Exploring the Pros and Cons of Personal Loans

Exploring the Pros and Cons of Personal Loans

A personal loan is a strong option when you need to borrow money to cover a medical bill or home repair, or to consolidate debt. But before you decide that a personal loan will meet your needs, it’s important to understand the advantages and disadvantages that come along with them.

We’ll do a deep dive into interest rates, borrowing limits, fees and penalties, and lender requirements to get the best terms.

What Are Personal Loans?

A personal loan is money that you borrow from a bank, credit union, or online lender. It’s an installment loan, so you agree to repay the loan principal and interest at regular intervals — usually monthly.

When you apply for a personal loan, your lender will run a credit check, which will help determine your interest rate. Generally speaking, borrowers with higher credit scores have a better chance of being offered lower interest rates. The higher your interest rate, the more money it will cost you to borrow.

Recommended: 11 Types of Personal Loans

The Benefits of Personal Loans

Personal loans are a flexible option for borrowers looking to accomplish a variety of goals, from consolidating other debts to remodeling their home. Here’s a look at some of the advantages.

Comparatively Low Interest Rates

Personal loans offer relatively low interest rates when compared to other methods of short-term borrowing. The average personal loan interest rate is 9.41% according to the St. Louis Federal Reserve. Credit cards by comparison have average interest rates of 14.56% and up, and a personal line of credit can have interest rates that vary between 9.30% and 17.55%.

Some forms of predatory short-term lending, such as payday loans , can charge the equivalent of many times these rates to borrow.

Average Interest Rates

Personal Loans 9.41%
Credit Card 14.56%
Personal Line of Credit 9.30% – 17.55%

Comparatively High Borrowing Limits

Small personal loans are usually for amounts of $3,000 or less. (Smaller loans often come with lower interest rates.) However, some lenders will offer loans of up to $100,000 to cover major expenses and life events, which may be quite a bit more than other credit options.

The average credit limit for credit cards, by comparison, is $30,365, according to credit reporting bureau Experian. Personal lines of credit have a range of limits from $1,000 to $100,000, similar to the range offered by personal loans.

Borrowing Limits

Personal Loans Up to $100,000
Credit Card Average limit of $30,365
Personal Line of Credit Up to $100,000

Personal Loans Can Be Used for Many Things

Some types of loans must be used for designated purposes. Auto loans must be used to buy a car, and a mortgage must be used to finance a house. Personal loans, on the other hand, have few restrictions on how you must use the money, and you can generally use it for any purpose.

Recommended: Common Uses for a Personal Loan

No Collateral Necessary

Unsecured personal loans are the most common type of personal loans. They are not backed by collateral, such as your car or home.

Some personal loans are secured, and require you to borrow against the equity in your personal assets, like a home or your savings. With a secured vs. unsecured personal loan, the lender can seize your property if you default, selling it to recoup their loss. As a result, secured loans present less risk for the lender and often come with lower interest rates than unsecured loans.

Simple to Manage

You can use personal loans to consolidate other, higher-interest debt, for example, by paying off the balance on several high-interest credit cards. A single personal loan can offer cheaper interest, lowering the cost of your debt over time. And it may be easier to manage, since you only have one bill to pay each month.

Can Help Building Credit

Your lender will likely report your personal loan and payment history to the three credit reporting bureaus — Experian, TransUnion, and Equifax. In fact, 35% of your FICO® score — the most commonly used credit score — is determined by your payment history. You can build up a strong credit history over time merely by avoiding late or missed payments.

The Disadvantages of Personal Loans

Without properly weighing the potential disadvantages, personal loans can be a bad idea for some borrowers.

Higher Interest Rates Than Some Alternatives

Personal loans may carry higher interest rates than some alternatives. For example, if you’re looking to remodel your home, you might consider taking out a home equity loan or a home equity line of credit (HELOC).

A home equity loan uses your home as collateral. As of June 2022, the average interest rate on a 10-year fixed home equity loan was 6.02%. A home equity line of credit, is a revolving credit line that uses your home as collateral. Borrowers with good credit can qualify for interest rates ranging from 3% to 5%. Those with below-average credit are likely to receive interest rates that range from 9% to 10%.

Fees and Penalties

Some lenders may charge fees and penalties in association with personal loans. For instance, an origination fee helps pay for the processing of your loan application and is usually equal to a percentage of the loan amount. Fortunately, it’s possible to avoid origination fees.

