in the interest you thought you were passing by. Be sure you’re aware of the pros and cons of no-interest cards.

Read the Fine Print

Always read the fine print. That amazing offer may have some exclusions and exceptions and other unpleasant surprises. The credit card company may be looking for a certain kind of cardholder, too; after all, they’re in business to make money. You may not be the customer the credit card company is looking for; you may have too many credit cards, to begin with, or have a credit rating that may not be acceptable.

Find out which of the reward rules are subject to change, and if there are any expiration dates or winning rewards. If you are not great at reading the fine print, find somebody who is, or call the credit card customer service line and get your answers.

Protect of Your Credit Score

A credit score is an overview of your credit history and payback behavior. Making timely monthly payments and not defaulting on any of your credit cards or loans, and you’ll be on the right path. It also helps to keep your debt utilization ratio (how much your balance is versus your credit limit) low; no more than 30% at most.

Always consider your credit score before you consider credit card churning. Recognize that if you apply for new credit cards, a hard credit inquiry will be conducted. This will temporarily lower your credit score a bit.

Be Organized

When it comes to credit card churning, always stay organized and aware. Know exactly what the offer is, and what you need to do to get it. Know the deadline for spending the money that will make you eligible for the rewards.

Keep up on your progress toward your rewards goal; how much more do you have to spend and how much more time do you have before the offer expires? Again, avoid the pitfall of impulse spending just to get your reward.

When to Avoid Credit Card Churning

Think of credit card churning possibly as a privilege you have to earn rather than a right that doesn’t require prior deliberation. If you fall into any of these following categories, think twice before opening another credit card.

The biggest takeaway here is if you have credit card debt, it doesn’t make sense to continue to rack up debt in the name of credit card churning. Instead, it’s best to make a plan to get out of credit card debt ASAP.

If Your Credit is Bad

Credit card rewards are meant for customers with good-to-excellent credit, not for customers with late payments or delinquent accounts. Think of this as an opportunity to work up your credit score. Once you do, you may be eligible for some offers.

If You’re About to Take on More Debt

Are you about to sign a mortgage or are on the verge of a car or school loan? Applying for extra credit cards for the sake of their rewards will more than likely affect your credit score, as noted above. Each hard credit inquiry will lower your score temporarily. The constant nature of credit card churning can possibly stand in the way of your loan request or result in you being offered a higher interest rate than you would be with a higher score.

If you’re thinking about credit card churning, wait until after you secure that all-important loan or at least wait until your loan is approved, your payments are underway, and your monthly budget adjusts to the debt increases.

If You Don’t Use a Credit Card That Often

Not over-using a credit card shows reserve, discipline, and smarts. However, your lack of credit card usage may not make sense for a credit card churn. In some cases, credit cards will only grant you rewards if you spend a certain amount of money, which means increasing your spending (and your debt). You might feel “obligated” to use plastic more than you would otherwise.

If You’re Already Earning Rewards on Your Credit Cards

Some credit cards offer travel points and other rewards, without you having to get into a spending contest.

If you are pretty disciplined about your monthly spending and careful about avoiding too much debt, you’ll probably already steadily earn points and rewards on the credit cards you have. Call customer service and ask what you are eligible for.

If This is Your First Credit Card

Usually, getting your first credit card is a chance to prove that you are responsible with credit. You can use that first card to spend wisely and prudently and pay your balance in full each month. This can build your credit score and keep your finances on the straight and narrow.

If you get involved with credit card churning right off the bat, it could lead to trouble that you don’t need when you’re first establishing credit. Fixing credit once it is broken takes a long time and can stand in the way of the things you may want and need to buy. Wait until you’re further along in the credit game, and when you’re earning money to handle a bit more debt.

If You Tend to Overspend

Know yourself. If you’re the type who tends to overdo it when using plastic and can’t resist BOGO sales and the like, proceed with caution. Getting a large number of credit cards can leave you open to running up a tab on many of them and accruing too much debt. In other words, if you are in the habit of overspending, think twice.

Too Much Credit Card Debt?

Credit card churning can be more harmful than it appears on the surface. It can lead to confusion, missteps, and more unmanageable debt. If you do find yourself with considerable credit card debt, you might look into a balance transfer credit card, debt counseling, or repaying the debt with a lower-interest personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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There are a variety of ways to borrow money when cash is needed. A few common places to start might be traditional banks or credit unions, or maybe a friend or family member who’s willing and able to consider lending.

