Is Money Everything in Life?

Is Money Really Everything?

Some people may believe that money is everything, but is it actually? After all, money is embedded in a sense of well-being, from healthcare to the ability to pursue one’s passions. Money grants security and freedom — and, at its core, it ensures basic survival.

But research also suggests that having more money is correlated with depression and can lead to more stress. Comparing money with one’s peers can create dissatisfaction, and money arguments are the second-highest cause of divorce.

So is money really everything in life? Here’s a closer look at:

•   Is money everything in life?

•   What can money do for us?

•   What can money not do for us?

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Needing Money to Survive

Money has the ability to improve one’s life, but it can also create complications and lead to unhappiness. The question of whether a person needs more money to be happy is certainly up for debate (and researchers continue to conduct new studies about this very topic), but amid all the misconceptions about money, there is a fundamental truth: We need money to survive.

According to the American Academy of Family Physicians (AAFP), poverty and low-income status can lead to shorter life expectancy, higher death rates for the 14 leading causes of death, and higher infant mortality rates.

From food and shelter to health care and education, money provides the things needed to survive.

What Money Can Do For Us

Is money everything? Probably not: Things like love, friendship, time, and passion are all important aspects of life (though money can help in those areas —for example, money can enable you to pursue passions and afford experiences with family and friends).

But even if money isn’t everything, it can do a lot of important things, such as:

Meeting Basic Needs

Money allows us to meet our most basic needs, like food, shelter, and health care. Without those things, we would die.

On Maslow’s hierarchy of needs — a popular tenet of psychology — humans must satisfy such basic needs before they can focus on more complex needs like love and belonging, esteem, and self-actualization.

Recommended: How to Manage Your Money

Paying Down Debts

Multiple studies indicate that carrying debt is bad for your mental and physical health. Adverse effects include high blood pressure, anxiety, depression, and even a weakened immune system.

On top of that, debt can lead to money fights with a significant other. It can also impact your ability to secure credit in the future — whether for a car, house, or even a credit card.

Thus, having enough money to pay down your debts can help avoid a lot of figurative and literal headaches.

Recommended: Paying Off Debt: 9 Strategies to Try

Improving Our Quality of Life

Beyond meeting basic needs, money can help improve quality of life. Having more money makes it easier to see expensive doctors, join a gym, and buy healthier foods. It also enables the pursuit of higher education without needing to open a student loan.

Money also allows you to afford experiences with friends and family — whether it’s going to a concert, affording a family vacation, or just having a drink with a coworker. Beyond that, money allows a person to pursue passions and hobbies, such as gardening, woodworking, painting, playing in sports leagues, and fixing up cars.

Feeling Secure and Free

Having enough money to pay the bills and provide for your family can create a sense of security. With a well-padded emergency fund, you may not worry about the cost of emergencies like unexpected vet bills or car trouble like those living paycheck to paycheck might.

Not only can money provide you with a sense of security, but it can also give you more freedom to pursue passions and buy material goods you enjoy without worrying about the price tag.

Recommended: 5 Ways to Achieve Financial Security

Making a Difference

Parents with more money may be able to provide things for their children that others cannot — like better education for a more promising future. Beyond your own family, money can allow you to make a difference in the world through charitable donations to causes you care about.

What Money Can’t Do For Us

After reading the list above, you may wonder, Is everything about money? While money can purchase material possessions and enable certain experiences, there are some things money simply cannot do.

Buying More Time

No matter how much money you have, no one can buy more time. If you spend a large chunk of your life working at a job you don’t like — and miss out on experiences and memories with people you love — you can’t buy that time back. And while deep pockets can perhaps enhance one’s health and healthcare, it’s not as if it can necessarily extend your life.

Creating Real Relationships

You cannot buy connections with true friends and family. You may win new friends with more money, but real relationships are based on love and respect for one another. The more time you spend trying to make money, the less time you’ll have to focus on building relationships with people you care about.

Recommended: How to Change Your Money Mindset

Fulfilling Passions

Some people may have high-paying jobs and love what they do. But others may take high-paying jobs just for the paycheck, even if there’s something else they’d rather be doing.

While it’s important to earn money to care for yourself and family, remember that it’s also valuable to allow yourself to do things that make you happy.

Can Money Buy You Happiness?

Is money everything in life? Clearly, money can offer security and opportunities — and allow you to meet basic needs — but there are other things in life worth pursuing.

But can money buy you happiness? Science says yes, though researchers continue to debate the extent to which it can.

More than a decade ago, Daniel Kahneman and Angus Deaton released their now-famous research that indicates money does buy you happiness, to a certain point. According to this research, money no longer improves emotional well-being and happiness beyond $75,000 a year.

A more recent study, however, throws that into question. The 2021 paper by Matthew Killingsworth demonstrates a continued, linear correlation between money and happiness beyond $75,000. That is, a person who makes $100,000 a year could scientifically be happier than one who makes $75,000.

Of course, other research demonstrates that money leads to unhappiness. For example, per capita income in the United States increased by 150% from 1946 to 1990, yet the percentage of people who considered themselves happy dropped during that time.

Research also shows that more income can mean more stress, that materialism can contribute to unhappiness, and that comparing one’s finances with one’s peers can contribute to dissatisfaction.

So can money buy you happiness? The answer: yes and no.

