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The cost to replace a chimney ranges from $1,000 to $15,000, depending on the type and size of the chimney. You can install a smaller or prefabricated chimney for $1,000 to $5,000, but a full masonry chimney replacement cost can reach $15,000.

Below, we’ll explain new chimney cost factors, break down labor and materials expenses, discuss financing options, and help you determine if you might be able to replace the chimney yourself.

Chimney Replacement Costs: An Overview

How much does a chimney replacement cost? Anywhere from $1,000 to $15,000. A full chimney replacement is on the higher end of that range while a partial replacement — or a basic prefab chimney installation — is on the lower end.

In some cases, it might be possible to repair the chimney instead of replacing it. Chimney repair costs typically range between $1,000 and $3,000, though it varies depending on the extent of the damage.

Recommended: The Ultimate Home Maintenance Checklist

Full Chimney Replacement

A full chimney replacement costs between $5,000 and $10,000 — or up to $15,000 in some cases. Prefabricated chimneys are the lowest-cost option. You’ll pay moderate prices for a metal chimney and the highest prices for a brick chimney.

Partial Chimney Replacement (Rebuild)

You may only need to replace part of a chimney, like the stack, which extends above the roof. In other cases, you may need to pay for the repair of specific elements, like collapsing mortar, a damaged chimney crown, or a cracked flue.

Partial chimney replacement costs may top out at $5,000 while repair typically ranges between $1,000 and $3,000 per job.

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Chimney Installation Labor Cost

Labor makes up a large portion of the cost to replace a chimney. Depending on your geographic location, if you can reach the chimney by ladder or you need scaffolding, and the type of chimney being installed, labor rates may range from $50 to $150 an hour for an experienced mason.

You will usually need to hire a structural engineer before the mason can begin their work, which adds to your overall labor costs. Depending on where you live, that can cost around $500.

Chimney Installation Material Costs

Material costs vary depending on the type of chimney being replaced, rebuilt, or repaired. Prefab chimneys have lower material costs while masonry chimneys require more expensive materials like bricks and mortar.

Chimney Installation Cost Financing

Paying for a new chimney — or even a more basic chimney repair — can be difficult on a tight budget. If you don’t have the money in emergency savings, you can explore other options like:

•  A payment plan with the contractor: Ask the contractor if they can set you up with a payment plan over a set number of months, rather than requiring the full payment all at once. Costs may be higher if you go this route.

•  A credit card: Some contractors will let you pay with a credit card but be careful. Your credit card may have a high APR, and if you can’t afford to pay the full bill at the end of the month, you could end up paying a lot of interest, which will make the new chimney even more expensive.

•  A home improvement loan: Home improvement loans are a low-cost option for homeowners. These personal loans typically have a lower interest rate than your credit card, and you can choose repayment terms — often three to five years — that make sense for your budget. A personal loan can be a cost-effective way to pay for common home repair costs.

•  Home equity loans: Homeowners can also tap into their home equity with a home equity loan or home equity line of credit (HELOC).

Before you decide on the best financing option, you will want to compare the difference between home equity loans vs. home improvement loans.

Can I Replace the Chimney Myself?

A chimney replacement requires special skills and training. A lot can go wrong if you install or repair a chimney incorrectly. It could become a fire hazard or potentially collapse. No matter your DIY skills, we highly recommend hiring a qualified mason to tackle all repairs and replacements.

Recommended: How to Keep Inflation From Blowing Your Home Reno Budget

What Factors Impact a Chimney Replacement Price?

Several factors can impact your overall chimney replacement cost, including:

•  Permits needed: You’ll almost always need to get a permit for larger chimney replacement projects. Permit costs vary depending on your state and municipality.

•  Level of work required: Wholesale chimney replacements cost significantly more than minor work. For example, chimneys may just require some repointing or tuckpointing to keep them in good shape, or you may need to replace the crown or cap or only rebuild the stack. If you have to replace the whole chimney, it may require demolition, which can be expensive. Talk with your contractor about the extent of the work to get a better idea of the total chimney installation cost.

•  Type of chimney: Prefab chimneys are the most affordable to install. You’ll spend more to replace a metal chimney, but the most expensive type of chimney to replace is a brick one.

