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If you’ve ever wanted to check your credit score and do so without dinging your score or paying a cent, guess what? It’s possible. You can get that important three-digit number from a number of sources. In fact, your bank or credit card company may provide just what you are looking for.

Why is your credit report intel such a gift? Because keeping tabs on your credit scores can help you spot potentially fraudulent activities or discrepancies. It can also help you monitor your progress if you’re working hard to establish your credit or have a stellar financial profile. Higher scores may well unlock lower loan rates and other benefits.

Read this guide to learn:

•  What a credit score is and why you should check it

•  How and where to check your credit score for free

•  Whether checking can hurt your credit score

•  How often to check your credit score.

What Is a Credit Score?

A credit score is a three-digit number that lenders and creditors use to assess your creditworthiness. In other words, it helps lenders decide the probability of you repaying a loan or a line of credit in a timely manner based on your past behavior.

Credit scores are usually broken down into two types: custom and generic scores, and this may explain why you have different credit scores depending on where you check.

While different algorithms are used, your credit score usually reflects such factors as how much money you have borrowed, whether you manage it well and pay it back on time, the length of time you’ve been borrowing money, and what kinds of credit lines you have used (you’ll learn more about this below).

•  What are known as generic credit scores are the ones reported by the three major credit bureaus, Experian, Equifax, and Transunion. They utilize Information from lenders and businesses to come up with their figures.

•  Conversely, individual lenders may create custom credit scores to determine your likelihood of repayment. These scores include credit reporting from the three credit bureaus and other data. This type of credit score is often meant to determine your creditworthiness with regard to a specific type of lending (like a mortgage) or a particular lender.

Examples of custom scores are FICO® scores and VantageScore®; these companies have their own guidelines to determine your credit score. Worth noting: FICO scores are the ones that many lenders and creditors use when they evaluate a candidate for credit.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.40% APY, with no minimum balance required.

What Your Credit Score Means

Now, here’s how to understand the number itself. Credit scores typically range between 300 and 850. Usually, the higher your credit score, the less risky you are perceived in the eyes of lenders. That may mean you get a better (lower) interest rate on loans, among other perks.

A bad credit score can result in your paying more to borrow money or even being declined.

The FICO ranges look like this:

•  Poor: 300-579

•  Fair: 580-669

•  Good: 670-739

•  Very good: 740-799

•  Exceptional: 800-850.

Credit Score vs. Credit Report

Here’s one important distinction to be aware of: Your credit score and credit report are two very different things, even though they may sound similar.

•  Your credit score is the three-digit number that reflects your creditworthiness; that is, how likely you are to manage a line of credit or loan well and pay it back on time.

•  Your credit report, however, is a record of your credit activity and history. It will reflect how much you’ve borrowed, how promptly you have paid, and more details. Typically, negative information on your record can go back seven years.

Both of these sources of information can help lenders (say, for a mortgage, car loan, or new credit card) evaluate how well you have handled credit in the past and how well you might do so in the future.

How Do I Check My Credit Score for Free?

Next, here’s how to find out your credit score for free.

•  Check with your bank. Most banks provide customers with their FICO number or another credit score for free. Your bank is the hub for so many aspects of your financial life, it’s likely they will help you out by allowing you to view your score at no charge.

•  Ask Experian. You can get your free FICO score from Experian.

•  Ask your credit card company or lender. You might be able to view your credit score by logging into your account. If not, your creditor or lender can point you in the right direction to access your score.

•  Ask a credit counselor. Often, credit counselors can help you scratch that “How can I check my credit score for free?” itch. To find one in your neck of the woods, you can visit the nonprofit National Foundation for Credit Counseling, or NFCC.

•  Sign up for a free money management app. Lots of choices are out there if you are looking for a money tracker app that lets you view your accounts, budget, and optimize spending. Many offer a free credit score.

You can get free credit reports but not credit scores from AnnualCreditReport.com. It’s a good idea to check your credit reports at least once a year.