Recommended: 30 Low-Stress Jobs for Introverts

What’s More Important Than Money?

Science can only go so far to prove fundamental truths about the human experience. How can a person truly measure the value of love, family, and friendship to each individual? And how can you separate money from things you deem important, like your mental and physical health?

Understanding that it’s a nuanced subject, here are some things that you may find are more important than wealth; things that refute the the idea that money is everything:

•   Love: For many people, sharing love and companionship with friends, family, partners, and children is paramount. It’s the most valuable thing in the world.

•   Health: Having a sound body and sound mind are important. Many rely on jobs for health insurance and the money they need to afford everything from prescriptions to gym memberships to emergency room visits. However, one can overdo it at work. It can be important to remember to also focus on your mental health, especially if you’re working too much and too hard to earn your money.

•   Passion: While some people would prefer to work a high-pressure job for more money, the Great Resignation (in which people left their jobs in droves as the COVID-19 pandemic progressed) has shown us that many people would rather pursue their passions and accept a lower paycheck for it. To them, a passion-filled life is more important than money.

•   Time: Each person has a finite amount of time in life. If you spend too much of it focused on making money, you may miss out on life-changing experiences and wonderful memories with friends and family.

Recommended: How to Save Money While Living Sustainably

The Takeaway

Money can allow you to satisfy basic needs like food and shelter, but it may also enable you to pursue higher education, access higher-quality health care, and fund experiences and hobbies that you are passionate about. That said, money can never buy you more time or true relationships, and having more money may even make you unhappy. So while money may matter, it’s not necessarily what makes the world go around when one thinks about happiness at a basic, human level.

3 Money Tips

1.    Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

2.    If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

3.    When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Where did the phrase “money isn’t everything” come from?

The origin of the phrase “money isn’t everything” isn’t clear, but it’s a common expression in the English language. The intent of the expression is that you shouldn’t focus solely on money because other things — love, friendship, time, passion, etc. — are also important and can bring you happiness.

What happens if we are too dependent on money?

Money is important for affording the basic things we need to survive, but research shows that focusing too much on money can lead to more stress, isolate us from people we care about, and even cause depression.

Is too much money a bad thing to have?

We need money to survive and to improve our quality of life. Having more money allows us to care for ourselves and the people we love. However, if you’re earning that money at the expense of your mental and physical health — and missing out on core life experiences because you’re busy with work — having more money could be a bad thing. Some research indicates that having more money can lead to unhappiness and even depression.


Photo credit: iStock/Irina Kashaeva

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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


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Who Regulates My Bank?

If you’re curious about how banks are regulated and your money is protected, it’s important to understand that multiple agencies help keep America’s financial institutions safe and compliant with the law. Some of the key regulatory agencies you may hear about are the Office of the Comptroller of the Currency (OCC), the Federal Reserve (the Fed), and the Federal Deposit Insurance Corporation (FDIC), although there are others involved as well.

This topic has been in the spotlight recently. You may have read the headlines and wondered who those agencies were and how they knew when to spring into action to help ensure that customers’ finances didn’t suffer.

Here, you can learn more about how bank regulation works, including:

•   What is the history of bank regulation?

•   What exactly do bank regulators do?

•   Who regulates banks?

What Do Bank Regulators Do?

Now that you have read about a few of the critical moments in U.S. banking regulation history, you may be interested to get a little more insight into what bank regulation accomplished during the ups and downs of America’s economy.

Here are some of the key points to know about what bank regulators do and how they can provide a sense of financial security:

•   Review the financial health of banks and step in as they deem necessary

•   Regulate foreign banks that are in business in the United States

•   Examine banks to make sure their practices are safe, sound, and fair

•   Intervene if banks are failing and ensure that depositors are protected up to the limits of insurance (and sometimes beyond, as mentioned above).

Recommended: Guide to Opening a Bank Account as a Non-US Citizen

Who Regulates Banks?

The next aspect to delve into is who has the responsibility of regulating banks and can intervene when they deem necessary. Here are the three key players when it comes to oversight of commercial banks:

Office of the Comptroller of the Currency

The Office of the Comptroller of the Currency (OCC) is an independent bureau within the U.S. Department of the Treasury. Its role is to charter, regulate, and supervise America’s national banks and federal savings associations.

In addition, the OCC oversees federal branches and agencies of foreign banks doing business on U.S. soil.

The OCC describes its mission as:

•   Ensuring that these institutions conduct business in a safe and sound manner

•   Determining that there is equitable access to financial services and customers are treated fairly

•   Making certain that the banks it oversees are complying with all applicable laws and regulations.

The Federal Reserve

The Federal Reserve, or the Fed, is responsible for regulating a different set of entities: some state chartered banks, certain nonbank financial institutions, bank and financial holding companies, and foreign banking organizations.

The Federal Reserve is America’s central bank, and has a broad jurisdiction as it works to promote the health of the U.S. economy and the stability of the financial system. Among its key functions are:

•   Conducting on-site and off-site examinations of banks to make sure they are operating in accordance with applicable laws.

•   Making sure that banks have enough capital available to withstand economic fluctuations. This can involve reviewing balance sheets, projections, and other financial materials.

•   Possibly reviewing “resolution plans,” which detail how a financial organization would resolve a situation in which it was in financial trouble or failed.

