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A financial hardship loan is a borrowing option that can help people get through such monetary challenges as unemployment or medical debt.

Some people may have an emergency fund to dip into or family or friends who can help them out if the unexpected happens. But for those who can’t access such resources, a hardship loan can offer the cushion needed until a person’s financial prospects brighten. There are a variety of hardship borrowing options to consider, from personal loans to home equity borrowing, and each has its own application requirements.

Note: SoFi doesn’t offer financial hardship loans at this time. However, we do offer emergency loans.

What Is a Hardship Loan?

A hardship loan is a loan that can help you get through unexpected financial challenges. These are typically a kind of personal loan, and they require you to validate that you are facing severe financial difficulty in order to qualify. If approved, you get a lump sum of cash and pay it back over time with interest. Potential borrowers need to be informed and carefully consider their terms and options so they don’t wind up incurring more debt than they can manage.

What Qualifies as Financial Hardship?

Unemployment, an illness that brings unexpectedly high medical bills, or caregiving responsibilities might all count as situations that could allow a borrower to qualify for a hardship loan. Even carrying a heavy debt load at a high interest rate might be a reason to look into hardship help, in the form of a debt consolidation loan, which will usually have a lower interest rate than credit cards.

Lenders may ask you to explain the source of the financial hardship in your application process. Getting a personal loan while unemployed, for example, might mean jumping through a couple extra hoops, but hardship loans for unemployed people are sometimes doable.

What Can You Use a Hardship Loan For?

As one of the types of personal loans, a hardship loan typically works much like any standard personal loan. The borrower receives a lump sum of money to use as they need, with few limitations. Potential uses could include:

•   Rent or mortgage payments

•   Past-due bills

•   Everyday expenses like groceries and transportation

•   Medical needs

A hardship loan could overwhelm already strained finances, however. Debt in any form will have to be repaid eventually, with interest, even in the case of hardship loans.

Recommended: Managing Loans After Losing a Job

Types of Hardship Loans and Borrowing Options

When you’re experiencing financial difficulties, you may feel the need to make a quick decision. But assessing your options can help you find the best solution for your needs and financial circumstances. Here are some options you may consider when looking for financing during times of hardship.

Personal Loans

A personal loan allows you to borrow a lump sum of money, typically at a fixed interest rate, that you’ll then repay in installments over a set amount of time. Unlike a credit card, which is revolving debt, a personal loan has a set end date. This allows you to know exactly how much interest you’ll pay over the life of the loan (a personal loan calculator can always help with that determination, too).

The common uses for personal loans are wide-ranging. In addition to using a personal loan to help cover current expenses, you could also use personal loans to consolidate high-interest debt that you may have incurred, whether due to hardship or other reasons.

Typically, interest rates on these emergency loans are lower than credit card interest rates, making them an attractive alternative to credit cards.

Credit Cards

Some people also may use credit cards to cover hardship expenses. While this strategy can help in the moment, it can lead to larger bills over time.

For instance, a credit card that offers a 0% annual percentage rate (APR) could allow you to minimize interest charges throughout the promotional period. However, you’ll need to ensure the balance is paid in full before the introductory period ends. Otherwise, you could start racking up interest charges quickly, adding to your financial challenges.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is becoming more common as people seek out nontraditional financing. P2P loans are generally managed through a lending platform that matches applicants with investors.

While it may offer more flexibility than a traditional loan, a P2P lending platform still looks at an applicant’s overall financial picture — including their credit score — during the approval process. Like a traditional loan, a P2P loan’s terms and interest rates will vary depending on an applicant’s creditworthiness.

Generally, lenders in the P2P space will report accounts to credit bureaus just as traditional lenders do. So making regular, on-time payments can have a positive effect on your credit score. On the other hand, making late payments or failing to make payments at all can have a negative effect on your credit score.

Home Equity Lending

If you own your home, you may consider borrowing against your home equity. You could do this in the form of a home equity loan, a home equity line of credit (HELOC), or by refinancing your mortgage through a cash-out refinancing option.