Lenders may also charge prepayment penalties if you pay off your loan ahead of schedule, to make up for profit they are losing on interest payments.

Can Increase Debt

Take out a personal loan only if you are sure you can pay it off and it makes financial sense. For example, a home remodel could increase the value of your home, and consolidating credit card debt could save you money in interest payments.

Avoid taking out a loan that is for more money than you need to avoid the risk of taking on more debt than necessary.

Alternatives to Personal Loans

In addition to personal loans, you may wish to explore other forms of credit that can help you finance big and small expenses.

•  Credit cards allow users to make purchases using credit, which they pay back at the end of each billing cycle. Borrowers must make minimum payments and owe interest on any balance they carry from month to month.

•  A personal line of credit (PLOC) is similar to a credit card. It allows you to tap your credit line as needed. Credit is replenished when you pay back your loan.

•  A home equity loan uses a borrower’s home as collateral. The value of the property determines the loan amount.

•  A home equity line of credit is a revolving source of credit, like credit cards and PLOCs. As with home equity loans, HELOCs use the borrower’s home as collateral.

Exploring Personal Loans Further

A personal loan is a type of installment loan, usually unsecured, that allows you to use the money for a variety of unexpected expenses. Borrowers with higher credit scores have a better chance of being offered lower interest rates. This is important because the higher your interest rate, the more money it will cost you to borrow. Also, some lenders charge extra fees and penalties.

If you’ve explored your options and decide that a personal loan is right for you, it’s wise to shop around to find the right loan. Consider personal loans from SoFi, which offers loans of up to $100,000 with no fees required. Check SoFi personal loan rates and your own personal loan rate. borrowers may receive funding as quickly as the same day it is approved.

Compared with high-interest credit cards, a SoFi Personal Loan is simply better debt.

FAQ

What is a personal loan?

A personal loan is a loan you receive from a bank, credit union, or online lender. Borrowers pay back the principal and interest in regular installments.

What can you use a personal loan for?

Personal loans have few usage restrictions. You can use them for everything from covering an unexpected medical bill to remodeling your kitchen.

How much money can you get from a personal loan?

Personal loan amounts may range from a few hundred dollars up to $100,000 from some lenders.

Photo credit: iStock/Anchiy
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.

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

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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Pawnshop Loan: What Is It & How Does It Work?

Pawnshop Loan: What Is It & How Does It Work?

If you’re strapped for cash and have a hard time qualifying for traditional loans, or you live in an underbanked area, you may be considering a pawnshop loan. They appear to be a convenient option — consider that there are 10,000 pawn shops currently operating in the country — but they can also come with significant disadvantages, including high fees.

Before putting your valuables down in pawn, learn more about what pawnshop loans are and how they work.

What Is a Pawnshop Loan?

A pawnshop loan is a secured, or collateralized, loan. To borrow the money you must produce an item of value as collateral – such as a piece of jewelry, a musical instrument, electronics, or an antique – that provides backing for the loan. You and the seller agree to a loan amount and a term. If you don’t pay back the loan within the agreed amount of time, the pawnshop can sell the item to recoup the amount of the loan.

Pawnshops will typically offer you 25% to 60% of the resale value of an item. The average size of a pawnshop loan is $150 over the course of 30 days.

Aside from the need for collateral, there are few other requirements to qualify for a pawnshop loan. You typically don’t need to prove your income or submit to a credit check.

Recommended: Loans Based on Income

How Do Pawnshop Loans Work?

Pawnshops don’t charge interest on the loans they offer. However, the borrower is responsible for paying financing fees that can make the cost of borrowing higher than other loan options.

Regulations around what pawnshops can charge vary by state, but you could end up paying the equivalent of many times the interest charged by conventional loans.

Say you bring in a $600 guitar to a pawnshop, and they offer you 25% of the resale value, or $150. On top of that, let’s say the pawnshop charges a financing fee of 25%. That means you’ll owe $37.50 in financing fees, or $187.50 in total.

If you agree to the loan, the pawnbroker will typically give you cash immediately. They’ll also give you a pawn tick, which acts as a receipt for the item you’ve pawned. Keep that ticket in a safe place. If you lose it, you may not be able to retrieve your item.

You’ll usually have 30 to 60 days to repay your loan and claim your item. According to the National Pawnbrokers Association, 85% of people manage to do this successfully. When a borrower pays off a pawnshop loan, they can retrieve the item they put in pawn. For those who don’t, the pawnshop will keep the item and put it up for sale. There is no other penalty for failing to pay off your loan, but you do lose your item permanently.