Recommended: Federal Reserve Interest Rates Explained

The Federal Deposit Insurance Corporation

As mentioned above, the FDIC plays a role in insuring its member banks so that, in the rare event of a bank failure, depositors are covered for $250,000 per account holder, per ownership category, per insured institution.

However, the FDIC does more than this. It also supervises state-chartered banks that are members of the Federal Reserve. It this capacity, it oversees more than 3,500 banks, and does the following:

•   Checks for safe and sound operations

•   Examines institutions to be sure they are complying with consumer protection regulations and laws.

A Brief History of Bank Regulation

America’s banking history has taken some twists and turns, as regulation has gone in and out of favor. Here are some key points in U.S. banking to consider:

•   In 1791, the First Bank of the United States was created, but its charter was not renewed in 1811. The reason? While the bank provided some stability to the new nation’s economy, people worried that it put too much financial control in the hands of the federal government.

•   State banks began to flourish and funded the War of 1812, but, with a large amount of credit being extended, the federal government stepped in again, chartering the Second Bank of the United States in 1816.

•   There were again worries that the federal government had too much power over the nation’s purse strings. In 1836, the Second Bank was dissolved.

•   An era of free banking emerged, without federal oversight or, in many cases, the need to have an official charter to do business. The federal government tried to rein this in with the National Banking Act of 1863; the OCC was formed to charter banks and ensure that they backed their notes with U.S. government securities.

•   The next few decades were a bit of a bumpy ride, with bank panics, such as the Panic of 1907, occurring. The Federal Reserve was created in 1913 to help bring order to the economy.

•   With the debilitating Great Depression, which began in 1929, new regulations were needed. The FDIC was formed in 1933 to help shore up the faltering economy.

•   More recently, after a period of deregulation, the government responded to the financial crisis of 2007 and the subsequent Great Recession. It passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, designed to improve accountability and financial transparency in America’s financial system.

•   In 2021, President Biden signed an executive order that charged federal regulators with improving their oversight of bank mergers, as part of a larger effort to increase competition in the country’s economy.

•   An example of financial regulation in action occurred in mid-March 2023, when the federal government stepped in as two banks faltered. The government even took the step of guaranteeing deposits over the typical FDIC insurance maximum of $250,000 per depositor, per ownership category, per insured institution.

Recommended: How Much Money Do Banks Insure?

Who Regulates Credit Unions?

Not everyone, however, keeps their accounts at a bank. There are other financial institutions, such as credit unions.

If you have an account (or multiple accounts) at a credit union, the institution that holds your money will be regulated at either the state or federal level. The National Credit Union Administration (NCUA) has oversight of federal credit unions. State-chartered credit unions are regulated by their state.

Also, credit union accounts can be insured by NCUA vs. FDIC. It’s NCUA that provides $250,000 coverage per depositor, per ownership category, per insured institution.

Who Regulates Savings and Loan Associations?

As of 2023, there are 624 savings and loan associations (sometimes called “thrifts”) operating in the U.S. While these financial institutions used to be federally regulated by the Office of Thrift Supervision (OTS), that bureau ceased to operate in 2010.

Now, savings and loans are regulated by the Fed and the OCC. These organizations are tasked with ensuring the thrifts are following the applicable laws and operating safely and soundly.

How Do I Know Who Regulates My Bank?

If you are curious about how your own bank is regulated, you can try the following, which will narrow down the field somewhat. The OCC, which regulates national banks and savings associations, has a “Who Regulates My Bank?” website.

If you don’t get the answer you are seeking there, you can call the OCC Customer Assistance Group at 800-613-6743 for further assistance.

The Takeaway

Banking regulation helps keep our financial institutions safe and sound and compliant with the appropriate laws. It also helps protect our economic stability and consumers’ deposits.

Several agencies are involved in banking regulation, such as the Fed, FDIC, OCC, and NCUA. While they rarely need to take action such as overseeing a bank closure, it can be wise to know who they are and how they function. This can help you feel more secure, knowing that they are there, backing you up; transparency in financial matters is important.

If you’re looking for a home for your funds, SoFi can be the reliable, transparent banking partner you seek. When you open an online bank account with SoFi, you pay no account fees and earn a competitive annual percentage yield (APY), which can help your money grow faster. Plus, you have tools at your disposal to help increase your savings, such as Vaults and Roundups. And, with our Checking and Savings, you’ll spend and save in one convenient place and be able to track your money with our easy-to-navigate app.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do I know which agency regulates my bank?

The agency that regulates your bank will likely depend on the kind of bank that holds your money: The Office of the Comptroller of the Currency (OCC) oversees national banks and federal savings associations; the Federal Reserve (the Fed) regulates some state-chartered banks, certain nonbank financial institutions, bank and financial holding companies, and foreign banking organizations; and the Federal Deposit Insurance Corporation (FDIC) supervises state-chartered banks that are members of the Federal Reserve.

Does the FDIC regulate banks?

The FDIC regulates state-chartered banks that are members of the Federal Reserve. In addition, an array of banks are insured by the FDIC. This means that clients’ accounts are insured for $250,000 per depositor, per ownership category, per insured institution.

What level of government regulates banks?

Banks are typically regulated by the federal government, with the Office of the Comptroller of the Currency (OCC), the Federal Reserve (the Fed), and the Federal Deposit Insurance Corporation (FDIC) overseeing many banks. State-chartered banks may also be regulated by their state’s agency.