With a home equity loan, you’ll pay back the amount borrowed (with interest) over an agreed-upon period of time. While a home equity loan is offered in a lump sum, a HELOC is a revolving line of credit that can allow you to withdraw only what you need as you need it. However, HELOCs often have variable interest rates, which can make it challenging to plan for repayment.

With a cash-out refinance, you’d refinance your current mortgage for more than what you currently owe, allowing you to get a bit of extra cash to use as you need. This process replaces your old mortgage with a new one.

In all of the options outlined above, if you can’t pay back the loan or follow the agreed-upon terms, there’s the potential that you may lose your house.

401(k) Hardship Withdrawal

It also may be possible to withdraw funds from your retirement plan. Under normal circumstances, a penalty is incurred for early withdrawal. There’s a chance the penalty will get waived due to certain types of financial hardship, but exceptions are limited.

Additionally, making a hardship withdrawal from your retirement account means a missed opportunity for these funds to grow. This could potentially put your retirement goals at a disadvantage or later require you to come up with an alternative catch-up savings strategy. In other words, really pause to think it through before using your 401(k) to pay down debt or put toward current expenses.

How to Apply for a Hardship Loan

The application process for financial hardship loans is similar to the application for any type of personal loan. When it comes to getting your personal loan approved, expect lenders to look at your credit history, credit score, and other factors. You’ll need to have the following documents at the ready:

•   Proof of income

•   Employer contact information

•   Bank statements

•   Government-issued ID

You can expect the prospective lender to look for a credit score of 610 or better. Some lenders allow loans to applicants with a lower score. If this is your situation, look closely at the interest rate and terms being offered, as rates may be higher for those with low scores.

Alternative Options

While you can use personal loans for a variety of financial needs, there may be other options to consider, depending on your situation. For example, if you’re a single parent, you might consider seeking out loans for single moms or dads who have sole financial responsibility for their household. Here are some other options you might explore:

•   Employer-sponsored hardship programs: If you’re facing financial hardship, ask your human resources department if your employer has an Employee Assistance Program (EAP). Financial assistance might be offered to help employees who have emergency medical bills, who have experienced extensive home damage due to fire or flood, or who have experienced a death in the family. Employees will likely have to meet specific qualifications to receive EAP funds.

•   Borrowing from friends and relatives: Asking for an informal loan from a friend or family member is certainly an option for getting through financial hardship, although not one that should be considered lightly. Having clear communication about each party’s expectations and responsibilities can go a long way to keeping a relationship intact. Consider having a written loan agreement that outlines details about the loan, such as the amount, interest rate (even if it’s nominal), and when repayment is expected.

•   Community-based resources: There may be specific grants within your community available for people with emergency financial needs. Organizations like 211.org help individuals find the assistance they need. Community-based social services organizations also may be able to make referrals to other organizations as needed.

•   Government programs: Federal and state governments list resources on their websites for individuals seeking financial hardship assistance. Depending on your circumstances, you may be eligible for certain government programs that could help reduce expenses for food, child care, utilities, housing, prescription medication, and others.

Recommended: How to Apply for a Personal Loan

The Takeaway

Knowing what is a hardship loan and researching all of your options for financial relief is a wise move. You might find help from government or community resources, your employer, or a friend or family member. You might also consider a financial hardship loan, or other options such as a home equity loan or a P2P loan. (Note: SoFi doesn’t offer financial hardship loans at this time. However, we do offer emergency loans.) Understanding the total cost of getting help and repayment terms is an important step in the process.

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

FAQ

What qualifies as a hardship loan?

A hardship loan is a kind of loan that helps you afford unexpected expenses or get through an emergency. You might qualify for a hardship loan if you’re experiencing financial difficulties, such as job loss, medical bills, or emergency home repairs.

What qualifies as financial hardship?

Some common scenarios that can qualify as financial hardship include being unable to repay a loan you took out in the past, being unable to keep up with debt payments due to unforeseen circumstances, and losing income so that you can’t afford your expenses.

What proof do you need for financial hardship?

You might need to show proof of financial hardship by submitting a termination notice if you’ve lost your job or a doctor’s certificate showing you are unable to work. You might be asked to submit bank statements or bills pending as well.

Are there hardship loans for the unemployed?

