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Although many people haven’t heard of these policies, borrowers can get insurance coverage for a personal loan. In the event you get injured, sick, lose your job, or die, the insurer will make loan payments for you.

Personal loan protection insurance is available to borrowers for specific situations that prevent them from repaying their loan. Although costs vary and raise your monthly expenses, loan insurance can help you out in a tight spot, protect your credit, and prevent the financial burden from falling on your family. Read on to learn if loan insurance may be right for you.

What Is Loan Insurance?

Loan protection insurance is coverage borrowers can purchase for various loans — such as personal loans — to guard against situations where the borrower can’t repay the loan. Typically, personal loan insurance covers the borrower when they suffer a disability, injury, job loss, or death. The personal loan protection policy pays a prearranged amount to satisfy the borrower’s balance.

Is Personal Loan Insurance Required?

Personal loan insurance is not mandatory when you obtain a personal loan, and a lender can’t refuse to give you a personal loan because you don’t insure it. However, if you get a secured loan, you may have to insure the collateral you put up. Borrowers with unsecured loans won’t have these concerns, although they will likely have a higher interest rate.

If a lender ever tells you they won’t provide you a loan unless you purchase loan insurance from them, know that you have options. You can report the lender to your state’s attorney general, insurance commissioner, or the Federal Trade Commission.

How Much Is Insurance on a Loan?

You can pay for loan insurance either through a one-time payment or monthly premiums. Your premium will vary based on several factors. First and foremost is the loan balance, with bigger loans incurring higher insurance costs. Paying your premium with an upfront lump sum can decrease the cost.

Your coverage will also determine personal loan insurance costs. For example, you might purchase a $15,000 policy for a $20,000 loan because you have $5,000 in savings. This protection would cost less than a $20,000 policy.

Your location and lender will also influence how much your personal loan insurance costs. Therefore, it’s recommended to shop around for personal loan lenders, just as you would when looking for a new bank or investment firm.

What Are the Benefits of Personal Loan Insurance?

Personal loan insurance helps when you can’t repay your loan. Here are the specific ways a personal loan protection policy benefits you:

Prevent Delinquency or Default

If you suffer a severe injury that prevents you from working, any lost income could result in missed payments. If you have personal loan insurance, it will repay the loan, and you won’t need to worry about delinquent (late) payments or default (failure to repay the loan).

Protect Your Credit Score

Late payments and defaulted loans are reported to the credit bureaus, and that can negatively impact your credit report, causing your credit score to drop. A low credit score can hurt your chances of qualifying for competitive interest rates. You don’t need to worry about late payments and default if you have personal loan insurance, so you can feel confident your credit score won’t be damaged if you’re not able to pay the loan.

Protect Your Dependents and Coborrowers

Similar to life insurance policies, personal loan insurance can help your beneficiaries so your family won’t have to pay off the loan if you cannot. You can purchase a plan that covers coborrowers as well, protecting spouses, loved ones, and business associates from the financial burden.

Recommended: Types of Personal Loans

Types of Loan Insurance

Loan insurance goes beyond personal loans. You can purchase coverage for the following loan types:

Business Loans

Business loans can help small business owners get their companies off the ground or sustain operations. These loans can fund equipment purchases, scaling efforts, or fund payroll. As a result, they are crucial for small businesses in getting established or enduring a market downturn.

Business loan insurance will pay out if the owner or a crucial employee can no longer work. This policy names the lender as the beneficiary and repays the loan on the borrower’s behalf. Business loan insurance can keep a company afloat if it is struggling due to slowed operations and a hefty financial obligation.

Personal Loans

A personal loan is a flexible financial tool that a borrower can use for many purposes. For example, common personal loan uses include repaying high-interest debt or remodel your kitchen.

Personal loan insurance protects the borrower in case they can’t repay the loan due to a serious life event. You may want to consider purchasing insurance for a high-balance personal loan if your dependents and beneficiaries can’t afford to pay it without you.

Recommended: What Is a Personal Loan?

Student Loans

Student loans cover the cost of higher education. Borrowers can take out student loans from either the federal government or private lenders (or both), but these loans have different terms and conditions, and it’s important borrowers know the difference.

Federal student loans are canceled if the borrower dies. Similarly, Direct PLUS loans are canceled if the parent or student dies. As a result, insurance is usually unnecessary for federal student loans.

