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Borrowing money online has become one of the fastest and most convenient ways to access funds when you need them — but it’s not something to jump into without understanding how it works. From choosing a reputable lender to comparing interest rates, fees, and repayment terms, there are several important factors that can impact both your wallet and your peace of mind.

Keep reading to learn how to borrow money safely, how to avoid common pitfalls, and what to look for so you can make a confident, informed financial decision.

Why Have Online Lenders Grown in Popularity?

Online lenders have surged in popularity because they offer a faster, more convenient borrowing experience than many traditional banks. Instead of visiting a branch or dealing with long processing times, borrowers can apply, upload documents, and receive decisions entirely online — often within minutes. Here’s what online lenders may offer:

Familiarity, for Some Customers

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

•   Online applications

•   Streamlined underwriting processes

•   Automated funds transfers

A Different Kind of Personal Service

Personalization in the past meant having a face-to-face relationship with a banker. Personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like:

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

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

Time Saving

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

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

Where to Borrow Money Online

When looking for an online lender, you should consider the reputation of the lender, safety precautions the lender has in place, and types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction. Here’s where you can borrow money online:

Banks

Borrowing money online from a bank typically involves a streamlined digital application that allows you to complete the entire process from your computer or phone. Most banks offer online personal loans, where you provide basic information such as your income, employment details, and desired loan amount. The bank then performs a credit check and may request additional documentation, like pay stubs or bank statements, which you can upload directly through a secure portal.

If approved, you’ll receive the loan terms electronically and can sign the agreement using e-signature. Funds are usually deposited directly into your bank account within a few business days.

Recommended: How to Apply for a Personal Loan

Credit Unions

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

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a type of online borrowing where individuals can obtain loans directly from other individual investors rather than from a traditional bank or credit union. Through a digital platform, borrowers submit an application, and investors choose to fund all or part of the loan in exchange for earning interest on the repayments.

Online Lenders

You can borrow money from online lenders by completing a fully digital application that typically takes just a few minutes. These lenders allow you to upload documents, verify your identity, and receive approval without visiting a branch. Many use automated underwriting systems that review your credit, income, and banking activity quickly, which can speed up the approval process.

Once approved, funds are usually deposited directly into your bank account, sometimes as fast as the same day or the next business day.

Options to Think Twice About

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

Credit Cards

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

Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.04% for new credit card offers. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.

Recommended: Personal Loan Calculator

Predatory Lenders

It’s important to be aware of predatory lending, which is the practice of offering loans with unfair, deceptive, or abusive terms that exploit borrowers and make repayment difficult or impossible. Both payday loans and title loans are a type of predatory lending. Repeat borrowing is common with these types of loans.

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

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

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

The Takeaway

Borrowing money online has never been more accessible, but it’s important to approach the process with clarity and caution. By understanding the different types of ways to borrow money online, comparing interest rates and terms, and checking for reputable, transparent practices, borrowers can confidently choose the option that best aligns with their financial situation.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can I borrow money online instantly?

Yes, you can borrow money online instantly through various lenders offering quick loans. These include payday loans, personal loans, and credit card cash advances. However, be cautious of high interest rates and fees, and ensure the lender is reputable and licensed. Always read the terms and conditions carefully.

How can you protect yourself when borrowing money online?

To protect yourself when borrowing money online, verify the lender’s legitimacy, check for a secure website (https), read the terms and conditions, and understand fees and interest rates. Use reputable credit reporting agencies to check the lender’s history and consider consulting a financial advisor.

Why have online lenders become more popular?

Online lenders have become more popular due to their convenience, quick approval processes, and accessibility. They often offer a wider range of loan products and can be more flexible with credit requirements. Additionally, the ability to compare multiple lenders easily and apply from anywhere has attracted many borrowers.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q425-066

If you’re making a big purchase, it can pay (literally) to know when prices are lowest, such as Black Friday, Cyber Monday, and other sale dates.

After all, if you are plunking down hundreds or thousands on a purchase, you likely want to get the best bargain possible. Here, you’ll learn about the best times to buy some of the most common big investment items. Happy shopping!

Televisions

If you’re interested in upgrading your home viewing experience, waiting for a sale could mean you score serious savings on the model you’ve had your eye on. There are a few times of year that TVs commonly go on sale. One way to score a deal on a new TV is to follow the release cycle.