Recommended: Track your credit score for free with SoFi.

How Are Credit Scores Determined?

Knowing what contributes to your credit score can help you get yours into the desired range. Here are some of the key factors that influence a FICO score:

•  35%: Payment history, or the timeliness of past payments

•  30%: Amounts owed, or how much credit you have used, especially vs. your available credit. (This can include your credit utilization ratio, which is the percentage of credit you’re using versus your limit. Ratios of 30% is often considered the limit of what you want to use, and many believe that 10% is a more financially prudent number.)

•  15%: Length of credit history; a longer credit history tends to be positive. How long you’ve had accounts and how frequently you have used them can matter.

•  10%: New credit, or whether you’ve opened a number of accounts recently. Doing so can make you look like more of a risk to a lender.

•  10%: Credit mix, or what kinds of accounts you’ve had, such as a home loan, retail accounts, car loans, and so forth. There isn’t a specific assortment you need, but this is a variable that will be factored into your score.

Learn more about credit here:

Can I Check My Own Credit Score Without Affecting It?

You may have heard that a credit score check can lower your number. In some cases, it can. Typically, this happens when what is known as a hard pull or hard inquiry happens, which is when a potential lender or other entity reviews your credit details.

But when you check your own credit score, it won’t affect those digits. Pulling your score is referred to as a soft inquiry, and you can do so without affecting your credit score. At the very least, you should review your numbers before applying for any financing like a home or auto loan or a new credit card.

💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

What Credit Checks Can Hurt My Score?

You may wonder when credit checks can hurt your score. When you apply for new credit, the lender or creditor will conduct what’s known as a hard inquiry. This can indeed impact your score. For every new hard inquiry, your credit score may drop up to five points.

When a potential lender looks into your file, it indicates that you may plan to take on more debt. Hence, the score drops. If you have several hard inquiries back to back, your credit score may decrease more than a few points. Some hard inquiries that could affect your credit include:

•  Applying for a mortgage, auto loan, or personal loan

•  Submitting a new utility application

•  Applying for a new credit card

•  Requesting a credit limit increase

•  Renting an apartment.

Take note, though: Credit bureaus consider rate shopping a financially responsible move and treat it differently than a standard hard inquiry.

When you’re rate shopping, FICO considers all inquiries when applying for student loans, auto loans, or mortgages a single inquiry as long as applications are submitted within a 45-day window. However, some lenders use the older FICO model, which has only a 14-day window for application submissions. If you are looking for a loan, keep these time frames in mind so your research doesn’t wind up decreasing your credit score.

Recommended: How Student Loans Affect Your Credit Score

Why You Should Check Your Credit Scores

Monitoring your credit scores is important, and to do it for free is that much better. Here are some of the most important reasons to review your numbers:

•  You can spot discrepancies or potential fraud. Out-of-the-ordinary activities will reveal themselves when you keep tabs on your credit scores. You can immediately spot red flags when something seems unusual (say, a score drops 40 points for no reason). This way, you can act right away, work toward getting your score back on track, or file a dispute if you detect fraud.

•  You can gain insight into your financial situation. Understanding your credit scores can help you determine if you’ve been tracking your spending and debt vs. your income well.

It might also reveal if it could be a good time to purchase a home or refinance your mortgage. For example, if a score is less than ideal, you may want to hold off on making big moves until you work on your score. The delay may help you qualify for more favorable terms and interest rates.

•  You can better compare financial products. Lenders have different criteria and credit score requirements to qualify for specific products. So knowing your credit scores can help you determine if applying for a particular product is worth it or if you should explore other options.

•  You can pinpoint ways to positively impact your scores. If your score isn’t where you’d like it to be, don’t just assume the answer to “Am I bad with money?” is yes and stagnate. Instead, you might use it as motivation to build your financial literacy.