Private lenders don’t typically discharge student loans when the borrower dies. Instead, they may pursue family members, cosigners, or anyone mentioned in the contract for repayment. Therefore, student loan insurance can be a good investment if you’re concerned about resolving unpaid balances for borrowers who die or become disabled.

Home Loan

A mortgage loan, also called a home loan, is likely your highest debt balance, and the idea of not being able to repay it because of injury, illness, or death is scary. Mortgage protection insurance is for a specific balance your beneficiaries will receive if something happens to you.

For example, if you have $150,000 left on your mortgage, your policy will be for that same amount. If you pass away with $100,000 left, your coverage will pay the balance and transfer the leftover $50,000 to your family.

When applying for mortgage protection insurance, there are fewer health-related questions and standards than for life insurance, so it’s easier to get approved. However, wider accessibility comes with a higher premium cost.

Mortgage protection insurance policies come in all shapes and sizes. You might have coverage solely in the event of your death, or you can limit the payout to your mortgage balance to reduce costs. These policies vary depending on the lender and product type. It’s important to thoroughly understand the policy before committing so you understand exactly what you’re paying for.

Reasons for Getting Loan Protection

Loan protection insurance allows you to safeguard your finances when unexpected crises occur. For example, it ensures that loan repayment won’t be a burden if you’re struggling with illness or unemployment. Similarly, your family won’t have to repay your debts if you die. But it’s important to understand the coverage to determine if it suits your needs.

While loan protection is usually optional, its primary advantage is that it offers borrowers some peace of mind. It allows you to focus on your recovery or job search instead of worrying about meeting loan obligations and maintaining financial stability.

There are other kinds of insurance that are not directly tied to your financial products but can still help pay off debts if you get injured, have a long-term illness, or die.

Disability Insurance

You can also include disability as a condition for your loan insurance. While some policies only cover the borrower’s death, you can add disability to expand your coverage. Doing so means you’ll receive financial relief if you can no longer work due to an illness or injury.

Life Insurance

Your life insurance policy offers a payout if you die. However, it can specifically insure your personal loans and lines of credit if you have high balances. The advantage of the limited coverage is you don’t have to pass a medical examination as you would with a traditional life insurance policy. The drawback is the policy will be more expensive.

Pros and Cons of Loan Protection

Here is a comparison of the pros and cons of loan protection insurance:

Pros	Cons
Offers peace of mind	Increases the cost of the loan
Financial relief during hardship	Might accrue interest
Protects your credit score	Lenders may deny coverage
Avoids delinquency or default on loans
Flexibility for various situations and loan types
Protects dependents
Coverage is optional

The Takeaway

Loan insurance for a personal loan covers scenarios where you become disabled, unemployed, or deceased. This coverage allows you to maintain strong credit instead of missing payments. In addition, it protects your loved ones from unexpected debt. As a result, purchasing insurance when taking out a personal loan can grant peace of mind and help you focus on what matters most.

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 is loan insurance?

Loan insurance is a policy from a lender providing a payout to cover your loan if you can’t repay it. You can purchase coverage for situations where you become disabled, lose your income, or die.

How much is insurance on a loan?

The cost of a loan insurance premium depends on multiple factors, such as the loan size, the lender, your location, and if you pay the premium in one shot. In addition, your insurance may have an interest rate, increasing its cost.

What is the benefit of personal loan insurance?

The advantage of personal loan insurance is that your loan will be repaid even if you lose your income or die. As a result, you don’t have to worry about a situation where your loved ones must dig their way out from under your debt. In addition, you’ll preserve your credit score because you won’t fall behind or default on the loan.

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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.

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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Cosmetology school teaches learners about the application of ingredients and chemicals of beauty products as well as how to care for clients’ hair, nails, skin, and more. Cosmetologists can study a single beauty area or specialize in a range of areas. In general, cosmetology school takes less than two years to complete, but it depends on whether you choose to attend school full- or part-time, your state requirements, and the program and school you choose to attend.

Paying for cosmetology school may involve obtaining a mix of grants, scholarships, work-study, and cosmetology loans. You may also choose to pay for school with money you’ve saved.

Read on for more information on how to pay for cosmetology school. We’ll focus on aid that must be repaid (student loans) and will also touch on other types of aid that do not need to be repaid — grants, scholarships, and work-study.