Most television manufacturers release new models sometime between February and April every year, and while you could pick up the latest model, you could also find dramatic price cuts on last year’s models since retailers are looking to make room for newer inventory.

You can also find discounts on televisions in advance of events like the big football game in February, during Black Friday, and Cyber Monday.

Laptops

Buying a laptop can be a very personal choice. The demands you place on your computer may require more processing power than others, so it’s important to determine what you need out of a laptop before you begin browsing different brands and models. Deals may vary depending on the model that you need.

MacBooks and other Apple products usually get an upgrade once a year, though they don’t always follow a consistent release schedule or release all new products at the same time. If you see ads announcing new models, it may well mean that last year’s models are seeing price cuts.

Major PC manufacturers generally release new laptops three times a year — back-to-school season from June to September, holiday season from September to December, and spring from February to April. However, the best deals on laptops tend to appear at the heart of the back-to-school shopping season from July to August and from November to December, the peak of the holiday shopping season.

Outdoor Furniture

A great time to shop for outdoor furniture is generally when you won’t actually be able to use it. Typically, patio furniture goes on sale from Fourth of July to Labor Day, as retailers are trying to clear their inventory to make room for fall inventory. Usually the further you are from summer, the bigger the savings.

Recommended: $5,000 Personal Loan: How to Get One

Mattresses

Finding the perfect mattress can mean comfort, relaxation, and most importantly a restful sleep. So finding a supremely comfortable mattress and at a low price would be a huge win.

When buying a mattress there are a few times of year you can target to find reliably low prices. May is one of the best months to buy a new mattress. That’s because most sellers launch new models in June, and are eager to make space for the newer inventory.

It’s also worth looking for deals over popular shopping holidays, including but not limited to Memorial Day, Labor Day, and President’s Day. And don’t overlook Black Friday and Cyber Monday, where you can often find reasonable prices and good deals on mattresses. Amazon Prime Day can be another good time to swoop in and get a good deal.

Furniture

If you’re ready to spruce up your interior design with some new furniture there are two times you can look to find some major sales. The best time to buy furniture is typically either in winter or summer (usually January or July, to be specific). Usually, new styles are released twice a year, in February and August.

In January and July, retailers are eager to clear space for those new arrivals, so prices will generally be discounted. Floor models may be included as well, so you could ask about discounts on sample pieces to help you afford your purchase, whether you are thinking of using your credit card or a personal loan to pay for your new furniture.

And for an even better deal? Don’t be afraid to haggle! Furniture stores may be willing to negotiate, so consider asking them to sweeten the deal with a discount or freebie.

You may also find furniture deals around shopping holidays like President’s Day and Memorial Day.

Recommended: Can I Increase My Personal Loan Amount?

Engagement Rings

The thrill of falling in love and finally finding your match is invigorating. The cost of an engagement ring to make it official? Not as exciting. In 2025, Americans spent an average of $5,200 to buy an engagement ring, according to the wedding site The Knot. If the thought of dropping a few thousand dollars on a ring is less than thrilling, it could be worth planning your purchase so you can wait for the optimal time to buy.

If you’re wondering how to finance an engagement ring, know that there are a couple of times when you may be able to find a discount. Jewelry sales can be slow in the summer, so there may be sales to entice customers. There may also be seasonal sales after Christmas or after Valentine’s Day. Some jewelers may even be willing to negotiate on price to make the sale.

Household Appliances

Major household appliances like dishwashers, washing machines, stoves, and refrigerators can be expensive, so it makes sense to look out for discounts before you commit to a new model. Some great discounts on appliances can be found from September to October when manufacturers are releasing their latest product. This can make financing an appliance purchase easier.

Retailers will be trying to make room for newer models so you can often find considerable discounts during these months on new, but last year’s models. When it comes to refrigerators, the best time to purchase is usually in that spring, as that is when manufacturers release new models.

Black Friday and the Fourth of July are other great times to look for sales on household appliances. And if you plan on buying a new appliance from a brick and mortar store, it could be worth going toward the end of the month when salesmen are trying to meet their monthly quotas.