Having a handle on a credit score as well as the factors used to calculate it can help you optimize it. Some resources and websites may offer simulations so you can see how changing certain factors will alter your credit score. Then you can summon some financial discipline and work to improve your money habits as necessary.

How Often Should You Check Your Credit Scores?

Financial experts usually recommend checking your credit score and credit report at least once a year. If you have reason to believe you are vulnerable to fraud (say, your credentials were involved in a data breach) or you are gearing up to apply for a loan, you may want to check more often.

The Takeaway

There are several free ways to access your credit scores, such as through your bank, a lender, a credit monitoring website, or a credit counselor. Accessing your score regularly can help you ensure there is no fraudulent activity while also making progress toward your financial goals. It can also help you optimize your scores so you can enjoy the best possible rates on credit as well as other benefits.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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

What are some resources available to help me improve my financial literacy?

To improve your financial literacy, you might want to start with your bank. They likely have a library of content about financial topics and tools for improving your financial health. In addition, there are plenty of well-regarded books and podcasts on the topic.

How can I involve my family in developing good financial habits?

To involve your family in developing good financial habits, you might have family meetings and share information about the household budget and how you are managing the money. You could then set short-term goals they can have input on and participate in achieving, such as cutting the food or entertainment budget or finding ways to save for a family vacation.

How can I stay motivated to continue developing good financial habits over time?

There are several ways you can stay motivated and keep developing good money habits. Try surrounding yourself with like-minded people or those that share a specific goal, such as paying off student debt, to support one another and share ideas. Use apps to simplify your financial life and perhaps boost your financial health (say, with a roundup function). Reward yourself within reason when you do a good job meeting a financial goal, like adding to your emergency fund for several months.

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Photo credit: iStock/Anchiy

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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.

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 .

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

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

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A ring can be a significant investment. And often it’s only the beginning of wedding expenses as you consider a future as a couple. That’s why it can be a good idea to consider your options if engagement ring financing is in your future.

Some people may save in advance and therefore won’t need wedding ring financing. But if you’re not among them, you might be looking at how to finance an engagement ring. There are definitely options, but an important thought to keep in mind is staying within an affordable — for you — range and not comparing how much other people may feel comfortable spending on an engagement ring.

Why Not Pay for an Engagement Ring Upfront?

If you’ve just begun browsing engagement rings, you will likely see they come at a variety of price points. The best price for an engagement ring? One you can actually afford.

In the past, there’s been a rule of thumb that an engagement ring should cost the equivalent of three months’ salary. But that “rule of thumb” is likely rooted in industry advertising from the 1930s and it doesn’t reflect the current reality.

In fact, Americans spend just a fraction of that amount on an engagement ring — $5,225 on average in 2022. Considering that the average monthly U.S. income is also about $4,880, abiding by the three-months rule would mean spending $14,640 on the ring. Increasingly, young Millennials and Gen Zers think engagement rings should cost no more than $2,500.

Can you finance an engagement ring? Yes, and there are several avenues available to you. But no matter what the average engagement ring cost is, it’s a good idea to buy a ring you can comfortably afford without financing. But even if you have cash ready to buy a ring, you may still consider financing options. People typically finance a ring because:

•   They want liquid cash available for upcoming wedding expenses.

•   They may not be able to pay cash for a ring without significantly dipping into their emergency savings, which could become problematic if an unexpected expense crops up.

•   They may want to spread the payment of an engagement ring across several pay cycles, or may be waiting for a large sum of cash to hit their account.

•   They may want to take advantage of purchase protection available on their credit card for a large purchase. However, purchase protection may not apply for a ring, as there are exclusions for certain categories of purchase, such as antiques or one-of-a-kind items.

•   They may want to take advantage of credit card points that come with a large purchase.

Recommended: Credit Card Rewards 101: Getting the Most Out of Your Credit Card

Engagement Ring Financing Options

There are multiple options for financing an engagement ring, and the best option for you may be as unique as the ring you choose for your partner.