Unemployed people may be able to qualify for a hardship loan based on financial metrics other than employment status, including a strong credit score. An applicant can expect to be asked about alternative income sources, such as unemployment benefits, spousal income, or investment income. You might better your chances of approval by getting a cosigner for the loan or taking out a loan that involves collateral, such as a home equity loan.

How do hardship loans affect your credit score?

A hardship loan is still a loan at the end of the day, so its effect on your credit score is similar to that of any loan: Your score might take a small dip at the outset due to a hard credit inquiry if one is required. Then, as long as you make your loan payments on time, your credit score should be influenced for the better. Ask a prospective lender if the loan is considered an installment loan that will be reported to the credit bureaus. If the answer is no, that’s a red flag, as reputable companies usually do report.

Photo credit: iStock/staticnak1983

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

SOPL-Q226-031

Credit card debt can go from zero to thousands with one quick swipe. Or it can build slowly like rising water — a nice dinner here, some retail therapy there. Before you know it, your balance is uncomfortably high. You’re not alone. According to the Federal Reserve Bank of New York’s Survey of Consumer Expectations, about 46% of U.S. households carry credit card debt. Of those consumers, the average balance is $6,768, according to recent Experian® data.

If you’ve vowed to pay off your credit card balance, you’re making a smart financial move. Doing so can save you money on interest, build your credit history, and help you achieve other financial goals. Here, learn the top tips and strategies for getting it done, from the snowball strategy to hardship plans and the boring but effective debt-focused budget.

What Is a Realistic Payoff Schedule?

If you’ve been carrying a balance on one or more cards, it may take longer than you’d like to pay off the debt. Determine how long you need to become debt-free while still covering your monthly bills comfortably.

You’ll want to consider these facts:

•   A longer payoff term can allow you to continue to save and invest while paying down debt.

•   A shorter payoff term can save you a considerable amount in interest.

Worth noting before moving on to tactics: If there’s no scenario in which you can cover your living expenses and pay off your credit card debt in five years, the standard payoff strategies may not be enough. It may be time to consider applying for credit card debt forgiveness.

7 Credit Card Payoff Strategies and Tips

There are numerous ways to tackle debt and pay off credit cards. The approaches below may work optimally when you mix and match several to create your own custom debt payoff plan.

1. Create a Debt-Focused Budget

Achieving financial goals usually starts with a budget. Making a budget is designed to help you discover extra cash you can put toward your credit card bill.

•   First, make a list of your monthly bills that reflect the “musts” in your life. Along with your rent or mortgage, phone, gas, food, and other required living expenses, include your credit card payment and other minimum debt expenditures. You can leave the amount blank for now. This is your “Needs” column.

•   Next, look at your “wants.” These are things that you can survive without — restaurant meals, new clothes, gym membership, travel — but often make life better. Which items can you do without temporarily so that you can put their cost toward your credit card bill? The idea is to trim spending so you can pay down your debt.

It’s OK if your budget isn’t the same from month to month — flexibility is good. While you’re at it, build the following into your budget:

•   Look ahead for unavoidable big purchases (that upcoming destination wedding) and occasional bills (annual home insurance premiums, for instance, or holiday gift shopping).

•   Leave some wiggle room for unexpected expenses. You might need to dip into your emergency savings for this kind of cost, but it’s good to have a cushion in your budget (say, for a rent increase).

•   Recognize that your credit card payment may be lower in some months to accommodate the fluctuating costs noted above. Just always pay at least the minimum payment.

Your new budget should prioritize your credit card payment on par with other bills and above nonessential treats. One way to simplify budgeting is to download a financial insights app, which pulls all of your financial information into one place.

2. Zero-Interest Credit Card

The frustrating thing about credit cards is how interest can take up more and more of your balance. Zero-interest credit cards, also known as 0% APR cards, allow cardholders to make payments with no interest on transfers and purchases for a set period of time. The promotional period on a new credit card can usually last from 12-21 billing cycles, long enough to make a large dent in the card’s principal balance.

Consolidating your credit card debt on one zero-interest card serves to simplify your monthly bills while also saving you money on interest payments. The key here, of course, is to avoid racking up even more credit card debt.