Tip: When you’re looking to upgrade or replace an appliance, always check for floor models and returned (but still fully functional) models when bargain hunting.

Fitness Equipment

Have your eye on a new treadmill or elliptical? January could be the right time to buy new exercise equipment as stores are eager to take advantage of New Year’s resolutions to get fit or lose weight.

Also look for Black Friday, Cyber Monday, and Amazon Prime Day discounts.

Cars

Dealerships generally offer great deals during year-end sales events. Some dealers anticipate cars as gifts for the holidays. Car dealerships are also looking toward the new year, which means they’ll need to make space for newer models on the lot. For some dealers, December is one of their biggest sales months.

You may also secure a good deal on a new car during holiday weekends when dealerships run promotions. Dealerships are also more likely to offer a deal on older models, anticipating a new release. Typically, new models are released in September and October, so you might also look for deals in late August. This intel can help you get your financing for a car purchase ready in time to go shopping.

The Takeaway

The best time to make a large purchase will depend on the item. There are a few shopping holidays, like Memorial Day, Labor Day, and Black Friday, when retailers are known to offer deep discounts on some items. When shopping for a big-ticket item it can be helpful to do your research, shop around, and in some cases, negotiate to secure the best deal.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

The Takeaway

How long to wait before making a big purchase?

Experts recommend waiting anywhere from a couple of days to a couple of weeks or even a month before making a major purchase. This gives you time to be sure that it’s not an impulse purchase, to shop around for the best deal, and to determine the right financing.

How to decide if a big purchase is worth it?

Take time to consider whether you truly want and need the purchase and if it will add value to your life. Make sure you’re not buying it for such reasons as boredom and “keeping up with the Joneses,” that you’re getting a good deal, and you can afford the cost.

Should you put big purchases on a credit card?

Many people use credit cards for big purchases (which could yield major rewards), but cards do have high interest rates. Consider if you could pay off the purchase before interest kicks in. If not, you might look into using your savings or taking out a personal loan, which can have a lower interest rate.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q425-028

Before most house hunters can close the deal, they need to qualify for a mortgage. Learning how to apply for a mortgage in advance — and breaking the process down into digestible steps — can help applicants feel better prepared and avoid any unpleasant surprises during the process. (Good news: The mortgage application process is one of those things that is more complicated to explain than to experience!)

Ready to learn how to apply for a home loan? Here are the seven steps in the mortgage process, including moves you can make that may expedite your approval.

Table of Contents

1. Submit Your Mortgage Application

You’ve found the ideal property, made an offer on the house, and put your down payment into escrow. If you didn’t already get preapproved for a mortgage online, it’s time to apply for a mortgage. There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle. Some choices you’ll need to make at this stage of the mortgage process are:

•   A conventional home loan or a government-insured loan, such as an FHA loan backed by the Federal Housing Administration or a VA loan backed by the U.S. Department of Veterans Affairs)

•   A fixed-rate or an adjustable-rate mortgage

•   Your repayment term: typically 15, 20, or 30 years

A good lender will walk you through your options, whether you’re looking at a home requiring an FHA mortgage or a high-priced home with a jumbo loan.

Your lender will have the required forms for your mortgage loan application, and you can often submit everything online, but you’ll want to have the following at hand:

•   Proof of identity.

•   Documentation of income: W-2s or 1099s, your most recent income tax filing, profit-and-loss statements if self-employed, pay stubs, Social Security and retirement account info, information on alimony and child support, etc.

•   Documentation of assets: bank accounts, real estate, investment accounts, etc. If you received help from a family member to fund your down payment, a gift letter will be necessary.

•   Documentation of debts: any current mortgage you might have, car loans, credit cards, student loans, etc.

•   Information on property: street address, sale price, property size, property taxes, etc.

•   Employment documentation: current employer information, salary information, position/title, length of time at employer, etc. In general, lenders like to see two years of employment on a loan application. Self-employed individuals will generally submit two years of tax returns.

2. Schedule Your Home Inspection and Appraisal

It can take a little time to get your inspection and appraisal on the calendar, and then you can expect to wait at least a few days to get the reports. So now’s the time to make sure these two important aspects of the home-buying process are moving along.