What to Consider When Choosing a School for Cosmetology

It’s a good idea to visit community colleges or cosmetology school campuses prior to choosing the right cosmetology school for you. In general, it’s a good idea to interview an admissions representative or other professional about graduation rates, loan default rate, job placement rate, and school costs. The answer to these questions can give you a good indication of the quality of the school and whether the school might be a good fit for you.

You may also want to consider whether or not you’d like to attend an accredited institution, since many good cosmetology schools choose not to become accredited. An accredited institution is one that meets specific academic and institutional requirements by an institution that offers accreditation. An accrediting body will typically take a look at facilities and staff as well as the curriculum of the school and admission requirements.

Graduation Rate

The graduation rate can tell you a lot about the satisfaction of current and past students at a particular cosmetology school.

The most recent data shows that, about 34% of full-time undergraduate students who began a certificate or associate’s degree at two-year institutions received their certificate or degree within 150% of the normal time required.

On the other hand, 14% of that same cohort had transferred to another institution within 150% of normal completion time. A total of 10% stayed enrolled in that same institution. The rest of the students in the cohort were no longer enrolled in the original institution nor were they recorded as a transfer at a different institution — a total of 42% of students.

Look for a school that offers a high retention rate, which measures the percentage of first-time students who return to the institution to continue their studies the following fall. One way to measure retention and graduation rates is to use College Navigator “>College Navigator, which offers this information about nearly 7,000 colleges and universities in the U.S.

Loan Default Rate

Consider asking about the student loan default rate for a particular institution. The loan default rate indicates whether students are successful in paying off their student loans. Specifically, the U.S. Department of Education publishes the cohort default rate (CDR) which shows how well prior students have done at repaying their student loans. You can check the Department’s cohort default rate database for specific institutions.

Why should you worry about loan default rate? It illustrates the relationship between the quality of the degree and the ability of graduates to obtain jobs that can help them pay off their loans. While a low default rate doesn’t automatically put a particular cosmetology school into the “good school” category, it’s a great metric to have at your disposal.

Job Placement Rate

Job placement rate might be one of the most important questions you can ask a particular college or university. The job placement rate is the percentage in which graduates of the program obtain job placement. Most schools survey students to obtain this data and will showcase it on their websites.

However, there’s no universal method that schools use to arrive at their numbers. That’s why it’s also a good idea to ask deeper questions when you tour cosmetology schools. Dig into whether students who graduate are employed by salons or other cosmetology-related businesses. Ask about how often they open up their own salons. Ask for admission professionals to give you examples of successful alumni and if possible, lists of where the most current graduating alumni currently work.

Also ask about exam rates, because states require students to take a licensing exam in order to be able to practice. How many students successfully pass and how many have passed in recent years?

School Costs

A cosmetology school program may cost between $5,000 to $20,000. Find out how much each school costs and learn the cost breakdown. You should be able to find this information on the school’s website, but it’s a good idea to make an appointment with the financial aid office at the institutions you’re considering to get an exact estimate of all costs as they pertain to your situation.

Furthermore, don’t forget to ask questions about how much tuition will increase over the time you’ll be at the cosmetology school and whether financial aid will match the increasing tuition.

Cosmetology Career Options

As mentioned before, cosmetology careers can encompass a wide range of career options. It’s important to study the types of programs a particular cosmetology school offers in order to make sure it matches up with your career goals. Many cosmetology programs offer full programs in hair styling, skin care, nail care, and makeup. However, many cosmetology programs also offer training in esthetics, nail technology, electrolysis, and teaching as well:

•  Esthetics: Students in this area learn to apply makeup, wax, and perform facials. They also learn how to give clients massages and perform reflexology.

•  Nail technology: Going a step beyond nail care, nail technology includes studying nail art, design, and how to implement tips, wraps, and gels.

•  Electrolysis: Learners who study electrolysis learn the art of permanent facial and body hair removal methods.

•  Teacher training: Students who want to prepare future cosmetologists may choose to enter into a teacher training program.

Cosmetology School Financing Options

The amount of financial aid you receive could be affected by whether a school chooses to become accredited or not. Schools often become accredited in order to offer Title IV government funding to cosmetology students through the U.S. Department of Education. If you attend a schools that is not accredited, you won’t be eligible for federal student aid like federal student loans.

The next sections will review information about scholarships and grants, payment plans, trade school loans, work-study programs, and federal and private student loans.