These include:

•   Personal loans.

•   Credit card.

•   Buy now, pay later options.

•   Jeweler loan.

Here are some things to consider as you consider options for financing an engagement ring.

Financing an Engagement Ring with a Personal Loan

What is a personal loan? It’s a lump-sum loan that can be used to pay off other bills or to pay for an expense, like buying an engagement ring.

With a fixed interest rate and a payment end date, using a personal loan for engagement ring financing can be a good option if you have a budget for paying the ring off, or want to spread the payment through a longer period of time. That way, you can still have available emergency savings and not have to liquidate other assets.

But whether or not to get a personal loan is something that takes careful thought. You may be tempted to look at more expensive rings than you might have if you had been paying cash upfront. And that engagement ring loan includes paying interest in addition to the actual cost of the ring. It can also be a good idea to make sure that you can comfortably afford the loan payments and that it wouldn’t be an excessive burden if you were to lose income.

Financing an Engagement Ring With a Personal Loan: Pros and Cons

Pros	Cons
A fixed-interest rate and payment terms means you’ll know exactly what you owe each month	Interest adds to the overall cost of the ring
A personal loan can give you more flexibility in where your money goes, especially as wedding expenses loom	A personal loan may add to your overall debt and may make it easier to overextend yourself financially
A personal loan can spread the purchase through several months, minimizing the all-at-once financial burden of the purchase	A personal loan may make you consider rings that you otherwise couldn’t comfortably afford in your budget, leading to feeling financially overextended

Financing an Engagement Ring With a Credit Card

Using a credit card for an engagement ring purchase may make sense if you have the cash to pay your bill at the end of the month. It also may make sense if you have a credit card with 0% APR and are confident you can pay off the ring before the promotional period ends.

Some people also may want to use a credit card to earn points or to take advantage of purchase protection. But before you pull out your card, consider a few things:

•   Does your jeweler offer a discount for cash purchases? If so, then that discount may be worth considering cash options rather than paying with a credit card.

•   Does purchase protection cover a ring? It may be worth calling your credit card company, since your ring may fall under exclusionary categories.

Financing an Engagement Ring With a Credit Card: Pros and Cons

Pros	Cons
Ability to earn points	A high interest rate may minimize the value of those points; a variable interest rate may lead to you paying more for the ring over time
Ability to spread your payment over time	You may have more large purchases in your future, and having a ring on your card may limit your purchasing power
Ability to take advantage of 0% APR offers	A large purchase on one card may increase your credit utilization ratio, which could affect your credit score

Financing an Engagement Ring With a Buy Now, Pay Later Loan

A buy now, pay later loan (BNPL) works like it sounds — a purchase is spread out over time. Unlike different types of personal loans, a BNPL loan (also called a point-of-sale loan) may be done through a merchant or through a virtual card. These may have no interest if you pay in a set amount of time, but the repayment period may be short and there may be fees involved.

Financing an Engagement Ring With a Buy Now, Pay Later Loan: Pros and Cons

Pros	Cons
Purchase won’t affect your credit-utilization ratio	There may be a purchase limit to a buy now, pay later loan, limiting your options
Possibly interest free	Repayment periods may be relatively short. Plus, while there may not be interest, there may be fees affiliated with the loan
Ability to spread the purchase over several weeks or months	No opportunity to earn rewards as you might be able to with a credit card

Financing an Engagement Ring With a Jeweler Loan

Some jewelers offer their own loan programs. These may have promotional periods where you can take advantage of a 0% interest rate, and may also come with additional perks, such as discounts for future purchases or a discount on future repairs. Jeweler loans also may have a fixed rate of interest.

But this interest rate may be higher than an interest rate you could get with a personal loan or on your credit card. You also may be required to put a down payment on the purchase.