A home inspection may not be required, but it’s a good idea to hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction, which could affect your mortgage principal amount. If the problem is a dealbreaker, the inspector’s report could help you back out of the deal without penalty.

Review this home inspection checklist to make sure your inspector will cover all the bases. In some cases, a general home inspector may find an issue that requires a more specific expert to take a look (and yes, that’ll cost more money — but it may be worth the cost).

Don’t let the infatuation with a seemingly perfect property blind you. If there are serious issues that come up during the inspection and the sellers won’t budge on price (or agree to fix them before closing), seriously consider walking away. You won’t recoup the money you paid for the inspection — a home inspection costs between $300 and $500 — but if it keeps you from investing in a money pit, it’s money well spent.

An appraisal will be necessary as part of the mortgage underwriting process. It’s an independent evaluation of a home’s value. It will describe the property and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.

A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.

Recommended: Local Housing Market Trends

3. Secure Homeowners Insurance

You’ll need to buy homeowners insurance before you can close on your new home, so now’s the time to scout around for a policy that provides the coverage you need at the price you feel is right. Thanks to the appraisal, you can feel confident in the value of the home, which will help in the insurance process.

Before you commit, get quotes from a few different companies. Taking the time to do so at this step of the mortgage process will ensure your coverage is shipshape when you reach your closing. Your prospective lender will want to know the home is covered and many homeowners make their insurance premium payments as part of their monthly mortgage bill.

4. Undergo Loan Processing and Review

While you are taking care of your insurance coverage, the lender will be processing and reviewing your loan application to make sure you meet all the mortgage loan requirements. A major part of the mortgage loan process is the underwriting phase. The underwriting process begins after you complete your mortgage application, ends after all the documentation has been completed, and includes the appraisal.

During the process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance. The lender will perform a hard credit inquiry. In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house. Lenders are required to do a second credit check before final mortgage loan approval and may likely ask for further documentation.

The average time between submitting a mortgage application and closing is about 50 days, so if you’re wondering how long does the underwriting process take for a mortgage, you can expect things to take a little under two months, start to finish. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, take out auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time. If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let it know.

Responding quickly to any questions or requests from your lender can help keep your application on track.

Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?

5. Receive Your Approval and Closing Disclosure

It can be tough feeling like your life is on hold while you’re waiting for the mortgage underwriting process to be completed. Try to be patient and let things play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.

Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will complete the mortgage underwriting process and recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.

It’s a happy day when your lender officially notifies you that you have been approved for your home loan. After underwriting approval with a “clear to close,” you’re set to close on your loan. The mortgage closing disclosure you receive from the lender is a required document. This five-page form from your lender will outline the home mortgage loan terms, including the loan principal, interest rate, and estimated monthly payment. It also lays out how much money is owed for closing costs and the down payment.

Lenders are required by federal law to provide the mortgage closing disclosure at least three business days ahead of the closing date. Make sure you read it immediately and thoroughly.

6. Do A Final Walk-Through of the Home

Before arriving at closing, you’ll want to do a final walk-through of the property you’re purchasing. During this walk-through, confirm that the sellers have made any repairs that were agreed to — and that they haven’t removed anything, such as an appliance or light fixture, that was meant to be left, per the purchase agreement.

7. Attend the Closing Meeting

Closing day comes after the mortgage loan approval process is completed. All parties will sign the final documents and ownership is legally transferred from the sellers. In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 2% to 5% of the mortgage principal and may include items like:

•   Lender fees

•   Appraisal and survey fees

•   Title search/title insurance fees

•   Recording fees

•   First year of private mortgage insurance (PMI) premiums, if required

You can pay closing costs by wire transfer a day or two before, or by cashier’s check or certified check the day of closing.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common. The closing may be virtual, but the feelings of relief and happiness that typically result are very real.

The Takeaway

Applying for and securing a home mortgage loan follows a simple process that can seem complicated the first time you do it. But if you reply to questions promptly and are organized with your documents, it’s actually pretty simple — even if it does involve a little waiting time.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How long is a mortgage loan in processing?

It takes a little under two months from the date you submit your mortgage application to closing on the house — the average timeline is about 50 days. In some scenarios, you may be able to close in as little as 30 days.

How do you know when your mortgage loan is approved?