If none of those options sound appealing, another option might be to borrow money online. Online lenders are becoming a more mainstream, acceptable alternative to traditional banks. What’s behind this increase in online lending, and what are some ways to borrow money online?

Why Have Online Lenders Grown in Popularity?

When lockdowns started in response to Covid-19 in 2020, people had to find different ways to do things they might have been accustomed to doing in person. Banking and other financial transactions were among those things. Brick-and-mortar banks limited access to branches or hours they were open, and retailers were hesitant to accept physical money. But transactions needed to keep happening, so consumers began moving online to complete them.

Familiarity, for Some Customers

A growing proportion of consumers is accustomed to using computers for many aspects of daily life, and making online financial transactions is no different. More people may be looking for things like:

•   Online applications.

•   Streamlined underwriting processes.

•   Automated funds transfers.

A Different Kind of Personal Service

Whereas in the past, personalization meant having a face-to-face relationship with a banker, personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like things that can be more quickly accessed online, such as:

•   Personalized financial trends in a portfolio so they can make informed decisions about their financial goals.

•   Insights about their spending and saving so they can budget monthly income and expenses to meet their needs.

Time Saving

Customers may also want an experience that saves time. Automating tasks is a timesaver that can easily be done with online financial tools. In the case of online lending, the option to set up automatic bill payments and automate other tasks are likely to be considerations when a customer is choosing an online financial company.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Where to Borrow Money Online

When looking for an online lender, you may want to consider the reputation of the lender, safety precautions the lender has in place, or types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction.

Banks

A traditional bank may be a good option for someone who is more comfortable sharing private financial information at an in-person meeting or who doesn’t know how to borrow money online.

Applying for a loan through a traditional bank might include a visit to a brick-and-mortar branch of the bank along with online components, making this a hybrid approach. Since traditional banks have upkeep costs related to physical locations, their fees or interest rates might be higher than other lending options.

Recommended: How to Get Approved for a Personal Loan

Credit Unions

Similar to banks, credit unions generally have physical locations, but may also have online services. Financial services offered by credit unions are similar to banks and other financial institutions. There are usually specific requirements to be a member of a credit union, such as employment-related or residence in a particular region, or membership in a particular group. Credit unions may offer member benefits such as low fees, high savings rates, and low loan rates.

Peer-to-Peer Lending

Peer-to-Peer (P2P) lending is akin to matchmaking. A prospective borrower submits an application with an online marketplace, which matches the applicant with investors. Some online marketplaces for P2P lending are Prosper, Upstart, and Peerform. P2P lending may be a good place to look for an online loan for someone who isn’t able to qualify for a loan from a conventional lender, or if an alternative funding source is preferred.

Recommended: What Are Personal Loans Used For?

Online Lenders

The lack of brick-and-mortar branches might deter some customers but attract others. The deciding factor for some customers might be how well the process works for them, with less emphasis on having a face-to-face interaction.

Another factor in choosing online lending over in-person may be the speed of the process. Online loans and other financial transactions can sometimes be completed faster than going into the physical location of a traditional lender. This may be important for people looking to borrow money online instantly.

Options to Think Twice About

Along with favorable options for lending that are available, there are some that may not bring about the best financial outcomes.

Credit Cards

At its core, a credit card is a short-term loan — specifically, a line of credit. If the account balance is paid in full before each month’s due date, it’s a no-interest loan. Financial drawbacks arise, however, when that balance is not paid in full each month, carrying over a balance due.

Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.45% for new credit card offers. Even for existing customers, the APR is high, at an average of 20.68% currently. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.

Recommended: Personal Loan Calculator

Predatory Lenders

When people look for fast cash, there is probably someone out there who is willing to lend it to them — at a cost. If it seems like there is no other choice available, some people may take on a loan that can be difficult to pay off. Repeat borrowing is common with these types of loans.

•   Payday loans are short-term loans, typically to be paid off in the borrower’s next payday. Interest rates are extremely high, often 400% or more.

•   Title loans or pawn loans use a borrower’s vehicle or other item of value as collateral. The APR on a title loan can be as much as 300%, and lenders often charge additional fees.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

Choosing a lender depends on different factors for different people. Traditional lenders, online lenders, alternative lenders — each can be a valid choice for different financial needs. With online lenders becoming more commonplace, with established reputations in the financial marketplace, looking at options among them might be a good choice.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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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.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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