Photo credit: iStock/ismagilov
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


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.

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.

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How to Refinance Student Loans as an International Student

Refinancing your student loans can help save you money and reduce the amount of time you’ll be paying back your loan. However, as an international student, your options are limited. If you’re considering refinancing your student loans as an international student, it’s important to know where you can go and how it can help you.

How Refinancing Student Loans Works

Student loan refinancing is the process of replacing your current student loans with a new one, creating one monthly instead of several. You can refinance both federal and private student loans, potentially saving you money and time as you pay off your debt.

Student loan refinancing companies like SoFi offer fixed and variable interest rates that can be lower than what you’re currently paying on your student loans.

You can also choose from various student loan repayment options and terms, allowing you to pay off your loans as quickly as your budget allows. As you can guess, the shorter your repayment period, the more you’re likely to save on interest.

As you consider your strategy for paying off your student loan debt, refinancing can be a crucial element in helping you achieve your goal.

Another word you may hear that’s close to refinancing is consolidation. With other loans, the terms are typically synonymous. But with student loans, consolidation is generally associated with the federal direct loan consolidation program, while refinancing is typically done through a private lender.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

Where to Refinance Student Loans for International Students

It’s not always easy to know where to go, and it can be frustrating to get turned down over and over again because of your international student status. Many refinancing companies require you to be a U.S. citizen or permanent resident to be eligible but fortunately, some companies provide more flexibility for international students. For instance, SoFi as well as MPOWER can offer loans to international students. SoFi, for example, considers U.S. citizens, permanent residents, and people who hold a J-1, H-1B, E-2, O-1, or TN visa (as of the date of this article).

If you’re a permanent resident, you’ll need to either have at least two years left until your status expires or you’ve filed an extension. And if you’re a visa holder, you’ll need to have at least two years left before your status expires, or you’ve filed for a renewal or applied for permanent residency.

That said, qualifying based on your citizenship, resident, or visa status doesn’t necessarily mean you qualify based on all criteria. Student loan refinancing lenders also typically have credit and income requirements.

This means that if you don’t have an established credit history — which is not always the case for international students — you may have a tough time getting approved on your own.

If this is your situation, it might be worth getting a student loan co-signer, such as a trusted family member or friend who is a U.S. citizen or permanent resident, to apply with you to help strengthen the creditworthiness of your application. This can be helpful because this person acts as backup for your application — and lenders now can also rely on the co-signer for payment. Even if you do qualify to refinance your student loans on your own, a co-signer could help you get a lower interest rate.

To help improve your chances of getting approved with more favorable terms, such as a low rate, it’s a good idea to choose a co-signer who has a stellar credit history and a solid income.

Two Things to Consider Before Refinancing Your Student Loans

Refinancing might not be the right option for everyone. Here are three things to think about before you make your decision:

You May Not Qualify for a Lower Rate

Your eligibility and interest rate are based on several factors, including your credit history and income. As such, there’s no guarantee you’ll get approved for a lower interest rate than what you’re currently paying, even with a co-signer.

Also, if you already have a relatively low interest rate with your current lender, you may have a hard time getting an even lower rate.

Fortunately, some lenders, including SoFi, allow you to check your rate before you officially apply. This is done with a soft credit check, which doesn’t impact your credit score.

You May Not Qualify for a Lower Rate

Your eligibility and interest rate are based on several factors, including your credit history and income. As such, there’s no guarantee you’ll get approved for a lower interest rate than what you’re currently paying, even with a co-signer.

Also, if you already have a relatively low interest rate with your current lender, you may have a hard time getting an even lower rate.

Fortunately, some lenders, including SoFi, allow you to check your rate before you officially apply. This is done with a soft credit check, which doesn’t impact your credit score.

Refinancing Is Just One Piece of the Puzzle

As you think through your student loan repayment strategy, keep in mind that refinancing isn’t the end of the line. Once you complete the process of refinancing your loans, it’s important to still make sure you’re paying down your debt.

For example, consider getting on a budget and looking for ways to put extra cash toward your student loan payments each month.

Also, you could go with a shorter repayment period to save even more time and money on your debt.

The Takeaway

Be sure to check your eligibility requirements when it comes to refinancing student loans as an international student with private lenders. Also, consider adding a co-signer who is a U.S. citizen or permanent resident to strengthen your application.

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.


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.


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.

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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woman on laptop with credit card

How Do Student Loans Affect Your Credit Score?

Student loans don’t just help you pay for your college education. They also allow you to build a credit history, which can be useful when it comes time to get a mortgage or take out a car loan. The key, though, is to make regular on-time payment – or you may wind up with the sort of credit history that negatively impacts your ability to borrow money in the future.

Here’s a look at how student loans can affect your credit score.

How Is My Credit Score Calculated?

First, it can be helpful to know how your credit score is calculated. There are several types of credit scores, but FICO scores are the most commonly used by top lenders.

Your FICO score is calculated using five categories of data found in your credit reports, which each category weighted differently.