Your mortgage loan officer will contact you when your loan is approved. They may call you to give you the good news, but you’ll want to see it in writing so watch for an email as well.

What should I avoid after applying for a mortgage?

You want to keep your financial situation as stable as possible during the mortgage application process. That means don’t open new credit accounts, and keep your credit utilization down (no extra swipes on those credit cards). Don’t fall behind on any bill, either

What looks bad on a mortgage application?

Key red flags on a mortgage application include a high level of debt relative to your income, a low credit score, or a history of late or missed debt payments. A lender might also be concerned about any large, unexplained influx of cash into your bank account in the months leading up to your application. A history of gambling or repeated use of payday loans might also be cause for concern from a lender’s perspective.

Photo credit: iStock/MicroStockHub

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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q425-196

Both a loan modification and a loan refinance can lower your monthly payments and help you save money. Depending on your circumstances, one strategy will make more sense than the other. A modification alters the terms of your current loan and can help you avoid default or foreclosure. Refinancing, on the other hand, involves taking out a new loan (ideally with better rates and terms) and using it to pay off your existing loan.

Here’s a closer look at loan modification vs. refinance, how each lending option works, and when to choose one or the other.

What Is a Loan Modification?

A loan modification changes the terms of a loan to make the monthly payments more affordable. It’s a strategy that most commonly comes into play with mortgages. A home loan modification is a change in the way the home mortgage loan is structured, primarily to provide some financial relief for struggling homeowners.

Unlike refinancing a mortgage, which pays off the current home loan and replaces it with a new one, a loan modification changes the terms and conditions of the current home loan. These changes might include:

•   A new repayment timetable. A loan modification may extend the term of the loan, allowing the borrower to have more time to pay off the loan.

•   A lower interest rate. Loan modifications may allow borrowers to lower the interest rates on an existing loan. A lower interest rate can reduce a borrower’s monthly payment.

•   Switching from an adjustable rate to a fixed rate. If you currently have an adjustable-rate loan, a loan modification might allow you to change it to a fixed-rate loan. A fixed-rate loan may be easier to manage, since it offers consistent monthly payments over the life of the loan.

A loan modification can be hard to qualify for, as lenders are under no obligation to change the terms and conditions of a loan, even if the borrower is behind on payments. A lender will typically request documents to show financial hardship, such as hardship letters, bank statements, tax returns, and proof of income.

While loan modifications are most common for secured loans, like home mortgages, it may also be possible to get modifications for unsecured loans as well, such as student loans and even personal loans.

What Is Refinancing a Loan?

A loan refinance doesn’t just restructure the terms of an existing loan — it replaces the current loan with a new loan that typically has a different interest rate, a longer or shorter term, or both. You’ll need to apply for a new loan, typically with a new lender. Once approved, you use the new loan to pay off the old loan. Moving forward, you only make payments on the new loan.

Refinancing a loan can make sense if you can:

•   Qualify for a lower interest rate. The classic reason to refi any type of loan is to lower your interest rate. With home loans, however, you’ll want to consider fees and closing costs involved in a mortgage refinance, since they can eat into any savings you might get with the lower rate.

•   Extend the repayment terms. Having a longer period of time to pay off a loan generally lowers the monthly payment and can relieve a borrower’s financial stress. Just keep in mind that extending the term of a loan generally increases the amount of interest you pay, increasing the total cost of the loan.

•   Shorten the loan repayment time. While refinancing a loan to a shorter repayment term may increase the monthly loan payments, it can reduce the overall cost of the loan by allowing you to pay off the debt faster. This can result in significant cost savings.

Recommended: How Does a Personal Loan Work?

Refinance vs Loan Modification: Pros and Cons

Loan refinance is typically something a borrower chooses to do, whereas loan modification is generally something a borrower needs to do, often as a last resort.

Here’s a look at the pros and cons of each option.

Benefits of Loan Modification

While a loan modification is rarely a borrower’s first choice, it comes with some advantages. Here are a few to consider.

•   Avoid default and foreclosure. Getting a loan modification can help you avoid defaulting on your mortgage and potentially losing your home as a result of missing mortgage payments.

•   Change the loan’s terms. It may be possible to increase the length of your loan, which would lower your monthly payment. Or, if the original interest rate was variable, you might be able to switch to a fixed rate, which could result in savings over the life of the loan.