1. Scholarships and Grants

Scholarships and grants are two methods you can use to pay for college. Scholarships, which can be considered free money and don’t have to be repaid (unless there are caveats in the scholarship requirements — for example, you may be required to finish the program). They can come from a wide variety of agencies, institutions, and organizations. Know the scholarship requirements in depth before you apply. It’s also a good idea to look into a wide variety of scholarship opportunities. Opportunities can come from your cosmetology school or your community.

Grants can be awarded to students from the federal government, state government, or your cosmetology school. Most of the time, you won’t have to pay the money back. However, if you don’t finish your program or fail to fulfill some other requirement, you may have to repay all or a portion of your grant money. The U.S. Department of Education offers several federal grants, including Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG), and Iraq and Afghanistan Service Grants.

The American Association of Cosmetology Schools (AACS) partners with various sponsors in the beauty industry to offer scholarships and grants to help students pay for tuition at their chosen institutions.

2. Cosmetology School Payment Plans

Cosmetology schools may allow you to make incremental payments. This means that instead of paying the full tuition bill at the beginning of a new semester, you make small, likely interest-free payments as you complete each course. Students who want to pay for cosmetology school without loans may prefer this method of chopping up payments into smaller bits.

The financial aid offices at the schools on your list will have more information about how payment plans work.

3. Trade School Loans

Learners who attend trade schools can get both private and federal student loans. Federal student loans come from the federal government, while private student loans come from a bank, credit union, or other financial institution. Both types of loans must be repaid with interest, which will vary depending on the type of loan you receive.

Some private lenders offer specific loans for those attending trade schools. It’s important to look into the details before you apply for a trade school loan, such as interest rates, repayment plans, and more.

4. Work-Study Programs

The Federal Work-Study Program provides part-time jobs for students to help pay for expenses related to education. Work-study often gives students enough of a stipend to pay for small expenses such as books. As long as you are enrolled at least part-time, you may apply for a job as long as your school participates in the Federal Work-Study Program. Check with your school’s financial aid office to find out if your school participates.

Because work-study is part of a federally funded program, you must file the Free Application for Federal Student Aid (FAFSA®) in order to qualify.

5. Federal Student Loans for Cosmetology School

The federal student loan program can offer loans for cosmetology school that come from the U.S. Department of Education through the William D. Ford Federal Direct Loan (Direct Loan) Program. You may be able to tap into Direct Loans, including the Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans:

•  Direct Subsidized loans: Cosmetology school students who have financial need may be awarded the Direct Subsidized Loan to help pay for career school. The federal government will pay the interest while you’re in school.

•  Direct Unsubsidized loans: After filing the FAFSA, cosmetology students may want to take advantage of Direct Unsubsidized loans. This federal student loan is not based on financial need and the government does not take care of the interest while you’re in school.

•  Direct PLUS loans: Parents of undergraduate students can help pay for cosmetology students’ education with a Direct PLUS loan. Parents will have to undergo a credit check. An adverse credit history may require an additional credit check.

The interest rates of federal student loans are typically lower than that of private student loans and they offer income-driven repayment plans and other perks such as public service loan forgiveness. Keep in mind that, as mentioned, one of the federal student loan requirements is attending an accredited institution.

6. Private Student Loans for Cosmetology School

You can also obtain private student loans for cosmetology school. Private student loans for cosmetology school are different from federal student loans because they come from different organizations. However, they also diverge further from there. Private student loans may require you to make payments while you are still in school. They may have variable or fixed interest rates. Federal interest rates, on the other hand, are always fixed.

Private cosmetology school loans are not subsidized, which means that your lender doesn’t pay the interest on your loans while you’re in school. You’re usually completely responsible for paying the interest on your loans.

In addition, you must also have to have a positive credit history or a cosigner to get a private loan. You cannot consolidate your loans (turn them into one loan) like you can with a federal Direct Consolidation Loan or take advantage of loan forgiveness programs with a private student loan. Because private student loans lack the benefits offered with federal student loans, they are often considered a last-resort option.

Are student loans worth it? It’s important to remember that private student loans can fill in the gaps between scholarships, grants, your own cash, and cosmetology loans for school. Check on the student loan requirements among private student loans as well as when to apply for student loans.

Explore Private Student Loan Options With SoFi

If you decide to take advantage of your federal student loan options but still need more loans to cover your tuition bill, private student loans with SoFi may help. SoFi private student loans may be an option for certain eligible certificate programs.