Category

Weight in Scoring

Payment History 35%
Amounts Owed 30%
Length of Credit History 15%
New Credit 10%
Credit Mix 10%

Based on these calculations, there are a few ways you can build good credit and maintain a good credit score. Paying your bills on time is a big one, since your payment history is the most heavily weighted factor. Paying down existing debt and keeping credit card balances low will also have a big effect. Less impactful, but important strategies, also include diversifying the types of credit you have, avoiding opening too many new accounts at once, and keeping accounts open to lengthen the average age of your credit history.

Serious savings. Save thousands of dollars
thanks to flexible terms and low fixed or variable rates.


What Student Loan Factors Affect My Credit Score?

Now that you know how credit scores generally work, you might be wondering how your student loans specifically impact your score.

Again, one of the biggest ways your student loans can affect your credit is whether or not you pay them on time. If you’re a responsible borrower who continually makes on-time student loan payments, you will see positive shifts in your credit score over time.

But if you fail to repay a loan or continually make late payments, your credit score will likely see a dip. If you default on your student loan, your credit score could drop significantly. The lender may also send your account to a collections agency, and you may have a more difficult time securing credit in the future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Does a Late Student Loan Payment Affect My Credit Score?

Making payments on time is important, but what you might not realize is exactly how damaging late payments can be. Even if your credit history is pristine, it only takes one report of 30 days past due to change your score. Once a late payment is reported to the credit bureaus, it could remain on your credit report for up to seven years.

To help ensure your payments are on time, you might want to set up an automatic payment plan. Most lenders will even give you a small discount on your interest rate for doing so. If you know you can’t make a payment on time, talk to your lender or loan servicer right away. The Department of Education, which is the lender for four types of Direct Loans, and even some private lenders, offer loan deferment or forbearance. These options allow a borrower to temporarily suspend payments, which will minimize the impact on their credit score.

Does It Hurt to Pay Off Student Loans Quickly?

Repaying student loans quickly will always improve your credit score, right? Not necessarily. In fact, you could even see a small, temporary dip in your credit score right after paying off a loan. There are several reasons for this. If student loans are your primary source of open credit, closing those accounts means you’re no longer building payment history. Prematurely paying off a loan can also change your credit mix or credit utilization.

But credit score is just one factor to consider when deciding how quickly to pay off a student loan. You may want to think about how much extra interest you’d pay by leaving the account open. Carrying a high loan balance could also make it harder to qualify for new loans, which is something to keep in mind when it comes time to buy a home or car.

Notorious Big Bad D’s: Delinquent and in Default

Student loans affect credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you’re even one day late with a payment, you’ll be considered delinquent and may be charged a penalty.

Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.

After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full along with any accrued interest, fines, and penalties.

(Note that the on-ramp that’s in place for federal student loan repayment from October 2023 through September 2024 temporarily shields borrowers from the most immediate consequences of delinquency and default.)

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

When you’re shopping around for the best interest rate possible on a private student loan, lenders may pull your credit file. This is called a hard inquiry, and each one could temporarily knock a few points off your credit score.

To help protect your FICO score, try to finish shopping for rates and finalizing your loan within 30 days. Researching rates and getting quotes ahead of time can give you a good idea of whether you’ll qualify for a loan before you formally apply.

You may also want to ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual hard inquiry, but getting prequalified allows you to compare interest rates without impacting your credit score.

Will Refinancing Student Loans Help My Credit?

Because refinancing involves taking out a new loan with new terms to pay off existing debt, refinancing student loans affects your credit score—both positively and negatively.

In the short-term, refinancing will involve a hard credit inquiry and may cause a temporary ding to your credit. Again, as long as you keep your loan shopping to a short period, multiple inquiries will be treated as one, and should have a minimal impact on your score.

In the long-run, refinancing student loans at a lower interest rate can have an indirect positive effect on your credit. For example, if refinancing lowers the amount you pay each month, you may be more likely to make payments on time. You may also pay off your loans faster, which can help you reduce your overall debt and improve your score. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

If you refinance federal loans with a private lender — in effect, turning your federal loans into a private loan — rest assured that credit bureaus don’t view these two types of loans any differently. However, when you refinance your federal loans, you will lose certain federal protections, such as income-driven repayment plans, deferment or forbearance, and loan forgiveness programs.

Do I Need a Good Credit Score to Take Out a Student Loan?

Your credit score may be a factor when you’re applying for a student loan. It all depends on the type of loan you’re planning to take out. Most federal loans don’t have a minimum credit requirement, which is why nearly every borrower gets the same interest rate regardless of their financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.

Credit scores are typically more of a factor with private student loans. Lenders often consider your score when determining student loan approval and interest rate. In general, the better your score, the better your rate will be.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

Which Credit Scores Do Private Lenders Use?

When considering your student loan application, most private lenders look at your FICO® score. This score, which ranges from 300 to 850, helps lenders determine whether to extend credit and at what interest rate.

Because FICO is used widely throughout the lending industry, including by mortgage lenders and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

The Takeaway

Student loans can help borrowers establish a solid credit history, which can ease the way for future borrowing opportunities and attractive interest rates. The key is to pay what you owe on time, every time.

Paying a loan off early or shopping around for rates could cause a small, temporary dip in credit scores. Being late with a payment — or stopping payment altogether — may lower your credit score and hurt your ability to qualify for another loan.

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

Do student loans help build credit?

Student loans are an opportunity for borrowers to build credit and establish a solid credit history, which can help when it’s time to get a mortgage or take out a car loan. The key is to make regular, on-time payments.