•   Avoid closing costs. Unlike a loan refinance, a loan modification allows you to keep the same loan. This helps you avoid having to pay closing costs (or other fees) that come with getting a new loan.

Drawbacks of Loan Modification

Since loan modification is generally an effort to prevent foreclosure on the borrower’s home, there are some drawbacks to be aware of.

•   It could have a negative effect on your credit. A loan modification on a credit report is typically a negative entry and could lower your credit score. However, having a foreclosure — or even missed payments — can be more detrimental to a person’s overall creditworthiness.

•   Tapping home equity for cash is not an option. Unlike refinancing, a loan modification cannot be used to tap home equity for an extra lump sum of cash (called a cash-out refi). If your monthly payments are lower after modification, though, you may have more funds to pay other expenses each month.

•   There is a hardship requirement. It’s typically necessary to prove financial hardship to qualify for loan modification. Lenders may want to see that your extenuating financial circumstances are involuntary and that you’ve made an effort to address them, or have a plan to do so, before considering loan modification.

Recommended: Guide to Mortgage Relief Programs

Benefits of Refinancing a Loan

For borrowers with a strong financial foundation, refinancing a mortgage or other type of loan comes with a number of benefits. Here are some to consider.

•   You may be able to get a lower interest rate. If your credit and income are strong, you may be able to qualify for an interest rate that is lower than your current loan, which could mean a savings over the life of the loan.

•   You may be able to shorten or extend the term of the loan. A shorter loan term can mean higher monthly payments but is likely to result in an overall savings. A longer loan term generally means lower monthly payments, but may increase your costs.

•   You may be able to pull cash out of your home. If you opt for a cash-out refinance, you can turn some of your equity in your home into cash that you can use however you want. With this type of refinance, the new loan is for a greater amount than what is owed, the old loan is paid off, and the excess cash can be used for things like home renovations or credit card consolidation.

Drawbacks of Refinancing a Loan

Refinancing a loan also comes with some disadvantages. Here are some to keep in mind.

•   You’ll need strong credit and income. Lenders who offer refinancing typically want to see that you are in a solid financial position before they issue you a new loan. If your situation has improved since you originally financed, you could qualify for better rates and terms.

•   Closing costs can be steep. When refinancing a mortgage, you typically need to pay closing costs. Before choosing a mortgage refi, you’ll want to look closely at any closing costs a lender charges, and whether those costs are paid in cash or rolled into the new mortgage loan. Consider how quickly you’ll be able to recoup those costs to determine if the refinance is worth it.

•   You could set yourself back on loan payoff. When you refinance a loan, you can choose a new loan term. If you’re already five years into a 30-year mortgage and you refinance for a new 30-year loan, for example, you’ll be in debt five years longer than you originally planned. And if you don’t get a lower interest rate, extending your term can increase your costs.

Is It Better to Refinance or Get a Loan Modification?

Whether a refinance or loan modification is better depends on your situation. If you have solid credit and are current on your loan payments, you’ll likely want to choose refinancing over loan modification. To qualify for a refinance, you’ll need to have a loan in good standing and prove that you make enough money to absorb the new payments.

If you’re behind on your loan payments and trying to avoid negative consequences (like loan default or foreclosure on your home), your best option is likely going to be loan modification. Provided the lender is willing, you may be able to change the rate or terms of your loan to make repayment more manageable. This may be more agreeable to a lender than having to take expensive legal action against you.

Recommended: Debt Consolidation Calculator

Alternatives to Refinancing and Loan Modification

If you’re having trouble making your mortgage payments or just looking for a way to save money on a debt, here are some other options to consider besides refinancing and loan modification.

Mortgage Forbearance

For borrowers facing short-term financial challenges, a mortgage forbearance may be an option to consider.

Lenders may grant a term of forbearance — typically three to six months, with the possibility of extending the term — during which the borrower doesn’t make loan payments or makes reduced payments. During that time, the lender also agrees not to pursue foreclosure.

As with a loan modification, proof of hardship is typically required. A lender’s definition of hardship may include divorce, job loss, natural disasters, costs associated with medical emergencies, and more.