Financing an Engagement Ring With a Jeweler Loan: Pros and Cons

Pros	Cons
May have a 0% interest period	Interest rate may be high after a possibly short introductory period
Discounts and perks with the jewelry store	You may miss opportunities to earn points elsewhere, like on your credit card
Ability to spread the purchase over several weeks or months	May still require a down payment

Can You Finance an Engagement Ring With Bad Credit?

If you have bad credit, you may find it a challenge to qualify for engagement ring financing. That said, it’s not impossible.

Some jewelers offer financing plans for customers with less-than-stellar credit. which may come with a higher interest rate or require a co-signer. You may also want to look into whether the jeweler offers a layaway program, where you put down a percentage of the total amount due and make smaller payments over time. When the balance is paid off, you can bring the ring home.

Tips for Buying an Engagement Ring

Consider the pros and cons of engagement ring finance options, and remember that after the engagement ring comes wedding expenses. It may be a good idea to talk through engagement ring options with your partner prior to a proposal, especially if you’re already sharing your finances. While it may not feel as spontaneous, talking through big purchases that mutually affect you may be good practice for combining your lives.

Other tips for buying an engagement ring:

•   Ask your partner what they want. Also, talk to your family and their family: A relative may have heirloom jewelry they’d like to pass down.

•   Browse together. In addition to looking at jewelry stores, consider estate sales, antique stores, and browsing online to get a sense of styles and prices.

•   Negotiate. Some jewelers may offer a discount if you pay in cash.

•   Remember ring insurance. An engagement ring may not be covered under your homeowner’s policy without an added rider to the policy or may be covered only in specific circumstances. Research insurance policies before you buy the ring.

Looking for a Personal Loan? What to Consider

While there are many uses for a personal loan, it can also be an avenue that makes sense for engagement ring finance. Having a fixed interest rate and a finite loan term allows you to know exactly what you’re paying each month, and spreading the cost over time may mean the purchase fits within your monthly budget. Here are some things to consider when using a personal loan to buy an engagement ring:

•   What are the fees? Some loans may have fees, such as an origination fee (when you open the loan) or an early termination fee (if you pay off the loan early). Make sure you know any potential fees prior to applying for the loan.

•   Know your budget. Just because you can get approved for a certain size loan doesn’t mean that’s the best choice for you. Make sure you choose a loan size you’re comfortable with.

•   Know the loan terms. Some loans have hardship clauses that may help if you are at risk of falling behind on payments due to an unforeseen financial strain.

•   Shop around. Compare loan terms and interest rates for personal loan pricing. Comparing rates won’t affect your credit score. A hard credit check will only be done when you apply for the loan.

Recommended: Personal Loan Calculator

The Takeaway

With a big purchase like an engagement ring, there are several avenues for paying for the purchase. Considering the pros and cons of each option can help you decide on the best one for you. And remember: An engagement ring is only one expense in the future you are creating for you and your partner, so consider it the first of many financial steps in your future as a married couple.

Getting married is one of life’s biggest moments. But if you’re in wedding planning mode, you know the expenses can really add up. Why not let SoFi help with a personal loan ranging from $5k to $100K? A SoFi Wedding Loan can offer fast funding and a lower rate compared to high-interest credit cards.

Say “I do” to an affordable SoFi Wedding Loan.

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

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

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Whether you need to pay for an emergency root canal or have unexpected home repairs, sometimes life can’t wait for your next paycheck.

If you’ve researched how to access cash quickly, you might wonder if online payday loans are the answer. Lenders that offer payday loans typically promise you things like quick applications, no credit checks, and expedited approvals. They may say you’ll get the cold hard cash you need the very next day.

It’s an easy solution, right? Not so fast.

How Do Payday Loans Work?

Payday loans are called that because they’re meant to be paid back the next time you get a paycheck. They’re generally for small amounts, and usually don’t require collateral or even necessarily a credit check.

The catch? Payday loans come at a price — and a high one, at that. They can have interest rates of more than 600%, depending on the lender you choose and which state you’re in. (Some states have stronger protective laws, including rate caps.)