Recommended: Can You Get a Loan Without a Bank Account?

The Pros and Cons of Pawnshop Loans

In general, it’s best to seek traditional forms of lending, such as personal loans, if you can: They tend to be cheaper and help you build credit. However, if you need cash the same day and you don’t qualify for other loans, you might consider a pawnshop loan. Carefully weigh the pros and cons to help you make your decision.

Pros of a Pawnshop Loan

•  Access to cash quickly. When you agree to a pawnshop loan, you can typically walk out with cash in hand immediately.

•  No qualifications. The ability to provide an object of value is often the only qualification for a pawnshop loan.

•  Failure to pay doesn’t hurt credit. While you will certainly lose the item that you put in pawn if you don’t pay back your loan, there are no other ramifications. Your credit score will not take a hit.

•  Loans aren’t sent to collections. If you don’t pay back your loan, no collections agency will hound you until you pay.

Recommended: How Do Collection Agencies Work?

Cons of a Pawnshop Loan

•  High fees. The financing fees associated with pawnshop loans can be much more expensive than traditional methods of obtaining credit, including credit cards and personal loans. Consider that the average interest rate on a personal loan is 9.41% as of February 2022, according to the St. Louis Federal Reserve, whereas pawnshop financing fees could range from 12% to 240% or more.

•  Loans are relatively small. The average size of a pawnshop loan is just $150. If you need money to cover a more costly expense, you may end up scrambling for cash elsewhere.

•  You won’t build credit. Pawnshop loans are not reported to the credit reporting bureaus, so paying them off on time doesn’t give you credit score a boost.

•  You may lose your item. If you can’t come up with the money by the due date, you’ll lose the item you put in pawn. (Same if you lose your pawn ticket.)

Pros and Cons at a Glance

Pros

Cons

Quick access to cash. Financing fees can range from 12% to 240% and contribute significantly to the cost of the loan.
No qualifications, such as credit check or proof of income. Pawnshop loans aren’t reported to the credit reporting bureaus, so they won’t help you build credit.
Failure to pay doesn’t hurt credit. If you fail to pay back your loan on time, or you lose your pawn ticket, you can’t reclaim your item.
Loans can’t be sent to collections. Loans are relatively small, just $150 on average.

What Is a Pawnshop Title Loan?

A pawnshop title loan is a loan in which you use the title of your car as collateral for your loan. You can typically continue driving your vehicle over the course of the loan agreement. However, as with other pawnshop loans, if you fail to repay your loan on time, the pawnbroker can seize your car.

Typical Requirements to Get a Loan Through a Pawnshop

There are typically few requirements to get a pawnshop loan, since the loan is collateralized by the item you put in pawn and the pawnbroker holds on to that item over the course of the loan. However, pawnbrokers do want to avoid dealing in stolen goods, so they may require that you show some proof of ownership, such as a receipt.

Alternative Loan Options

There are a number of benefits of personal loans that make them a good alternative to pawnshop loans. Personal loans are usually unsecured, meaning there is usually no collateral for a personal loan. Lenders will typically run a credit check, and borrowers with good credit scores usually qualify for the best terms and interest rates. That said, some lenders offer personal loans for people with bad credit.

If you qualify for a personal loan, the loan amount will be given to you in a lump sum, which you then repay over a course of monthly installments. The money can be used for any purpose.

Personal loans payments are reported to the credit reporting bureaus, and on-time payments can help boost your credit score.

The Takeaway

If you only need a small amount of money, you don’t qualify for other credit, or if you’re looking for a loan without a bank account, you may consider a pawnshop loan. Just beware that they are potentially costly alternatives to other forms of credit.

Consider a personal loan option from SoFi, which offers a low fixed rate for those who qualify.

Compared with high-interest credit cards, a SoFi Personal Loan is simply better debt.

FAQ

How is a loan obtained through a pawnshop?

To borrow money from a pawnshop you must present an item of value that can act as collateral for the loan. The pawnbroker may then provide a loan based on the value of that item.

What happens if you don’t pay back your pawnshop loan?

If you fail to pay back your pawnshop loan on time, you won’t be able to reclaim your item, and the pawnshop will sell it to recoup their losses.

What’s the most a pawnshop loan will pay?