•  Size and location: Larger chimneys will cost more to replace than small ones. Chimneys that are easy to access (by ladder, for example) are also more affordable to repair or replace. If the positioning of the chimney makes it harder for the contractor to access, labor costs will be higher.

Signs Your Chimney Needs to Be Replaced

How do you know when it’s time to replace your chimney? Here are a few signs to watch for:

1.   Crumbling brick: If the brick is visibly crumbling or deteriorating, call a mason quickly to determine the extent of the damage and begin the repair or replacement work.

2.   Leaks: If your chimney is the source of leaks (look for water damage to the surrounding walls and ceiling), it’s time to call a contractor to look at it.

3.   Cracks: It’s good practice to have your chimney inspected each year. During the inspection, the contractor will look for large cracks. These could be a sign that it’s time to repair or replace the chimney.

The Takeaway

Chimney replacement costs can range from $1,000 to $15,000 — it’s not a cheap project, but luckily, it’s also not a common one. Get your chimney inspected every year, and keep up with regular maintenance and cleaning. Unless there’s unexpected storm damage or the chimney is old, you may not have to replace the chimney the entire time you live in your home.

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

Replace your chimney asap with a home improvement loan from SoFi.

FAQ

How long does it take to replace a chimney?

Basic chimney repairs can be quick: A professional should be able to repair a partially damaged chimney in one to four days. Significant damage may lead to longer timelines — in some cases, it might take weeks or even months to repair and rebuild a chimney.

Can I replace my chimney myself, or do I need to hire a professional?

Replacing and repairing a chimney requires specialized knowledge, skills, and equipment, not to mention physical strength. If you make even a small mistake when replacing your chimney, you might accidentally cause a leak, inadvertently create a fire hazard, or build a structurally unsound chimney that could collapse. Always hire a professional for this work.

What qualifications should I look for in a chimney replacement contractor?

When looking for a contractor to work on your chimney, always confirm that they are licensed and insured. You should also verify that they’re certified by the Chimney Safety Institute of America.

Ask the contractors if they offer warranties or guarantees for their work and read reviews online to make sure they provide quality services. You can also ask them for references.

How do I compare quotes from different chimney replacement contractors?

Before getting quotes from any chimney replacement contractors, read online reviews and ask the contractors about their licenses, insurance, and certifications. Only get quotes from qualified contractors.

When comparing quotes, look not just at the overall cost but also the timeline to ensure they can replace your chimney quickly, if needed. Also verify what is and isn’t covered in the quote. For example, has the contractor included the necessary permits, or is that a separate cost not part of the estimate?

You’ll also want to ask about their payment schedule and how they prefer to be paid (cash, check, or credit card, for example).

Are there permits or inspections required for chimney replacement, and how much do they cost?

When replacing a chimney, you almost always will need to get a permit and an inspection. The costs will vary depending on where you live, but you might pay up to $500 for an inspection by a structural engineer, and permits can reach $150.

How often should I replace my chimney, and what factors affect its lifespan?

A well-built chimney should last several generations of homeowners. In theory, you may never need to replace your chimney (but regular inspections are a good idea). If you do replace your chimney, you likely won’t need to replace it again as long as you’re in that house.

That said, certain elements may need to be repaired or replaced more frequently. Chimney liners, for instance, last 15 to 20 years, and mortar lasts 25 to 30 years.

Extreme weather, like high and low temperatures, hail, and earthquakes, may shorten a chimney’s lifespan, as can exposure to water. As your home settles over time, it may also lead to premature cracks in your chimney.

What are the risks of not replacing a chimney that is in disrepair?

If you ignore the signs that it’s time to replace or repair your chimney, you’re exposing your home to a lot of risk. Water could more easily get into your home, leading to mold and mildew. Walls, ceilings, and floors could deteriorate over time, and the inner workings of your chimney would be exposed to rust. Eventually, your chimney might collapse, leading to much more expensive and extensive structural damage to your home.

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

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

What Is Loan Insurance?

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

Is Personal Loan Insurance Required?

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

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

How Much Is Insurance on a Loan?

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

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

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

What Are the Benefits of Personal Loan Insurance?

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

Prevent Delinquency or Default

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

Protect Your Credit Score

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

Protect Your Dependents and Coborrowers

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

Recommended: Types of Personal Loans

Types of Loan Insurance

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

Business Loans

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

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

Personal Loans

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

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

Recommended: What Is a Personal Loan?