How can I improve my credit score if I have student loans?

Payment history is one factor of your overall credit score, so making regular, on-time payments on your student loans can help you build credit.

How is my credit score determined?

Your credit score is calculated using five different categories of data. These include payment history, amounts owed, length of credit history, new credit, and credit mix.


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 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.


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.


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

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

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

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What Is a Personal Loan? How Do Personal Loans Work?

A personal loan is a flexible type of loan issued by a bank, credit union, or online lender that you pay back in regular, fixed payments over a set term.

Personal loans work a little differently than other types of loans. Consumer loans typically specify what the money should be spent on: Mortgages are used to purchase or refinance homes, and student loans are used to pay for an education. But there aren’t as many restrictions on how you can or can’t spend personal loan funds, which allows for more flexibility than other types of loans.

Read on to learn more about how personal loans work, including how much you can borrow, how to apply, and the different types of personal loans.

What Is a Personal Loan?

As mentioned before, a personal loan is a one-time lump sum you borrow from a bank or other financial institution and repay over time, usually with interest. The funds can be used for almost anything.

Loan amounts generally range from $1,000 to $50,000, though some lenders offer personal loans up to $100,000. Repayment terms are usually anywhere from two to seven years.


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

How Do Personal Loans Work?

Personal loans are typically unsecured loans (meaning you don’t have to pledge an asset to secure the loan) that provide you with money you then pay back in regular installments over the term of the loan.

How Do You Get the Money?

The first step is applying for a personal loan (more on that below). After loan approval, the lender typically deposits the loan proceeds directly into the borrower’s bank account.

Repaying a Personal Loan

You repay a personal loan in monthly installments that go toward both principal and interest.

Typically, personal loans are amortized. This means the total amount you owe is divided into equal monthly payments over the term of the loan. Even though the total monthly payment remains the same, the amounts being directed to principal and interest will change each month. An amortization schedule can show you exactly how much of your payment is going towards paying down the principal and how much is being paid in interest.

Personal loans with longer terms may offer lower monthly payments, but cost more in interest over the life of the loan. A shorter-term personal loan can have higher monthly payments, but cost less overall in interest.

How Personal Loan Interest Rates Work

The interest rate on a personal loan is determined by the lender and is based on a number of factors, including the applicant’s financial history, income, debt, and credit score. Generally speaking, the better an applicant’s credit score, the better the chance they have to receive a lower interest rate on the loan. The higher the interest rate, the more money the loan will cost over its term.

Reasons To Take Out Personal Loans

Personal Loan Uses

Personal loans can be used for just about anything. That said, there are some common reasons people take out different types of personal loans, including:

•   Debt management and consolidation

•   Home improvement expenses

•   Wedding costs

•   Unexpected medical expenses

•   Moving expenses

•   Funeral expenses

•   Family planning

•   Car repairs

•   Vacation

What not to use personal loans for

The Personal Loan Application Process

While it’s not as simple as walking into a bank, asking for a loan, and walking out with a check, the application process for personal loans is relatively easy.

Before you apply for a personal loan, you’ll want to consider how much money you want to borrow, how much you can afford to pay each month, how long you want to make payments, and whether or not you want to put up collateral (though less common, some lenders offer secured personal loans). There may be other considerations for specific financial circumstances, which can vary from person to person.

Checking Your Own Credit

Because lenders will be looking closely at your creditworthiness, it’s a good idea to give your financial health a check-up before you begin the application process. You can get a free copy of your credit reports from the three main consumer credit bureaus — Equifax, Experian, and TransUnion — for free at AnnualCreditReport.com.

Once you get your reports, it’s a good idea to review them carefully and report for any errors. Correcting anything that isn’t accurate means your credit report will look as good as possible to lenders.

Comparing Loans

Just like shopping around for the best prices before making a large purchase, comparing lenders’ rates and terms is a smart move before the application process actually begins.

Here are some things to look for when researching lenders:

•   How much do they lend on personal loans? If the amount you need to borrow doesn’t fall within the range offered by the lender, you may need to look elsewhere.

•   Do they charge any fees or penalties? Some lenders charge an origination fee equal to a percentage of the loan amount to process your application. Some personal loans also have a prepayment penalty if you pay off your loan ahead of schedule.

•   How are fees and penalties charged? Some lenders may roll any fees into the loan amount, which increases the total amount you’ll owe. Other lenders may deduct the fee amounts from the loan proceeds, so the amount you receive will be lower than the actual amount of the loan.

•   Can I get prequalified so I’ll know what interest rate they might offer me? Prequalification involves the lender doing a soft pull on your credit report, which will not affect your credit score. This step will give the lender a sneak peek at your financial history so they can give you an estimated interest rate. Going through this process with multiple lenders is one way to compare rates and terms you may qualify for.

•   What if I can’t make my loan payments due to financial hardship? Missed or late payments could result in late fees, affect your credit score, or lead to your account being sent to collections. Some lenders may offer protections for borrowers who have lost their job or are having difficulty making their payments for other reasons.

Applying for a Loan

When you’ve selected a lender, it’s time to submit the actual application. For an unsecured personal loan, lenders typically require:

•   A photo ID

•   Proof of address

•   Proof of income or employment

Each lender has different requirements, though, so it’s important to carefully read and follow the lender’s application instructions. At this stage, the lender will usually do a hard credit check, which can have a small and temporary negative affect on your credit score.