On average, a pawnshop will loan you about 25% to 60% of an item’s resale value, and the average pawnshop loan is $150 over 30 days.


Photo credit: iStock/miriam-doerr
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.

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

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Guide to Prime Loans

You may have heard that the better your credit score, the better your potential loan rates and offers may be. Why is that? That’s because your credit score determines your creditworthiness. A good credit score may qualify you for what’s known as a prime loan.

Here, what a prime loan is and how it works.

Understanding a Prime Loan

To understand a prime loan, it’s important to understand the prime rate. The prime rate is established by banks as the interest rate given to prime customers. This number is based on the federal funds rate set by the Federal Reserve.

When interest rates are low, the prime rate across banks will be low. But if the Fed raises interest rates, rates across banks — even for prime borrowers — will also increase.

This matters when you’re considering a fixed-rate loan, like a mortgage or a personal loan. Lower interest rates now mean that you will lock in a lower rate for the life of your loan. But prime rates also extend to variable-rate debt, like credit card debt or a home equity line of credit (HELOC).

Prime Loan Borrowers

When the bank sets its rates, they set a prime rate as the basis of their loan rates, which may be higher or lower based on the creditworthiness of each applicant. The prime rate is set considering the Federal Reserve rates, as well as other factors including the bank’s own desired return on the loan. But in general, prime rates are very similar, if not identical, between major banks.

According to the Consumer Finance Protection Bureau (CFPB), borrowers with a credit score of 660 to 719 generally receive prime rates. Borrowers with scores above 720 are considered “super-prime” borrowers, and will receive even more favorable interest rates. The interest rates for super-prime borrowers will be lower than the prime rate.

Here are the rate categories for borrowers:

Category

Credit Score

Deep subprime Below 580
Near prime 620 to 659
Prime 660 to 719
Super prime Above 720

Knowing your credit score can help you assess the category you will fit in.

Prime Loan Rates

As mentioned above, prime loan rates are set by the bank and change based on the federal fund rate. When the federal fund rate moves, so will the prime rate. As of this writing, the prime rate is 4.75%, according to the Wall Street Journal.

So does this mean that any loan you apply for will have a 4.75% interest rate? No. APR rates will vary based on the type of loan you apply for. Banks may have their own formula but there are some rules of thumb.

For example, credit card interest rates are generally set at “prime + 13.99%.” As the prime rate changes, so will your interest rate. But in general, the higher your credit score, the lower your interest rates will be.

Prime Loan Example

How Does the Prime Loan Rate Affect You?

The prime loan rate affects everyone. From buying a car to buying a house to opening a credit card, the prime loan rate will determine how much interest you’ll pay. You may be more vulnerable to prime loan rate fluctuations if you have a lot of variable interest loans, like credit card debt. As the prime rate climbs, so too might the APR of your cards. When you see a prime rate hike, it can mean that your APR will quickly rise as well.

Conversely, when the prime rate falls, some people use that time to refinance a mortgage or lock in a rate for a loan, like a personal loan or an auto loan.

Because the prime rate affects credit cards, some people who carry a high credit card balance who have good credit may consider using a personal loan to consolidate their credit card debt. This is one way to use a personal loan to pay less overall interest, depending on the rates offered.

What Is the Difference Between a Prime Loan and Subprime Loan?

There are a few differences between a prime loan and subprime loan. Not only do prime loans have the most favorable interest rates, but they also may affect how large a loan you can take, among other things. Here, some differences between a prime loan vs. a subprime loan.

Interest Rates

Interest rates are one of the most obvious differences between a prime and subprime loan. But even within categories, like a prime borrower, there may be subcategories that receive different interest rate offers. For example, a prime borrower with a credit score near super-prime territory may receive more favorable rates than a borrower whose credit is close to subprime.

Repayment Periods

A subprime borrower may also have fewer options when it comes to repayment periods. They may have a shorter repayment period at a higher interest rate than a prime borrower.

Down Payments

A prime borrower may have a low, or no, down payment required for a loan. But subprime borrowers may have to make a larger down payment to qualify for a loan. This is especially true for loans like car loans or mortgages.

Loan Amounts

Prime borrowers may have access to greater loan amounts than subprime borrowers.

Fees

Non-prime borrowers may also have to pay more loan fees than a prime borrower. This may be due to the types of loans they can access. If they can’t get a loan from a traditional bank, a subprime borrower may seek payday loans or other loans that require fees. Different types of personal loans besides loans offered by traditional banks may include payday loans, hard money loans, and other loans that may require collateral, or have high fees and interest rates.