SoFi offers competitive rates for qualifying borrowers as well as flexible repayment options. You also won’t pay any extra fees to get a private loan with SoFi.

Explore your cosmetology student loan options with SoFi.

FAQ

Are there student loans for cosmetology school?

Yes, you can take advantage of both federal student loans and private student loans for cosmetology school. You may also want to consider tapping into trade school loans as well. It’s worth meeting with the financial aid office at your cosmetology school in order to make the right decision about the type of loans for your particular situation.

How do you get money for cosmetology school?

In order to get money for cosmetology school, you’ll want to file the Free Application for Federal Student Aid (FAFSA). The FAFSA determines your eligibility for federal and institutional financial aid, including institutional scholarships, federal student loans, and grants. If you want to apply for outside scholarships, you may have to seek out and apply for independent scholarships.

How do I go to cosmetology school for free?

You may be able to get free training while still in high school. Many high schools have agreements with technical or vocational schools or community colleges that allow you to attend at no cost. Some community colleges also offer free tuition to certain students as long as they meet certain requirements.

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Photo credit: iStock/Natalia Rusanova
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.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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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For most of us, a car is the second biggest purchase we’ll make, next to a home. The average price of a new car in July 2022 was $48,182, according to Kelley Blue Book®, up 12% over last year. But sticker price isn’t the only thing to consider when budgeting for new wheels. There’s also insurance, maintenance, gas, and depreciation.

Depreciation may not be front of mind for many car buyers. But in fact it’s a major factor in determining how to finance a new car. We’ll explain why, review different loan options, and recommend steps you can take to help you get a great deal.

How To Assess the Value of a Car

You may already know what you want in a new car: the gas mileage, capacity, features. Just as important, you know what you can afford. Or do you? Before heading to a dealership, you’ll want to extensively research the cars you’re interested in.

Once you have an idea of the makes and models you want to test drive, there are a number of services that can offer a baseline estimate for the car’s worth. Edmunds offers a True Market Value (TMV®) guide; Kelley Blue Book provides suggested price ranges based on things like year, model, condition, and mileage (particularly useful for used cars). The National Automobile Dealers Association’s guide focuses on dealers’ sticker prices, and Consumer Reports provides detailed reviews and reports about specific cars.

None of these resources will necessarily tell you the exact price you’ll get, but they can give you some context. It may be helpful to look at listed prices for similar cars in your area. You can even call around for price quotes from dealerships and private sellers, so you’re better equipped by the time you walk onto the car lot.

Got a car to trade in? Here’s how to find out how much your car is worth.

How the Value of Your Car Changes Over Time

A car’s value changes almost from the moment you purchase it: This is called depreciation. Generally, the cost of depreciation is spread over a five-year period. A new car can lose, on average, 60% of its value in the first five years, or about 12% each year.

Some models depreciate more than others. For instance, cars typically depreciate faster than trucks, and midsize cars depreciate more quickly than smaller cars. It’s smart to research the projected depreciation on the makes and models you’re interested in. Lower depreciation could become a deciding factor when all else is equal.

Recommended: SoFi’s Personal Loan Calculator

Car Financing Options

One of the biggest car-related costs is the loan itself. Car loans can come either from a traditional bank or through a dealership. Here are a few car financing options:

Car Loan

Car loans can be offered directly from a bank or online lender, or can be arranged through the car dealer. The average five-year (60-month) loan for a new car had a 4.07% interest rate in 2022, and the average loan amount was $39,340. A strong credit score, along with a solid financial history, can help borrowers qualify for a competitive interest rate. Learn how to check out your credit score for free.

Car loans are “secured” by the car, which means that the car is used as collateral on the loan. Until it’s paid off in full, you don’t own the car outright. So if you default, the lender can seize the car. The qualification process can also be difficult because banks must verify the collateral (think: more paperwork).

Dealer-Arranged Financing

When getting a loan through the dealership, the dealer typically collects your information and takes it to prospective lenders to find you a financing offer. Car dealerships are good at helping customers get a car loan quickly, sometimes even without great credit. You may be able to sign a loan and drive off in your new car the same day.

Auto Loan from a Private Lender

Banks, on the other hand, may offer more competitive interest rates or more favorable terms when applying with them directly. However, the application process can be more involved and take longer. Usually, borrowers getting financing from a bank or credit union will get pre-approved for a car loan prior to heading to the dealer.