Waiting for Approval

Once you’ve submitted the application and all required documents, it’s time to play the waiting game. Rest easy, though, because some personal loan approvals happen quickly — sometimes in just a day. More complicated applications could take a week or more.

Personal loans can range anywhere from $1,000 to $100,000, depending on the lender. Once you apply and are approved for the loan, you’ll receive the amount of money you were approved for in a lump sum, minus any origination fees that some lenders may charge. You then start paying back that money in installments which are set by the specific terms of your loan.

Types of Personal Loans

There are a variety of different types of personal loans. Factors like how much money you plan to borrow, your credit and financial history, and how much debt you already have will influence which type of personal loan is right for you. Here’s a look at some common personal loan options.

Unsecured vs Secured Personal Loans

An unsecured personal loan is the most common type of personal loan. Unsecured means the loan is not backed by collateral, like a house or car. The approval and interest rate you receive on an unsecured personal loan is mostly based on your creditworthiness.

Secured personal loans require an asset to be pledged to “secure” the loan. Think of a house when it comes to a mortgage loan, or a car when it comes to a car loan. If you fail to repay your loan, the lender can then seize the collateral.

Some banks offer secured personal loans that allow you to borrow against the equity of your car, personal savings, or other assets. Since secured loans are backed by an asset that the lender can seize if you default on the loan, they generally have a lower interest rate than an unsecured personal loan.

Here’s a look at some pros and cons of unsecured and secured personal loans:

Unsecured Personal Loans

Secured Personal Loans

Advantages Funds may be disbursed the same day or within a week

Interest rates are typically lower compared to credit cards

No collateral required

Interest rates are typically lower compared to unsecured personal loans

Can be a good way to improve credit if payments are regular and on time

Tend to have a longer repayment period

Disadvantages May need to meet minimum credit score requirements for approval

Interest rates may be higher compared to secured personal loans

Credit score may be negatively affected if borrower defaults

Collateral is required

Lender can seize the collateral if borrower defaults

Application and approval process may involves more steps

Fixed-Rate vs Variable-Rate Personal Loans

Most personal loans are typically fixed-rate loans, meaning your rate and monthly payment stay the same (or are fixed) for the life of the loan. Fixed-rate loans can make sense if you’re looking for something with consistent payments each month. A fixed-rate loan is also worth considering if you are concerned about rising interest rates on longer-term personal loans.

As the name suggests, the interest rate on a variable-rate loan can fluctuate over the life of the loan. Interest rates on this type of loan are tied to benchmark rates or indexes. Based on how the benchmark rate or index changes, the interest rate on a variable-rate loan will also change, directly affecting your monthly payment.

Generally, variable-rate loans carry lower annual percentage rates (APRs) and some have limits on how much the interest rate can rise or lower over a specific period, or even over the life of the loan. A variable-rate loan could be a good choice if you are taking out a small amount of money with a short repayment term.

Here are some pros and cons of variable-rate personal loans and fixed-rate personal loans. Choosing between variable vs. fixed rates will come down to personal preference and what you are approved for.

Variable-Rate Personal Loans

Fixed-Rate Personal Loans

Advantages Loans often start out with a lower interest rate compared to fixed-rate loans

If benchmark rate goes down, interest rate on the loan also goes down

Flexible

Monthly payments are consistent

Can avoid rising interest rates

Easy to understand

Disadvantages If benchmark rises, the cost of the loan also rises

Borrowers have a greater risk of defaulting on loan if the interest rate increases significantly

As interest rates change, so will the monthly payment

Won’t be able to take advantage of changes in interest rates

Interest rates tend to be higher compared to variable-rate loans

May pay more over time if you took out your loan when interest rates were high

Small vs Large Personal Loans

Just as personal loans are taken out for a variety of reasons, the dollar amount borrowed can vary, too.

A small personal loan, which is generally for $3,000 or less, typically has a lower APR than other types of short-term debt, such as payday loans. Many banks and other financial institutions have limits on the minimum amount they’ll lend. Some credit unions may offer alternatives to payday loans in an effort to help their members save money and avoid being stuck in a cycle of debt.

A large personal loan might be used to pay for major expenses such as home repair or remodeling, medical expenses, or an expensive life event, such as a wedding. Some lenders offer personal loans up to $100,000.

It’s important to keep in mind your ability to repay the loan when deciding how much to borrow. Here’s how small and large loans compare:

Small Personal Loan

Large Personal Loans

Advantages Can use the money for a wide variety of purposes

Interest rates are typically lower compared to credit cards

Usually has better terms than payday loans

Can use the money for a wide variety of purposes

Greater ability to combine multiple credit card balances into one balance

Can be a good way to improve credit if payments are regular and on time

Disadvantages Can often get a better interest rate with a larger loan

No grace period

Lenders may limit how much you can borrow

The larger the loan, the more debt you’re taking on

Increases your debt-to-income ratio

Lenders may limit how much you can borrow

What Personal Loan Lenders Look at in Your Application

When you apply for a loan, the lender typically considers your credit score, debt-to-income (DTI) ratio, and other factors.