What Do You Need To Qualify for a Prime Loan?

Your credit score will determine what type of loan is offered to you. But a lender will take other details into consideration, including your credit history and employment status. But a good rule of thumb is to make sure your credit score is as high as possible before you apply for a loan to receive the most favorable terms.

The Takeaway

The prime rate is out of your control. But so much of your interest rate is under your control, including your credit score. Building your credit score can help you have the most competitive loan options, whether you’re researching personal loans, credit card offers, mortgages, or refinancing your student loans.

If you’re applying for a personal loan, personal loan approval tips include assessing your credit score. If it’s not where you’d like it to be, you might want to consider building your credit before applying for a personal loan. Subprime personal loans may exist, but they may be for lower amounts at higher interest rates than ones offered for prime borrowers.

Rates may be different across banks so it’s worth comparing personal loan interest rates. You can check your rate for personal loans without it affecting your credit score. Doing so can help you determine the types of loan rates, as well as amounts, you may be eligible for.

Check your personal loan rate from SoFi here.

FAQ

What does prime mean in loans?

Prime in loans means the borrower is considered a low lending risk. The bank will set a prime rate that will then be the basis for interest rates across lending products, including mortgages, car loans, personal loans, and credit card offers.

Is there a difference between prime loans and subprime loans?

Yes. Prime loans are given to people whose credit scores generally fall into a 660 to 719 range. (Borrowers with credit scores above that are considered superprime borrowers and may be given even more favorable rates.) But there are also categories within the prime range — people with higher credit scores may get a lower rate than people with lower scores, even if their scores fall into the “prime” category.

In addition to interest rates, prime borrowers may also have longer repayment period options, more access to credit, lower fees, and a smaller down payment obligation than subprime borrowers.

What is the current loan prime rate?

The current loan prime rate is 4.75%.


Photo credit: iStock/Imagesrouges
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.

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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Interior Decoration Tips for Furnishing a New Home

Interior Decoration Tips for Furnishing a New Home

Turning a new space into a home can be daunting. By far the hardest part of furnishing a house from scratch is figuring out where to start. One good first step is deciding on a budget — ideally, before you move out of your old place.

However you proceed, recognize that it’ll take some trial and error: At some point, you’re going to realize that something you had your heart set on is not what you want to spend your money and time on after all.

Whether you’re a minimalist or maximalist, we’ll show you tips for furnishing a home on a realistic timeline and budget.

Recommended: Things to Budget for After Buying a Home

6 Tips for Furnishing a Home

The key to finding the right home furnishings is to follow your instincts. There isn’t one universal definition of good taste. This is your taste, and your home. Here are a few guidelines.

1. Consolidate Your Stuff

Before you set a budget for new home furnishings, walk through your old place and identify what you want to keep (if anything) and what you’ll need to purchase. A new home is the perfect opportunity to say goodbye to pieces that don’t suit your lifestyle anymore. (“What would Marie Kondo do?” is still a good mantra.)

Start with the key pieces of furniture you’ll need for your home to be functional — beds, couches, dining table, area rugs. Did you recently purchase your dream bed, or have you had the frame since college? Decide what to move and what to chuck.

You can sell or donate furniture, depending on value.

2. Prep Before the Schlep

A rule of thumb for interior decoration: Pulling up carpeting and painting the walls are much easier to do before any furniture is brought into the house. Before move-in day, create a list of any changes you would like to make to the existing interior. Ask yourself if you want to include minor home repairs in this budget or create a separate one.

Here are some basics to consider before furnishing a house:

•   Walls and ceilings: Choose a paint color, patch holes, remove popcorn ceilings

•   Floors: Remove or add carpet, put in hardwood floors, refinish floors

•   Appliances: Select kitchen appliances, bring in a washer and dryer, install ceiling fans and lighting fixtures

•   Kitchen and bath upgrades: Redo the kitchen counters, choose a backsplash, retile the bathroom

•   Laundry room: A laundry room remodel can create a more efficient space or a room with a dual function.

Once you’ve made the list of potential changes, determine what needs to be tackled now and what can wait. You may be able to live with the blue tile in the kitchen, for instance, but the pink walls in the bedroom aren’t going to cut it. Next, determine what you can do yourself and what will require professional attention. You may want to research reliable contractors in your new neighborhood before you need one.