Student Loans

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

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

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

Home Loan

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

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

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

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

Reasons for Getting Loan Protection

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

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

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

Disability Insurance

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

Life Insurance

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

Pros and Cons of Loan Protection

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

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

The Takeaway

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

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

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

FAQ

What is loan insurance?

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

How much is insurance on a loan?

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

What is the benefit of personal loan insurance?

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

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Photo credit: iStock/Pekic

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

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

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

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Many students take out loans to pay for college. While federal student loans don’t require a credit check, private student loans typically do. And, since students often don’t have much credit history, they typically require a cosigner. A cosigner can be a parent but it doesn’t have to be. You can ask other family members, friends, or even mentors to cosign your student loan.

Since a cosigner will be responsible for paying back your loan in the event you’re unable to, it’s important to choose someone you feel comfortable entering a financial agreement with. A cosigner with good credit and high income could result in lower interest rates on your loans.

Read on for a simple, step-by-step guide on how to get someone to cosign your student loan.

How to Ask Someone to Cosign Your Private Student Loan

You may have someone in mind who would make a good cosigner. The problem is, how do you ask someone to cosign a loan? It’s a big ask, and approaching the topic can be intimidating. Not to worry. What follows are some tips that can help ensure you come to the conversation prepared.

Recommended: Avoidable Mistakes for Choosing Student Loan Cosigners

1. Research Your Financial Aid Options First

Before you ask someone to cosign a private student loan, it’s a good idea to explore all of your college funding options. Around 85% of students receive some form of financial aid to pay for college.

Filling out the Free Application for Federal Student Aid, or FAFSA, will give you access to any federal student aid you may be eligible to receive. This might include grants, work-study, federal subsidized loans, federal unsubsidized student loans, and even private scholarships. Completing the FAFSA is free, and it’ll also show potential cosigners that you’ve done your due diligence and have tapped all your available options to finance your education before asking for help.

Recommended: 11 Strategies for Paying for College and Other Expenses

2. Explain Why You Need a Cosigner

Once you’ve decided who you want to ask to be your cosigner, it’s important to come to the table with a clear explanation of why you need a cosigner and what costs the loan will cover. You’ll want to be prepared to share details on your own savings, debts, and credit history. This shows a cosigner why you need help and what kind of risk they would be taking on.

Providing a clear picture of what you have and what you need demonstrates that you’re taking your education and financial goals seriously. Having followed tip #1, you’ll be in a position to show the funding gap between your own funds plus any aid you’ve received and the cost of attendance at your chosen college.

3. Outline Your Plan for Repaying the Loan

When asking someone to cosign a student loan, it’s a good idea to let them know that you have a plan for repayment and exactly what that plan is. Some private lenders allow you to defer making payments until after graduation, while others require you start making interest-only payments while still in school. Either way, you’ll want to have an idea for how you will make those payments on your own.

Failing to make payments on time each month will impact both you and your cosigner, so it’s a good idea to also make a backup plan in case something doesn’t work out. This might be getting a part-time job in any field if you find that it takes longer than expected to get hired in your chosen field.

Demonstrating your plan for repayment can help build your potential cosigner’s confidence and help them feel more comfortable about entering into a cosigner agreement with you.

Recommended: 6 Strategies to Pay Off Student Loans Quickly

4. Make Sure They Understand What They’re Agreeing To

Before moving forward to a written agreement, it’s a good idea to go over the requirements and responsibilities for being a cosigner. For starters, your cosigner must meet a minimum credit score and demonstrate a certain minimum monthly income. The exact requirements will depend on the lender.

You’ll also want to let them know that, as a cosigner, they have a legal obligation to make sure the loan is repaid, and that any late or missed payments on the loan can impact both your and their credit scores.

While these risks can feel intimidating to bring up, outlining your plan to avoid loan default can help address their concerns and show you’re taking the commitment seriously.

Recommended: Ca$h Course: A Student’s Guide to Money

5. Make a Plan for a Cosigner Release

A cosigner release effectively removes a cosigner from a loan, freeing them from any continued responsibility for repayment of your loan. Private lenders may offer the option for a cosigner release if you, at a certain point down the road, meet certain credit requirements and have a strong track record of on-time payments.