One drawback to these cards is that you often need a FICO® Score of 670 or above to qualify. And once the promo period expires, the interest rate can climb to 28.99% or higher. In an ideal world, you’ll want to achieve your payoff goal before the rate rises.

A credit card interest calculator can give you an idea of how much your current interest rate affects your total balance.

3. Consider the Snowball, the Avalanche, and the Snowflake Strategies

The snowball and avalanche debt repayment strategies take slightly different approaches to paying down debt. Both involve maintaining the minimum payment on all but one card.

•   The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.

Then, that entire monthly payment is added to the next payment — on top of the minimum you were already paying. Rinse and repeat with the next card. It’s clear to see how this method can quickly get the snowball rolling.

•   The debt avalanche method is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run. Just like the snowball method, applying that entire payment to the next highest interest debt can lead to quick results.

•   The debt snowflake method, the third snow-related strategy, emphasizes putting every extra scrap of cash toward debt repayment. If you have extra money to throw at your debt, even $20, it can still make a difference in your overall amount owed. So this method encourages you to chip away at debt with any small amounts available.

4. Make More Money

Sure, increasing your income is easier said than done. But if you have the time to spare, it can make paying down debt a lot more manageable. Here are the top ways that people can bring in more cash:

•   Start a side hustle (or monetize an existing hobby).

•   Get a part-time job (on top of your current job). Two shifts a week can help you bring in another $500 to $1,000 per month.

•   Sell your stuff. Reselling clothes, books, old electronics, and jewelry can help bring in cash.

•   Negotiate a raise. In some cases, labor shortages may give workers extra leverage to ask for more.

5. Negotiate With Your Credit Card Company

If your large credit card balance is the result of unemployment, medical bills (yours or a loved one’s), or another financial setback, inform your credit card company. You may be able to negotiate a lower interest rate, lower fees and penalties, or a fixed payment schedule.

Hardship plans have no direct effect on your credit rating. However, the credit card company may send a note to the credit bureaus informing them that you’re participating in the program.

One point to be aware of: Your credit card issuer may also close or suspend your credit card while you’re paying off the balance. This can leave you without a means to pay for purchases and could also ding your credit score.

6. Change Your Spending Habits

Changing how you spend your money is key to paying down debt — and to avoiding racking up more in the future. You can approach this in two ways: as a temporary measure while you pay off your cards or a permanent downsizing of your lifestyle.

•   The advantage of the temporary approach is that people are generally more willing to give things up when it’s for a limited time. For instance, can you suspend your gym membership during the warmer months when you can work out outdoors? Perhaps you can challenge yourself to cook at home for 30 days to save on restaurants. Or you might go without paid streaming services for six months.

String enough of those small sacrifices together to cover a year or two, and see how quickly you might be able to increase your credit card payments. That, in turn, can make your payoff term shrink.

•   Downsizing your lifestyle for the long term has its own appeal, even for people who aren’t paying down debt. Living below your means is key to accumulating wealth. How exactly you accomplish that isn’t important. For instance, you can frequent cheaper restaurants, reduce the number of times you go out each month, or merely avoid ordering alcohol and dessert. The bottom line is to save money, avoid debt, and enjoy the financial freedom that results.

7. Take Out a Personal Loan

Similar to a zero-interest credit card, a personal loan is a form of debt consolidation. Personal loans tend to have lower interest rates than credit cards, saving you money. And if you’re carrying a balance on multiple credit cards, a personal loan can allow you to simplify your debt with one fixed monthly payment.

Personal loans can be a great option for people with good to excellent credit. That’s because your interest rate is determined largely by your credit score and history. You can typically borrow between $1,000 and $100,000, and use the money for just about any purpose, from paying off debt to funding travel or a home renovation.

You’ll usually find fixed-rate personal loans, though some variable-rate ones are available as well. Terms usually run from one to seven years for personal loans.