Awarded Best Online Personal Loan by NerdWallet.
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3. When Buying Furniture, Start with Key Rooms

The living room and main bedroom are two places you likely spend the most time in, so these are good rooms to prioritize. You don’t need to have a fully organized pantry before you have an acceptable place to sleep.

A bed and a couch may be worth spending extra money on in order to get something that will last for years and tie the room together.

•   Bedroom: A good bed frame and mattress are wise investment pieces. And it can be a good idea to choose a whole bedroom vibe before buying new pieces so that you have a cohesive theme.

•   Living room: A couch is the centerpiece here, so that’s the investment piece (and a good decor starting point). Consider size, comfort, and color. A big TV or entertainment center may also be part of the equation.

•   Home office: You may be able to offset some of the cost with a home-office tax deduction.

4. Keep Things Organized While You Unpack

The two elements that really shape the feng shui of a home are organization and decor. An organized pantry or closet makes life easier, while a curated bookshelf can subtly affect the feel of an entire room.

See what you already have that can be functional — baskets, bins, and such. As you unpack your belongings, use these tools to stay organized. Depending on your lifestyle, organizational outlays for your new home could range from slimline hangers to a closet remodel.

5. Little Things Add to the Big Picture

Lay out all decor pieces you own, including art, books, family heirlooms, photographs, trays, candles, and vases. Ideally, you’ve gone through most of this stuff in the consolidation phase and kept only things that are meaningful to you or fit your home’s aesthetic.

Once you see everything in one place, begin picking out things that go together. There are no wrong answers here — you might choose travel books for your office and a series of family heirlooms and photographs for your bedroom. This is the most forgiving aspect of interior decoration because smaller decor pieces can be easily shifted.

Once all of your belongings are in place and the art is hung, you can browse online to find some great pieces that resonate with you and your space. Now may be the time to frame that print you’ve been hanging on to, or to splurge on the perfect pillows for your couch. These may seem like small additions, but they can make a huge difference.

6. Space Out the Purchase of Big-Ticket Items

It’s OK if your home looks like a work in progress for a while. Once you’ve consolidated, organized, and decorated, you may want to buy your investment pieces. Pick three or four non-negotiables — perhaps a bed, sofa, television, and live edge dining table — and get those into the house. Then focus on buying art, rugs, and lights you’ve been eyeing.

How Much Does It Cost to Furnish a House?

One way to estimate interior costs is to set a budget that’s a percentage of your home’s price — typically 10% to 50%. For a $400,000 home, for instance, you’re looking at a baseline of $40,000.

Remember, that includes any painting, flooring work, and minor updates in addition to new home furnishings. That figure also accounts for all interior-related costs in your first few years of home ownership: the inexpensive starter pieces you tolerated until the perfect item materialized, the well-intentioned mistakes, and so forth.

If you don’t have a separate fund earmarked for new home furnishings, it can be hard to come up with a chunk of cash right after closing. One option is taking out a personal loan. In fact, funding home updates and furnishings is one of the most common uses for personal loans.

There are different types of personal loans. Typically, you can borrow between $5,000 and $100,000, and pay it back in equal installments over a term of up to seven years. Fixed interest rates for personal loans tend to be lower than for credit cards.

Here are some cost ranges for key pieces to help you create a budget.

Recommended: Personal Loan Calculator

Painting: $500 to Thousands

The cost of paint supplies will depend on the number of rooms, amount of trim for doors and windows, and the quality of the paint. Paint is about $15-$40 per gallon, but a designer brand can cost much more than that. A gallon of paint covers about 400 square feet, and two coats may be recommended. Factor in all the myriad paint supplies to buy if you DIY.

Expect to pay a painter $2 to $6 per square foot for labor and materials, according to Home Advisor. For a 2,300 square foot home, you can pay from $4,000 to $11,000.

Bed: $200 to $2,000 and Up

Simple bed frames are available from IKEA or Wayfair in the $100-$200 range. Inexpensive bed frames and headboards are also easy to find at thrift stores and yard sales. While you may not want to furnish your entire house with thrifted pieces, one or two second-hand items can free up a lot of cash to put toward a couch or higher-end mattress.

You can also find mid-priced selections from $200 to $1,000 at those retailers as well as more design-driven vendors such as West Elm, Raymour & Flanigan, and Crate and Barrel.