Discussing a plan or timeline for when your cosigner will be released from their responsibilities shows that you’re being considerate of the risks of being a cosigner and the impact it can have on their finances. While you may not have the strongest qualifications as a borrower today, your creditworthiness can build over time as you consistently make on-time loan payments.

You might also have the option of refinancing your student loan and, in the process, releasing your cosigner from the original loan agreement.

6. Give Them Time to Think

Cosigning a loan is a serious commitment and whomever you ask may need some time to think over the decision. For this reason, it’s a good idea to approach your potential cosigner early on so you have plenty of time to talk through the agreement and, if necessary, pursue another option.

Handling Potential Concerns and Objections

Cosigners will likely have questions and potential concerns about how the agreement could impact their finances, as well as your relationship. After you’ve made your pitch, it’s important to hear them out and be open to their input to reach an agreement that works for you both.

If a cosigner has objections that you can’t resolve, it may be time to seek out a different cosigner.

Formalizing the Cosigner Agreement

If the person you ask to cosign your loan says “yes,” it’s time to find the right private student loan for your needs. It’s generally a good idea to shop around and compare rates and terms from different lenders, including banks, credit unions, and online lenders. Some lenders allow you to pre-qualify for a student loan online, without impacting your (or your cosigner’s) credit score. This allows you to compare offers, go over rates and terms with your cosigner, and decide which loan is the best fit.

When you officially apply for the loan, you and your cosigner will need to provide a number of financial documents to the lender, so be sure to give your cosigner time to gather all their paperwork.

Repaying the Loan Responsibly

When you take out a private student loan, you’ll typically have a choice of several repayment plans. Which one you choose can have a significant impact on both your monthly payment and total cost of the loan. Options may include:

•  Immediate repayment This means you make full monthly payments while still in school. Doing so will minimize the interest you pay, resulting in the greatest savings.

•  Interest-only repayment Here, you’ll pay only the interest on your loan while you’re still in school. Payments will be lower than immediate repayment but you won’t chip away at your loan balance (or save as much on interest).

•  Partial interest repayment This involves making a fixed monthly payment while still in school that only covers part of the interest you owe. Payments will be lower than interest-only plan but your loan balance will grow.

•  Full deferment Here, you’ll pay nothing while you’re enrolled in school. During this time, though, your loan balance grows.

Once you choose a plan, you’ll want to create a budget for the minimum payment you owe each month. It’s also a good idea to enroll in autopay, to ensure you never miss a payment. Some lenders also offer a rate discount if you enroll in autopay.

After you’ve graduated and your finances allow, you may be able to make extra principal-only payments — this can help lower the total interest you pay over the life of the loan.

The Takeaway

If you need a cosigner on your student loan, you have options. Whether you choose a parent, other family member, friend, or mentor, it’s important to be transparent about the requirements and risks that go into being a cosigner.

Coming to the conversation prepared can build trust and confidence with potential cosigners and put you on the path to funding your education.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How do you convince someone to cosign a loan?

You’ll want to be transparent, as well as fully prepared for the conversation. Explain how the loan will support your long-term educational and financial goals, how you plan to make future loan repayments, and why you are a trustworthy borrower.

Who can I ask to be my cosigner?

It’s common for students to use parents or family members as cosigners, but there are no rules stating that your cosigner must be a relative. You can also ask mentors or family friends who are invested in your success. Just keep in mind that a cosigner will need to meet the lender’s financial and credit requirements.

Can I hire someone to be a cosigner?

There are businesses that advertise online that they will cosign your student loans for a fee, but borrower beware. These are often scams in which the “cosigner” requests cash payment in advance, then disappears. Or, the business might be legitimate but will require you to give them a portion of the loan in exchange for cosigning. Generally, it’s not worth the risk or cost.

What percentage of student loans are cosigned?

Roughly 92% of undergraduate private loans are cosigned. About 66% of graduate school loans from private lenders require a cosigner.

How do I assess my creditworthiness before seeking a cosigner?

To assess your creditworthiness, you’ll want to check your credit score and take a look at your credit reports.

You can often access your credit score for free through your bank or credit card company (check your statements on log into your online account). You can access your credit reports from the three main consumer credit bureaus (Equifax, Experian, and TransUnion) for free at AnnualCreditReport.com.