During a period of forbearance, interest will continue to accrue, and the borrower will still be responsible for expenses such as homeowners insurance and property taxes.

At the end of the forbearance period, the borrower may have to repay any missed payments in addition to accrued interest. Some lenders may work with the borrower to set up a repayment plan rather than requiring one lump repayment.

Mortgage Recasting

With a mortgage recast, you make a lump sum payment toward the principal balance of the loan. The lender will then recast, or re-amortize, your remaining loan repayment schedule. Since the principal amount is smaller after the lump-sum payment is made, each monthly payment for the remaining life of the loan will be smaller, even though your interest rate and term remain the same.

Making Extra Principal Payments

With any type of loan, you may be able to lower your borrowing costs by occasionally (or regularly) making extra payments towards principal. This can help you pay back what you borrowed ahead of schedule and reduce your costs.

Before you prepay any type of loan, however, you’ll want to make sure the lender does not charge a prepayment penalty, since that might wipe out any savings. You’ll also want to make sure that the lender applies any extra payments you make directly towards principal (and not towards future monthly payments).

The Takeaway

If you’re interested in getting a lower interest rate, lowering your monthly debt payment, or cashing out some equity, refinancing likely makes more sense than a loan modification. If, however, you’re dealing with financial challenges and at risk of home foreclosure, you may want to look into a loan modification, which could be easier to qualify for than loan refinancing. When debt grows, you might also look into debt consolidation loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What are the disadvantages of loan modification?

A loan modification typically comes with a hardship requirement. A lender may ask to see proof that your financial circumstances are involuntary and that you’ve made an effort to address them before considering loan modification. A loan modification can also have a negative effect on your credit.

A loan modification can also have a temporary negative effect on your credit.

What is loan refinancing?

Loan refinancing replaces an existing loan with a new one, which pays off the old one. Then, going forward, the borrower makes payments on the new loan with its new interest rate and terms. This can help a borrower snag a lower interest rate, lower monthly payments, or shorten the loan repayment period.

Photo credit: iStock/AlexSecret

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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.

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If you’ve ever sat down to pay bills only to discover you’ve run out of checks, you may be relieved to know you can use counter checks. Counter checks are temporary checks printed at your bank that can help you make payments in a pinch.

Even in our era of autopay and P2P apps, checks are still a popular way for many to transfer funds.

What Is a Counter Check?

Counter checks, also called temporary or starter checks, are a set of plain, printed checks from your bank that include your account information and the bank’s routing number. They can be used like personal checks. (In terms of how long a check is good for, these are typically valid for six months, like standard checks.)

Counter checks may not have the personalization that a set of pre-printed checks would have. You may need to fill out your personal information normally found at the top left of a check (such as your address) on a set of lines instead.

Typically, you can get counter checks while waiting for your pre-printed checkbook to arrive in the mail. This might occur when you open a new bank account or simply run out of your usual checks. Counter checks can be useful for paying merchants who don’t accept electronic payments, mobile app payments, or debit cards.

How Do Counter Checks Work?

You may get some counter checks when you first open your account; otherwise, you must request them from your bank. Here’s what you’ll do:

1.    Request counter checks from your bank (typically).

2.    Bring and show your ID.

3.    Wait a short time as the bank prints them.

4.    Pay a small fee, usually around $3 for a sheet of three checks.

5.    Use them just as you would a personal check. Just be sure to ask the recipient if they’re willing to accept a counter check before you fill it out. Some merchants are not comfortable accepting these non-standard checks.

When Would Someone Use a Counter Check?

Counter checks are useful in a few situations. If you need to pay someone with a check ASAP and you’re out of personal checks, then a bank counter check may be your best option. Or, if you recently opened a new checking account but haven’t yet received your printed checks in the mail, a counter check can enable you to pay a bill that’s due. Compared with a cashier’s check or a money order (learn more about these options below), they’re usually less expensive, too.

However, there’s an issue to note: Not all merchants, individuals, and organizations will accept a counter check in place of a standard check. Because a counter check does not have as much information printed on it as a typical check, some may reject it, skeptical that it is valid. It’s important to note this when planning to write a counter check. You may want to check first with the intended recipient to make sure it won’t be returned.