Mattress: $300 to $2,000 and Up

Mattress-in-a-box brands such as Zinus, Allswell, and Nectar offer mattresses starting at a few hundred dollars. Higher-end brands like West Elm, Raymour & Flanigan, and Tempur-Pedic can run upwards of $3,000.

Sofa: $200 to $3,000

The IKEAs, Wayfairs, and Targets of the world offer many starter pieces for a few hundred dollars. Midrange selections run from $300 to $1,000 from these and other retailers, such as Ashley Furniture, West Elm, Raymour & Flanigan, Crate and Barrel, and CB2.

At the higher end of the spectrum, more sophisticated designs are available at Roche Bobois, Ligne Roset, Design Within Reach, and other luxury brands. And don’t forget second-hand designer marketplaces — such as Apt Deco, Kaiyo, 1st Dibs — and antique stores.

Dressers and Wardrobes: $500 to $5,000 and Up

Bedroom furniture can be found at the same kinds of retailers and run from modest to extravagant. While coordinating bedroom sets used to be de rigueur, in recent years they’ve been replaced by a less matchy-matchy aesthetic.

Rugs: $30 to $1,000 and Up

Rugs are a cost that’s easy to forget about, and they can be a lot more expensive than you expect. A high-quality Persian rug can run thousands of dollars, but some of the midrange retailers discussed have area rugs starting at $100. Look out for Labor Day and Black Friday sales, too.

Organizational Pieces: $20 to $300 and Up

Baskets, bins, storage ottomans, and closet systems can bring order to chaos. The Container Store offers inspiration.

What Home Decor Style Fits Your Personality Quiz

The Takeaway

When furnishing a home, start with a budget. One rule of thumb suggests putting aside 10% to 50% of your home’s price for interior decorating. Before you move, cull your belongings and prepare the new space for move-in (pulling up carpet, redoing countertops, remodeling a closet). Then identify initial key purchases. Many homeowners today choose a mix of high and low-end furnishings, plus second-hand items from thrift stores and online designer dealers.

When you’re making your new house a home, a personal loan can help ensure that you don’t have to cut corners. SoFi offers no-fee option personal loans that come with a fixed rate.

Check your rate in 60 seconds without affecting your credit score†, and get your loan funded as soon as the same day you’re approved.*

FAQ

What is a good budget for furnishing a new home?

Some experts recommend setting your home furnishings budget as a percentage of your home’s price: say, 10% to 50%. That includes any cosmetic work done on the interior before you move in, as well as new home furnishings and decor pieces.

Can you furnish your home with a personal loan?

If you have an emergency fund tucked away and feel comfortable making another monthly payment on top of your mortgage, a personal loan can be a good option. In fact, home furnishings and updates are one of the most common uses for a personal loan. Just be prepared to prove to lenders that your debt-to-income ratio will remain below 36%.

Can you furnish a new home with a $10,000 personal loan?

A personal loan is a good option for covering new home furnishings. Just make sure $10,000 will cover your costs — you can’t add to a personal loan amount after the fact. One rule of thumb suggests budgeting 10% to 50% of your home’s price for furnishings and interior updates.


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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Prime Loan vs Subprime Loan: What Are the Differences?

Prime Loan vs Subprime Loan: What Are the Differences?

Labels like prime and subprime help denote loans that are designed for people with different credit scores. Prime loans are built for borrowers with good credit, while subprime loans are designed for those with less-than-perfect credit. While subprime loans can help this group finance big purchases like a home or a car, they also come with potentially significant downsides.

Here’s a look at what you need to know about prime and subprime loans to help you make better borrowing decisions.

Prime Loan vs Subprime Loan

When you’re shopping for a loan, lenders will consider your credit history to help them determine how much default risk they’d be taking on were they to loan you money.

Your credit score is a three-digit representation of your credit history that lenders use to understand your creditworthiness. While there are different credit scoring models, the FICO® score is one of the most commonly used. Lenders and other institutions may have varying models for which credit scores determine prime vs subprime loans.

For example, Experian, one of the three major credit reporting bureaus, defines a prime loan as requiring a FICO score of 670 to 739. With a score of 740 or above, you’re in super prime territory. Borrowers with a FICO score of 580 to 669 will likely only qualify for subprime loans.

Here are some key differences between the two that borrowers should be aware of.

Interest Rates

Borrowers with lower credit scores are seen as a greater lending risk. To offset some of that risk, lenders may charge higher interest rates on subprime loans than on prime loans.