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Photo credit: iStock/NoSystem images

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

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

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

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

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Know your options

There are several repayment options, but whether you have federal or private student loans will determine how you tackle your repayments:

•   Standard repayment plan: The default plan. You take up to 10 years to repay federal loans with monthly, fixed payments (though consolidation loans could take up to 30 years).

•   Extended repayment plan: You pay your federal student loans back over 25 years with lower monthly payments than the Standard plan.

•   Graduated repayment plan: You pay your federal student loans back over a 10-year period, with lower payments at the beginning of the term, and a gradual increase (consolidation loans could take up to 20 years).

•   Income-driven repayment plan: The amount you pay depends on your income and family size in this type of federal loan repayment.

You can also refinance your student loans with a private lender to consolidate (combine) your loans to ensure you have just one monthly payment.

The most important thing to remember is this: Your loan servicer can help you find the right plan. Find out more about what repayment option might be right for you by taking our quiz. Trust us, you’ve got this!

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Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
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A precomputed loan is a type of personal loan. With these loans, the lender will calculate the interest owed up front and add it to the principal balance. This is different from a simple interest loan, where interest charges are determined by the principal balance month to month.

Precomputed loans typically favor lenders, and the way the interest charges are calculated is complicated. You’ll want to have a clear understanding of what you’re signing up for before you can decide if it’s the right fit for you.

What Does “Precomputed Loan” Mean?

With a precomputed loan, the lender calculates the total interest charges that would accrue over the life of the loan and then adds it to the principal balance. Your starting balance is a combination of the principal balance and the interest charges. You still make your monthly payments like other types of loans, however, the interest charges remain the same, even if you make extra or early payments on your loan.

If you make minimum payments over the life of your loan, there isn’t much difference between precomputed loans and simple interest loans. However, with a precomputed loan, it’s harder to pay off your loan early to save on interest charges. Since your balance is a combination of interest charges and principal, you can’t specify to the lender that you want to pay more to the principal balance to pay it off faster.

If you are able to pay off the loan before the loan term ends, you must ask your lender for a refund on any “unearned interest.”

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

Simple Interest vs. Precomputed Interest

Simple interest is another way lenders calculate interest charges — it’s commonly used for mortgages, student loans, and personal loans. It’s a more straightforward way of calculating interest, where lenders multiply the principal amount by your interest rate.

When you make your monthly payment on your simple interest loan, a portion goes to paying the interest charges and the remaining amount goes toward the principal balance. At the start, you’ll be paying more in interest than principal, but as your balance gets smaller, so will the interest payments.

If you may want to pay off your loan early, a simple interest loan is a better choice because your interest is recalculated based on the shorter term.

Say that your total interest charges should be $1,200 for a 12-month loan. After nine months, you’ve paid $900 in interest, and you decide to pay off the rest of the balance in a single payment. With a simple interest loan, you wouldn’t be required to pay the remaining $300 in interest charges — that’s considered “unearned interest.”

Precomputed interest, unlike simple interest, adds the interest charged onto the principal so your total balance is a combination of interest charges and the principal balance, and you can’t tell the lender you want to make extra payment directly to the balance.

Simple Interest	Precomputed Interest
Interest charges calculated based on the principal balance each month	Interest charges calculated at the start of the loan and added to the principal
You can save money in interest charges if you pay off the loan early	Not much savings if you decide to pay off the loan early

The Rule of 78

The rule of 78 is a quirky method some lenders use to calculate interest for precomputed personal loans. First, they add up all the months in a year, represented by numbers:

1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 = 78.

The lender then calculates how much interest you owe on a loan and distributes the charges by weighting the interest payments in reverse order.

The interest distribution schedule for a one-year precomputed loan would look like this:

Month	Interest Charge
Month 1	12/78
Month 2	11/78
Month 3	10/78
Month 4	9/78
Month 5	8/78
Month 6	7/78
Month 7	6/78
Month 8	5/78
Month 9	4/78
Month 10	3/78
Month 11	2/78
Month 12	1/78

With both simple- and precomputed-interest loans, you pay more interest charges at the start. But the big difference is you have the option to pay off the simple interest loan sooner without penalty. Unlike a precomputed loan, you can tell the lender you want to make extra payments toward the principal to pay down the loan faster.

Because of the way interest is distributed with a precomputed loan, there’s no incentive for a borrower to pay off their loan early.