Such high-interest rates and other associated fees can quickly lead to situations where you end up getting behind on the loan. You may end up having to borrow more and more in order to pay back the money you borrowed, especially since the loan might come due in only two weeks or a month. Soon you may be in a hole so deep you might not know how to get out. It can be costly, greatly damage your credit, or even lead to bankruptcy.

Recommended: What Are Common Uses for Personal Loans?

How Much Does a Payday Loan Cost?

The short answer: a lot. But let’s look at an example.

Say you take out a $500 payday loan at an annual percentage rate (APR) of 300%. You would only pay that full 300% if you took a whole year to pay off the loan because the APR is what you would be charged in interest over 12 months.

However, even if you only borrow money for one month, you’d have to pay 1/12 of 300%, which translates to 25%. Here’s where the math gets ugly: 25% of $500 is $125, which means that when your loan comes due at the end of its very short term, you’ll owe $625. This amount might be tough to meet, especially if you’re in a situation where you needed a payday loan in the first place.

What Is a Direct Payday Loan?

Payday loans are offered by a wide variety of vendors, but for the most part, they break down into two categories: direct payday loans and those offered through a broker.

With direct payday loans, the entire loan process, from application to funding to repayment, is all managed by the same company. Although these can be slightly better than indirect loans — which may involve multiple fees, longer funding wait times, and harder-to-pin-down communication — they’re still generally considered a bad idea.

Why Is it Best To Avoid Payday Lending?

Other than the possibility that you can get money quickly if you have bad credit, there aren’t many benefits associated with payday loans. You’ll end up paying a significant amount in interest, and you’re usually expected to pay the money back in a very short period of time — usually within two weeks or so.

The interest on your loan can also compound daily, weekly, or monthly. This means that interest charges will start accumulating on the interest you already owe, which will inflate your loan balance even more.

Depending on how much you borrowed and your financial situation, compounding interest can make it incredibly difficult for you to pay back the loan. Many times borrowers end up taking out additional loans to pay off the payday loan, which can lock them into a seemingly endless cycle of debt.

You’re also unlikely to be able to borrow a large amount of money because payday and fast cash loan lenders typically have low maximum borrowing amounts.

What’s more, you won’t even be building your credit if you do manage to pay the loan back on time, because most of these lenders don’t report your behavior back to credit bureaus. In contrast, above-board lenders will report back to credit bureaus when you’re paying your bills on time and in full, and that can boost your credit score.

What Are Some Alternatives to Payday Loans?

In an ideal world, you’d avoid any kind of consumer debt. But sometimes it’s simply unavoidable. There are financially favorable alternatives to consider before you sign up for a risky payday loan.

Paycheck Advance

The best kind of money to borrow is money you’ve already earned. While not every employer offers it, a paycheck advance can be a relatively low-risk way to fund last-minute emergencies. An advance on your paycheck basically means getting paid earlier than you normally would, with the balance deducted from your future paycheck.

But tread carefully: Many employers offer paycheck advances through apps and platforms that may assess a one-time fee or even charge interest. While the rates may not be as astronomical as payday loan rates, it’s still worth taking a second look at the paperwork to ensure you understand what you’re signing up for ahead of time.

Recommended: What to Know About Credit Card Cash Advances

Debt Settlement

Another option is debt settlement, which is where you offer a creditor a lump sum payment on a delinquent debt — a lump sum that often ends up being far less than the original amount you owed.

However, doing this does require some negotiating, and sometimes even some legal know-how, which is why many people seek the help of professional debt settlement companies. This, too, is tricky, because scams abound, and some debt settlement companies may try to charge exorbitant fees to “eliminate your debt,” all without actually doing any work on your behalf. The Federal Trade Commission has more information on debt settlement and how to look for a reliable firm if you choose to go this route.