Personal Loan

Another option is to skip car loans entirely and take out an unsecured personal loan. Common uses for personal loans include home repairs, debt consolidation, and other large purchases. On the flip side, a car loan can only be used to pay for a car.

Usually, buying a car with a personal loan is not the best course of action. But there are rare circumstances where it may make sense, such as if you plan on restoring an old car as a passion project. Cars in need of repair can be difficult to finance with a traditional auto loan.

For most car buyers, however, interest rates on any type of personal loan are typically higher than on car loans. Another thing to consider is the repayment period. In general, car loans extend over seven years, whereas a personal loan is repaid in three to five years.

Getting your personal loan approved can take time, but pre-qualification is available. Many people get pre-qualified before going into the dealership, so they have an idea of how much buying power they have.

Strategies for Getting a Car Loan

As you look for a car loan that meets your needs, here are some strategies that can help.

Do Some Research

Before heading to the dealer, shop around for loans to see the interest rates and terms you may qualify for. Lenders review factors like a borrower’s credit score and financial history to inform their borrowing decisions. So part of your research will go into understanding (and maybe boosting) your credit score.

Recommended: What Credit Score Do You Need to Buy a Car

Prepare a Down Payment

A larger down payment can save you money on your loan. Down payments reduce the amount you have to borrow, which reduces what you spend on interest over time. Trading in a vehicle of substantial value accomplishes the same thing, while reducing the down payment you need to put up.

A higher down payment is helpful for another reason: It’ll help you avoid a situation down the road where, due to depreciation, the balance of your loan is greater than the value of your car. This is variously called negative equity, being underwater, or an upside-down loan. To avoid this situation, run the numbers to make sure your down payment (or trade-in) is high enough to offset the expected depreciation on your vehicle.

That said, negative equity isn’t usually a bad thing. It only becomes a problem if your car is stolen or totaled, and the payout from your insurance company isn’t enough to pay off your loan balance. (Gap insurance is designed to cover your remaining debt.) Some drivers are comfortable with being upside-down for a short period, while others prefer not to take a chance.

Consider Getting Pre-qualified for a Loan

Getting pre-qualified for a car loan helps the borrower understand what kind of car payment they can afford. Pre-qualification can also be used as a tool in negotiations with the dealer. In some cases, the dealer may be willing to offer a more competitive financing option.

Just keep in mind that pre-qualification isn’t a done deal: The loan offer is still subject to change.

The Takeaway

For many people, buying a car outright with cash isn’t an option. With an auto loan, the car acts as collateral to secure the loan. A higher down payment can save you money on interest over the life of the loan. It can also help you avoid “negative equity” down the road — where the value of the car is less than the balance of your loan. However, this is only a problem if your car is stolen or totaled, and your insurance company’s payout doesn’t cover your loan obligation. In some circumstances, it’s possible to use an unsecured personal loan to purchase a car, such as when you’re looking for a vintage car to fix up as a passion project.

Why get a SoFi Personal Loan? Borrow up to $100K for a low fixed rate for those who qualify. The online application process is simple, with live customer support available 24/7. And if you lose your job, we’ll temporarily modify your payments.

Learn more about SoFi’s Personal Loans.

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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.

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

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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Making student loan payments with a credit card can be tempting. After all, if your credit card offers you rewards like points or miles, by putting your student loan payments on your card, you could be cashing in on points and scoring a free flight to Vegas, right?

On the flip side, you might be looking for a way to make your monthly student loan payment during a month when your checking account isn’t quite as full as you’d like.

So is it even possible to pay down your student loans with a credit card? The short answer is that it’s not possible to do so on federal student loans, though there may be ways to do so on some private student loans.

Can I Make a Student Loan Payment With My Credit Card?

Federal student loan servicers, as a rule, do not allow credit card payments directly. In order to pay student loans with a credit card, payments have to go through a third-party platform for a fee – which would usually negate any points you might have earned from using your card to pay off your loans. And if you’re keeping a balance rather than paying off your credit card bill immediately, you’ll have to contend with high credit card interest rates.

You may be able to pay off a private student loan with a credit card. To find out if student loan payment with your credit card is an option, consider calling your student loan servicer to find out. Some allow credit card payments in certain situations, such as if it’s the last day before your payment becomes overdue.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Is Using a Credit Card to Pay on a Student Loan a Good Idea?