💡 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.

Is Precomputed Interest Legal?

In 1992, the U.S. government banned precomputed loans that use the rule of 78 on terms spanning longer than 61 months. In fact, some states have outright banned using the rule of 78 for consumer loans.

Some loans that use precomputed interest are still legal, though financial institutions rarely use them. That’s because loans that use the rule of 78 are better for lenders than for consumers. Calculating the interest charges requires a complex formula, and there’s no financial incentive to pay off the loan sooner.

Precomputed Loan Amortization

As you pay off your loan, the amount of interest you pay on a precomputed loan will get smaller with each subsequent payment. In the first month of a 12-month loan, you will need to pay 12/78 of the interest charges, the second month 11/78, all the way to the last month where you pay 1/78.

For 24-month loans, you’ll pay 24/300 of the interest charges in the first month, 23/300 the second month, and so forth until you reach 1/300.

To calculate the exact amount you’ll pay each month, you’ll need the total interest charges. Then you can divide it up into the number of payments for your term using the rule of 78.

Let’s say you took out a $7,000 loan for a 12-month term at a 7% interest rate. Assuming you’ll pay $272 in total interest for the entire loan term, here’s how the interest payments are broken down by month:

Amortization Schedule
Month	Interest Paid
1	$41.85
2	$38.35
3	$34.87
4	$31.38
5	$27.89
6	$27.41
7	$20.92
8	$17.43
9	$13.95
10	$10.46
11	$6.97
12	$3.48

You can see by looking at the chart, your interest charges get smaller each month.

Pros and Cons of Precomputed Interest Loans

Although precomputed interest loans seem complicated, there may be some advantages to this form of debt.

Pros of Precomputed Interest Loan	Cons of Precomputed Interest Loan
Interest is similar to a simple loan, if paid on time throughout the full loan term	There’s no financial incentive to pay off the loan early
Fixed interest rate	There’s no flexibility to pay off loan early
Typically comes with fixed payment amounts	Can be hard for borrowers to understand

Recommended: Fixed vs. Variable Rate Loans

How Do You Know If Your Loan Has Precomputed Interest?

You can look over your personal loan agreement to see if it has precomputed interest. Some clues to look for include whether it mentions refunding interest or anything about the rule of 78.

If you’re unsure, you should always contact the lender and ask them to explain how interest is calculated before you sign the contract.

Recommended: Secured vs. Unsecured Personal Loans — What’s the Difference?

Are Precomputed Loans Bad?

Precomputed loans aren’t necessarily bad. You’ll probably pay the same interest as with a simple loan, as long as you pay on time over the entire term of the loan. These loans can be problematic if you think you may want to pay off your loan early.

If you’re trying to save on interest, and you have the means to make extra or early payments, you may be better off avoiding precomputed loans.

Alternatives to Precomputed Loans

Instead of precomputed loans, consider these alternatives:

•  0% credit cards offer cardholders an introductory period (anywhere from 6 months to more than a year) where you can carry a balance without accruing interest. You are usually required to make a minimum payment each month. If you don’t pay off the full balance by the time the intro period ends, you’ll be charged interest.

•  Simple-interest personal loans are a form of installment loan. You can borrow a lump sum to be paid back with interest over the course of a loan’s term (usually a year or more). Lenders typically charge simple interest for these types of loans.

The Takeaway

Whatever type of loan you choose, it’s important to carefully examine your loan documents to ensure you understand what your responsibilities are as a borrower and how much you will be paying in interest charges.

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

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

FAQ

Is precomputed interest legal?

Yes, precomputed interest is legal, but the rule of 78 is a complicated and controversial concept that favors financial institutions. The rule of 78 is illegal for all loans over 61 months and in some states altogether.

How do you know if your loan has precomputed interest?

You can check your loan agreement to see if it mentions anything about the rule of 78 or refunds/rebates of interest charges. If you’re not sure, you should ask your lender.

What does “precomputed loan” mean?

A precomputed loan means the lender is charging you precomputed interest, which means your interest charges are added to your principal balance. The starting balance will be a total of your interest charges and principal. While you can pay off a precomputed loan early, there’s not the same financial incentive that you get when you pay off a simple interest loan early.

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Photo credit: iStock/Chainarong Prasertthai

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