Personal Loans

Many types of personal loans are unsecured loans — meaning no collateral is involved — that can be used to pay for just about anything. And although they tend to have higher interest rates than secured loans, like mortgages or auto loans, those rates are still much lower than payday loans.

With its lower interest rate and longer-term, a personal loan will likely cost you less money than a payday loan in the long run. And some online personal loan lenders can process your application quickly and even get you the money you need in a matter of days.

Unlike payday loans, you have to go through a credit check to qualify and get approved for a personal loan. However, if you have a steady income and meet the lender’s eligibility requirements, you’re likely to qualify for a lower interest rate than you would if you used an online payday loan.

Your repayment timeline could also be less stressful if you opt for a personal loan rather than a payday loan. Personal loans come with the option of longer terms — a few years, for example, instead of a few months.

And because you can pay your loan off over a longer-term, your monthly payments might be more manageable than a payday loan. There also tend to be fewer fees attached to personal loans, and you might be able to borrow more because personal loans have higher loan maximums.

Personal loans aren’t much more difficult to apply for than payday or fast cash loans. You can typically get pre-qualified online by answering a few questions about your income, financial history, and occupation.

Recommended: Personal Loan Calculator

The Takeaway

When you need money quickly, payday loans — and their promise of fast money — can be tempting. But you’ll want to proceed with caution. These loans generally come with very high interest rates and associated fees, and you may only have a couple of weeks or so to pay back the money you borrowed. There are less-risky alternatives to consider, including paycheck advance, debt settlement, or a personal loan.

If you are thinking about taking out a loan to help you repay debts on time, a SoFi personal loan may be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

FAQ

What is a disadvantage of a payday loan?

Payday loans generally come with high interest rates and associated fees. What’s more, you typically have to pay back the money you borrowed on your next payday.

Are payday loans a good idea?

Payday loans are usually not the top choice when you need cash quickly. That’s because they often come with high interest rates and tight repayment timelines.

What is the catch to payday lending?

The catch to payday loans is that borrowers are typically charged very high fees and interest rates.

Are payday loans easy or hard to pay back?

With their high interest rates and fees and short repayment timelines, payday loans can be difficult for borrowers to pay back on time.

Can payday loans hurt your credit?

While payday loans are unlikely to help your credit score, they can hurt your credit if you don’t pay back your loan and your lender sends the debt to a debt collector.

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

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

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.

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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Whether relocating for a new job or competing in a seller’s market, many buyers need to move quickly. When time is of the essence, some may make an offer on a home without touring it in person.

Although this sounds complex, it’s nothing new, and the practice saw a resurgence during the COVID-19 pandemic: In 2020, 63% of homebuyers made an offer to buy sight unseen, Redfin reported.

Thinking about buying a house sight unseen? Here are six tips for navigating risk in the remote real estate market.

1. Get Preapproved for a Home Loan

Before making an offer, prospective buyers can do some front-end work to expedite the purchase process if they need financing. Becoming pre-qualified for a home loan is a quick first step to get an estimate of how large a mortgage a buyer would likely qualify for. This helps house hunters focus their search on homes they can reasonably expect to obtain financing for.

Lenders determine prequalification according to basic financial information, such as income, debt, and assets. Often buyers simply self-report their finances at this stage.

Then there’s mortgage preapproval, a much deeper dive into qualifying for a mortgage. Becoming preapproved often requires bank statements, proof of assets, and a look at credit history.

When buying a house sight unseen, especially in a hot market, getting preapproved can reasonably assure sellers that buyers can get financing for the amount they’ve offered.

In a superheated market, with bidding wars, cash offers, and skipped inspections, some agents suggest going through full underwriting, with only the appraisal left in order to close the deal.

If you’re buying a vacation home or investment property, you’ll be evaluated by lenders in a similar fashion to your first home loan.


💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡

2. Research the Neighborhood

Whether you’re looking to buy in your favorite vacation destination or have never set foot in the area, there are resources available to better inform your search.