Credit Score

A person’s credit score shows lenders what the theoretical likelihood of that person paying back a loan would be. Generally, the lower a person’s credit score, the more of a risk they are assumed to be. Conversely, the higher a person’s credit score, the lower a risk they are assumed to be — and the more likely they are to be approved for lower interest rates and higher loan amounts.

Debt-to-Income Ratio

Your DTI is a percentage that tells lenders how much money you spend on monthly debt payments versus how much money you have coming into your household. You can calculate your DTI by adding up your monthly minimum debt payments and dividing it by your monthly pretax income.

Lenders generally want to see a DTI of 35% to 40% or less but may make exceptions if you have good credit.

Credit History

Lenders will review your credit report for anything that might stand out as a risk for them. If there are a high number of inquiries on your credit report or if there were multiple debt accounts opened in a short time period, that might indicate high risk to a lender. Borrowers who are considered high risk may find it more difficult to get a loan and could pay higher interest rates.

Deciding If a Personal Loan Is Right for You

Not sure whether a personal loan makes sense for your situation? Here are some questions to ask yourself:

•   Do I need the money quickly? If you do, then a personal loan might be a smart move.

•   Can I afford the monthly payments? Before you take on any debt, it’s important to set a realistic plan on how you’ll repay what you owe.

•   Do I already have a high amount of debt? Taking out a personal loan when you have significant debt can put a serious dent in your budget and savings goals. It can also increase your DTI, which lenders look at when reviewing your loan application.

•   Do I have a “bad” credit score? If your credit score isn’t so great — FICO defines “bad” as 579 or below — then you may want to wait on taking out a loan and instead work on your credit.

•   Does a personal loan offer the lowest interest rate of all the options available? It’s a good idea to shop around for the rate and terms that best fit your needs before you apply with a lender.

Recommended: Personal Loan Calculator

Alternatives to Personal Loans

There may be times when you need help covering a big expense, but taking out a personal loan isn’t the best choice. Fortunately, there are alternative funding options. Here are a few you may want to explore:

Credit Cards

Like personal loans, credit cards offer a line of credit that can be used for a wide range of purposes. You may want to consider using a credit card if you have a smaller expense that you can pay off quickly.

Home Equity Line of Credit

If you own your home and have at least 20% equity, you may be able to get a home equity line of credit (HELOC). This option could be a smart move if you need to borrow a large amount of money or plan on having ongoing expenses, like those with a remodeling project.

401(k) Loan

If you have a financial emergency or want to pay off high-interest debt — and no other option is available — then you may want to consider borrowing from your 401(k). Keep in mind that you may face taxes and penalties when you withdraw the money, so be sure you understand how your plan works and what it allows.


💡 Quick Tip: While HELOCs may require an appraisal before you get approved, a SoFi home improvement loan does not. That means you can get approved and funded the same day.*

The Takeaway

Personal loans can offer flexibility when you’re looking for funds for a variety of uses, and typically have lower interest rates than credit cards. Depending on your financial needs and financial circumstances, there may be a personal loan that fits. Comparing multiple lenders is a good way to make sure you’re getting a personal loan that works for you.

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


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

FAQ

How do personal loan payments work?

Personal loans are typically repaid in monthly installments. When you take out a personal loan, you agree to repay the borrowed amount plus interest over a set period, usually through equal monthly payments. Each payment consists of a portion that goes towards reducing the principal balance and another portion that covers the interest charges. The loan agreement will specify the amount of each payment, the duration of the loan, and the interest rate.

What are the risks of a personal loan?

Personal loans come with certain risks that borrowers should be aware of. One risk is defaulting on the loan, which can lead to late fees, damage to your credit score, and even legal action from the lender. Another risk is needing to take on additional debt if you borrow more than you can afford to repay. In addition, personal loans may have higher interest rates compared to secured loans like mortgages or auto loans. It’s important to carefully consider your financial situation and ability to repay before taking on a personal loan.

What are the disadvantages of a personal loan?

Personal loans have a few potential disadvantages to consider. One is that they tend to have higher interest rates compared to loans secured by collateral. Personal loans may also have origination fees or other associated costs. Another potential disadvantage is that, should you miss payments or default on the loan, it could have a negative impact on your credit score.

Is a personal loan bad for your credit score?

A personal loan itself is not inherently bad for your credit score. In fact, when managed responsibly, a personal loan can have a positive impact on your credit. Making timely payments and paying off the loan as agreed can demonstrate your ability to handle debt responsibly, which can improve your credit profile. However, if you miss payments or default on the loan, it can have a negative affect on your credit. It’s important to borrow within your means, make payments on time, and consider the impact on your credit score before taking on a personal loan.

Does personal loan money go to your bank account?

Yes, when you are approved for a personal loan, the funds are typically deposited directly into your bank account. This allows you to have immediate access to the loan amount. The specific timeline for receiving the money may vary depending on the lender and the loan application process.

Do you get money right away from a personal loan?

The timing of receiving money from a personal loan can vary depending on the lender and their processes. Typically, you receive the money within five to seven business days of approval, and some lenders even offer same-day funding.


* Same-Day Personal Loan Funding: 82% of typical SoFi Personal Loan applications, excluding Direct Pay Personal Loans and Personal Loan refinance, from January 1, 2022 to January 1, 2023 that were signed before 7pm ET on a business day were funded the same day.

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