Even if your student loan servicer accepts credit card payments, the practice could have downsides.

As previously mentioned, there may be additional fees to use a credit card to pay student loans. Paying additional fees could offset the benefit of earning any additional points or miles on your credit card.

Another factor is that credit card interest rates are generally higher than your student loans. If you’re unable to make monthly payments in full on your credit card, you might end up paying significantly more interest by using your credit card instead of a modest interest often associated with student loans. Simply put, making a student loan payment on a credit card, especially a high yield one, can cost you much more.

So while racking up those credit card points can seem enticing, they might not be such a great deal if you’re paying more on your student loans in the long run.

How Paying Student Loans With a Credit Card Can Affect Your Credit

You might want to also consider your credit score. Your credit usage makes up 30% of your FICO® score. Typically, you don’t want to use more than a third of the credit available to you. If you put a large student loan payment on your credit card, you might use a bigger chunk of your available credit, which could potentially bring down your credit score.

If you’re unable to keep up with your student loan or credit card payments, you could end up with both student loan and credit card debt.

Both the mix of credit and length of credit history are two factors that inform your credit score. Paying off your student loans may result in a temporary dip in your credit score because you have closed the loan.

Is There a Better Way to Manage Student Loan Debt?

If you feel like you’re going to fall behind on student loan payments, using a credit card isn’t your only option.

Income-Driven Repayment Plans

If you’re experiencing long-term financial difficulty, federal student loan borrowers may consider switching to an income-driven repayment plan (IDR). These plans are based on your discretionary income, are intended to make payments more affordable, and have terms that allow for loan forgiveness after a set amount of years. Here are the four IDR with their respective payment terms:

•   Pay As You Earn (PAYE) Plan: Borrowers typically pay 10 % of their discretionary income but not more than the 10-year Standard Repayment Plan. Remaining balances are forgiven after 20 years of payment with this plan.

•   Saving on a Valuable Education (SAVE) Plan: Borrowers typically pay 10 % of their discretionary income over the course of 20 years for loans for undergraduate study or 25 years for graduate or professional school loans. However, the repayment period can be as little as 10 years for undergraduate borrowers with balances under $12,000. And the minimum payment will fall to 5% of discretionary income starting in July 2024.

•   Income-Based Repayment (IBR) Plan: Student loan holders typically pay 10 % or 15% of their discretionary income but not more than the 10-year Standard Repayment Plan. After 20 or 25 years, depending on when the loan was first received, any remaining balance will be forgiven.

•   Income-Contingent Repayment (ICR) Plan: As a new borrower, student loan holders typically pay the lesser of these two: 20% of their discretionary income or a fixed payment over the course of 12 years. Any remaining balance will be forgiven after 25 years with this plan.

Consolidating Student Loans

A Direct Consolidation Loan could lower your monthly payment by giving you up to 30 years to repay your federal student loans.

If you’re not able to make your monthly payments, you could ask your loan servicer about forbearance or deferment, both of which pause payments until your financial situation improves. Student loan borrowers with both federal and private loans can consolidate their loans via private student loan refinancing. It’s important to note that consolidating the federal loans will release the borrower from federal loan forgiveness programs.

Refinancing Student Loans

You could also consider refinancing your student loans with a private lender. Refinancing combines existing student loans into a new loan, one ideally with a lower interest rate and a more favorable loan term, which may mean lower, more affordable monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.) To determine your interest rate, private lenders will generally conduct a credit check, evaluate your credit score, and income among other factors.

Recommended: 7 Tips to Lower Your Student Loan Payment

The Takeaway

Can you pay student loans with a credit card? In short, it’s possible, but may require the use of a third-party app or paying additional fees to the lender. These fees can outweigh the benefits of earned credit card points or miles. If you’re using a credit card because you’re struggling to make monthly payments on your student loan, you’re probably better off refinancing or using an income-driven repayment plan.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can I pay student loans with a debit card?

Generally, paying student loans with a debit card is not permitted. It may be possible, but there may be fees associated. For the most part, student loan servicers prefer payments made electronically from your bank account. Most lenders will allow borrowers to enroll in automatic payments, where the loan payment is automatically debited from the checking account each month.

Can you pay off student loans all at once?

It is possible to make a lump sum payment to pay off all of your loans at once. Your lender should be able to provide a payoff quote if you are interested in this option.

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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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.

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 .

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