How Does a Counter Check Differ From a Cashier’s Check?

A counter check shouldn’t be confused with a cashier’s check. They’re both issued by your bank, but they work very differently. A cashier’s check is a special check that is actually drawn on the bank’s funds vs. your account’s funds.

Here’s a quick comparison of a certified check vs. cashier’s check.

Tips for Getting a Counter Check

If you know how to order checks, you are probably aware that the process can take a couple of weeks to get personal checks. Getting some temporary counter checks can be faster, but you’ll need to get them from your bank. If you feel you need them urgently, it may be wise to visit a branch in person. Be sure to bring your ID with you. They may be printed on the spot for you.

Writing a Counter Check

Writing a counter check is nearly the same as writing a personal check. The only difference is you may need to fill out some personal information if your bank hasn’t printed it on the check. This generally includes your name and address, though a merchant may also request your driver’s license number when you pay with a counter check.

To write the check, you’ll want to:

1.    Write the date in the upper right hand corner.

2.    In the “Pay to the order of” line, write the name of the recipient of the check.

3.    Write the amount of the transaction in numerical form in the box to the right.

4.    Write out the amount in words (say, “two hundred dollars”) on the line below it.

5.    Include a memo in the bottom left corner, if you like, noting what the check is paying for.

6.    Sign the check in the bottom right corner.

All of these elements are necessary in order for a check to be valid.

Recommended: How to Make Money Fast

Pros and Cons of Counter Checks

While counter checks can serve as a temporary solution while you wait for your checks to arrive, it’s not a perfect solution. There are some advantages, as well as drawbacks to consider.

Recommended: How to Determine If a Check Is Real

Alternatives to Counter Checks

You have other options for paying bills if you’re out of checks. Here are a few of the methods available to transfer funds.

•   Online bill pay. A quick and easy way to send payment is to set up online bill pay through your bank. It’s usually free and incredibly convenient. You can add vendors to pay and then automate monthly payments for things like car payments, mortgages, student loans, and more.

   Typically, your bank can pay merchants and organizations electronically, but if there’s a company that doesn’t accept electronic payments, you may have to do online payments manually or mail a check. In some situations, an online bill pay service may be able to write and mail the check for you.

•   Money order. A money order is like a pre-paid check. You’ll pay the amount that you’re sending, plus a fee (typically just a couple or a few dollars), and you get a check issued by a third-party provider. You can often get money orders at a variety of locations, such as the post office, your bank, your grocery store and your favorite retail stores.

•   Cashier’s check. A cashier’s check is a check you can buy from the bank where they guarantee the funds. The bank writes a check to any third party; you, in turn, pay the financial institution the amount of the payment, plus the fee for the cashier’s check (which may be in the range of $10-$20). It’s considered a safe way to make a large payment.

•   Certified check. A certified check is a check you get from your bank that guarantees the funds from your personal account. This kind of check signals to the recipient that the cash has been earmarked from the payer’s personal account. It can add a level of security and comfort for the payee.

•   Mobile app payment services. There are a host of peer-to-peer or P2P payment options that make paying someone very convenient. Some of the most popular apps include Venmo, Cash App, PayPal, Google Pay, and others.

•   Pay over the phone. Some merchants will take a payment over the phone. You can provide your bank’s routing number and your account number, and they may be able to process a payment over the phone. You may also be able to use a debit card for payment.

The Takeaway

Counter checks are a useful tool if you run out of your standard checks or have recently opened a new checking account. These checks are quickly available, but they are usually not printed with all of the standard information, and not all merchants and organizations will accept them. Still, they may allow you to pay some pressing bills when other means are not available.

FAQ

Is a counter check the same as a personal check?

A counter check can be equivalent to a personal check, and it may be presented as legal tender like a personal check. The main difference is that a counter check is likely to lack the more detailed identifying information that’s pre-printed on a personal check.

Can I pay someone with a counter check?

Not all merchants take counter checks. Because they look temporary and are typically not numbered, businesses may not accept payment via counter check. If you need to pay bills with a counter check, make sure the recipient is willing to accept it before you fill it out and send it.

How long is a counter check good for?

Like a personal check, a counter check is typically good for around six months.

Photo credit: iStock/RyanJLane

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.

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.

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