What’s more, many subprime loans have adjustable interest rates, which may be locked in for a short period of time after which they may readjust on a regular basis, such as every year. If interest rates are on the rise, this can mean your subprime loan becomes increasingly more expensive.

Down Payments

Again, because subprime borrowers may be at a higher risk of default, lenders may protect themselves by requiring a higher down payment. That way, the borrower has more skin in the game, and their bank doesn’t need to lend as much money.

Loan Amounts

Subprime borrowers may not be able to borrow as much as their prime counterparts.

Higher Fees

Fees, such as late-payment penalties or origination fees, may be higher for subprime borrowers.

Repayment Periods

Subprime loans typically carry longer terms than prime loans. That means they take longer to pay back. While a longer term can mean a smaller monthly payment, it also means that you may end up paying more in interest over the life of the loan.

Prime Loan vs Subprime Loan: What Type of Loans Are They?

Prime and subprime options are available for a variety of loan types. For example, different types of personal loans come as prime personal loans or subprime personal loans \. When you’re comparing personal loan interest rates, you’ll see that prime loans offer lower rates than subprime. Common uses for personal loans include consolidating debt, paying off medical bills, and home repairs.

You can also apply for prime and subprime mortgages and auto loans. What is considered a prime or subprime score varies depending on the type of loan and the lender.

Recommend: How to Get Approved for a Personal Loan

Prime Loan vs Subprime Loan: How to Get One

By checking your credit score, you can get a pretty good idea of whether you’ll qualify for a prime or subprime loan. That said, as mentioned above, the categories will vary by lender.

The process for applying for a prime or subprime loan is similar.

Get Prepared

Lenders may ask for all sorts of documentation when you apply for a loan, such as recent paystubs, employer contact information, and bank statements. Gather this information ahead of time, so you can move swiftly when researching and applying for loans.

Research Lenders

Banks, credit unions, and online lenders all offer prime and subprime loans. You may want to start with the bank you already have a relationship with, but it’s important to explore other options too. You may even want to approach lenders who specialize in subprime loans.

To shop around for the best loan, you may want to apply for a few. That way you can see which lender can offer you the best terms and interest rates. Applying for credit will trigger a hard inquiry on your credit report, which will temporarily lower your credit score.

Consider a Cosigner

If you’re having trouble getting a subprime loan, you may consider a cosigner with better credit, often a close family member. They will be on the hook for paying off your loan if you miss any payments, so be sure you are both aware of the risk.

Subprime Loan Alternatives

There are alternatives to subprime loans that also carry a fair amount of risk. Some, like credit cards, are legitimate options when used responsibly. Others, like payday loans, should be avoided whenever possible.

Credit Cards

Credit cards allow you to borrow relatively small amounts of money on a revolving basis. If you pay off your credit card bill each month, you will owe no interest. However, if you carry a balance from month to month, you will owe interest, which can compound and send you deeper into debt.

Predatory Loans

Payday loans are a type of predatory loan that usually must be paid off when you receive your next paycheck. These lenders often charge high fees and extremely high interest rates — as high as 400%, or more. If you cannot pay off the loan within the designated period, you may be allowed to roll it over. However, you will be charged a fee again, potentially trapping you in a cycle of debt.

The Takeaway

Subprime loans can be a relatively expensive way to take on debt, especially compared to their prime counterparts. If you can, you may want to wait to increase your credit score before taking on a subprime loan. You can do so by always paying your bills on time and by paying down debt. That said, in some cases, taking on a subprime loan is unavoidable — you may need a new car now to get you to work, for example — so shop around for the best rates you can get.

If you’re paying more than 20% interest on your credit cards, a personal loan could be a great way to consolidate that high-interest debt. Borrow up to $100K with fixed rates and low APRs for those who qualify, and you could start paying a lower fixed monthly payment.

Explore personal loans of $5,000 to $100,000 from SoFi with no hidden fees.

FAQ

Why are subprime loans bad?

Subprime loans are not necessarily bad. However, these loans charge higher interest rates and fees than their prime counterparts. Borrowers may also be asked to put down a higher down payment, and they may be able to borrow less.

What is the difference between subprime and nonprime?

Nonprime borrowers have credit scores that are higher than subprime but lower than prime.

What type of loan is a subprime loan?

A variety of loan types may include a subprime category, including mortgages, auto loans, and personal loans. All loans in the subprime category likely have higher interest rates and fees.


Photo credit: iStock/Nikola Stojadinovic

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.

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

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