While listings can do a good job of capturing a house in its best light, they do not give buyers the full picture of the property’s curb appeal and neighborhood. To get the lay of the land, Google Maps and Google Earth are easy tools for exploring the property and neighborhood via street view and satellite imagery. Walk Score is useful to determine a home’s proximity to amenities like grocery stores, restaurants, and coffee shops.

Other apps can give insight into community characteristics and local happenings. NeighborhoodScout provides localized information on crime, school rankings, and real estate prices. Another option is Nextdoor, which lets users connect with neighbors, local businesses, and other resources.

A look at housing market trends in select cities can help you home in popular neighborhoods, home prices, demographics, and more.

3. Find a Trusted Real Estate Agent

Once you’ve taken care of financing and focused your search geographically, finding a reputable real estate agent can help take the guesswork out of buying a house sight unseen.

Since you won’t be able to tour the house in person, a buyer’s agent can act as your eyes and ears on the ground. Without their assistance, the sight-unseen house cost could rise significantly, thanks to unforeseen repairs and upgrades.

Finding a real estate agent who is familiar with the area can be advantageous for evaluating sight-unseen house prices. Their experience in the local market makes it easier to find comparable listings and weigh options.

When interviewing potential agents, you can ask if they’ve helped clients buy sight unseen before. Because your relationship will be virtual leading up to inspection or move-in day, it’s important to consider communication skills and style.

4. Take a Virtual Tour

Starting with online listing photos and virtual walk-throughs is helpful to determine if a house is worth a closer look. What’s more, photo editing and wide-angle shots can misrepresent a space, so organizing a guided virtual tour with a friend, relative, or real estate agent onsite may serve a buyer well.

Using FaceTime, Zoom, or similar video chat apps can let buyers ask questions in real-time and get a more intimate sense of the property. Seeing the space firsthand (albeit virtually) may give a more realistic impression than measurements and square footage alone can convey.

💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

5. Touch Base After the Inspection, If You Have One

A home inspection is common with most real estate transactions.

A home inspector examines a house’s physical and interior structure, as well as major systems like plumbing, HVAC, and electrical. The resulting inspection report highlights any visible problems, necessary repairs, and potential risks.

When buying a house sight unseen, it can be beneficial to have your real estate agent attend and video call to walk you through any notable issues that arise.

A home inspection contingency in an offer generally allows buyers to pull out of the purchase if major issues are found. It may also be possible to negotiate with the seller to have repairs addressed or costs deducted from the purchase price.

In a supercharged market, buyers may choose to waive the home inspection contingency to improve their candidacy in a multiple-offer situation. Those who take this path may still be able to arrange a pre-offer home inspection. The results won’t be negotiable or permit backing out without losing the deposit.

Waiving the home inspection is a risk that may be best reserved for buyers with sufficient cash for repairs.

6. Arrange a Virtual Closing

If you have to buy sight unseen and can’t attend the closing in person, there are options for closing remotely, depending on the state and lender.

Certain documents, such as the deed and affidavit of title, need to be notarized to finalize the home purchase. Remote online notarization allows buyers to sign closing documents with an electronic signature and allows all parties to meet virtually.

The process is authorized in most states, but certain documents, including promissory notes, may need to be signed in person. Also, be sure to check if your state requires a lawyer to be physically present at the closing.

Lenders will usually need an appraisal of the property to finalize a home loan. This process can be arranged from afar or coordinated through your real estate agent.

At a virtual closing, closing costs can be paid electronically with a bank-to-bank or wire transfer.

Giving your lender, real estate agent, and the title company ample notice that you intend to close virtually can help seal the deal without a hitch.

The Takeaway

Do people put offers on homes without seeing them? Some do, yes. Having your mortgage financing in order, working with a knowledgeable real estate agent, and doing virtual research can be helpful when buying a house sight unseen.

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.

SoFi Mortgages: simple, smart, and so affordable.

Photo credit: iStock/MicroStockHub

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
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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