The Takeaway

Credit card debt can sneak up on you. If you’re carrying a balance on one or more cards, there are numerous ways to approach paying down your debt. You might start with a new budget that prioritizes your credit card payment along with your other monthly bills, and trim your spending accordingly. You could then combine a broad payoff strategy (the snowball, the avalanche) with other tips and tactics (zero-interest credit cards) to minimize your interest payments and shorten your payoff term. And remember: You’re not alone, and you can do this!

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

FAQ

How to pay off a huge credit card bill?

There are a variety of ways to pay off a large credit card bill. These include making (and sticking to) a budget, trying the debt avalanche or snowball methods, applying for a zero-interest balance transfer card, or taking out a personal loan.

How to get rid of $30,000 credit card debt?

To pay off a $30,000 credit card debt, it’s wise to create a smart budget, look into cutting your expenses, develop a repayment plan, and see about consolidating your debt. If these don’t seem likely to lead to getting rid of your debt, you might talk to a certified credit counselor and/or consider a debt management plan.

What is the best tip to pay off credit cards?

The top tip for paying off credit card debt will depend on a variety of factors, such as how much debt you have vs. your available funds. For some people, the debt avalanche method of putting as much available cash toward the highest interest debt can be a smart move. For others, consolidating debt with a personal loan may be a good option.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

SOPL-Q226-020

There are at least 11 different types of personal loans out there, but one you may not have heard of yet is the share-secured loan.

An accessible option for those who might not qualify for a traditional unsecured personal loan, a share-secured loan uses the funds in your interest-bearing savings account as collateral — which means you can pay for a big expense without wiping out your entire savings.

Here are the basics about share-secured loans: how they work, the benefits, allowed uses, requirements, and more.

What Is a Share-Secured Loan?

A share-secured loan, which may also be known as a savings-secured loan, cash-secured loan, or passbook loan, is a type of personal loan.

However, unlike many other types of personal loans, these loans are — as their name implies — secured: The bank or other lending institution uses the money in your savings account, certificate of deposit (CD), or money market account as collateral to lower their risk level when offering the loan. This can make qualification less onerous for the applicant.

In addition to making it easier to qualify for a loan, share-secured loans also allow you to fund an expensive purchase or cost without depleting your savings. They can also help you build credit, which is particularly important if your existing credit history or credit score could use some work.

Of course, like all other loans, share-secured loans do come with costs and limitations of their own, and it’s worth thinking carefully before going into any kind of debt.

Recommended: What Is a Certificate of Deposit?

How Does a Share-Secured Loan Work?

In order to take out a share-secured loan, you must first have money saved in an interest-bearing savings account. Your savings account balance will be used as collateral. Money invested in the stock market can’t be used as collateral for this kind of loan, since it isn’t insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) and is at some amount of risk.

Banks that offer share-secured loans will cap the loan at some percentage of the amount of money you have in your account, potentially up to 100% of those funds. They may also list a loan minimum.

When you apply for the loan, the money in your savings account will be put on hold and made inaccessible to you, and the loan funds will be issued to you as a check or directly deposited into your checking account.

You’ll then be responsible for paying the loan back in fixed monthly installments over a term that may last as long as 15 years and which will include an interest rate of about 2-3 percentage points more than your frozen savings account earns., For example, if you secured the loan with a money market account that earns 2.00% APY, your loan interest rate might be 4.00%-5.00%. Typically, share-secured loans come with lower APRs than unsecured loans, since they’re less risky for lenders.

Once the loan is paid off, you’ll regain access to the funds in your savings account, which will still have been earning interest the entire time.

Benefits of a Share-Secured Loan

It may seem a bit strange to borrow money you already have, which is pretty much how a share-secured loan works. But there are certain benefits to this approach if you need to pay down an expensive bill or fund a costly project up front.

Cost

Of the different types of personal loans that are available, share-secured loans have some of the lowest interest rates — precisely because the bank has your money as collateral if you don’t repay the loan.

Still, even if the loan interest rate is only a few percentage points over the amount of money you earn in interest on your savings account, you’ll pay more than you would if you were able to use cash to fund your expenses.

Eligibility Requirements

One of the biggest benefits of share-secured loans is their relatively lenient eligibility requirements. Since they are secured, lenders consider them less risky.

If your credit score is on the low end of the range, you may not qualify for other types of personal loans, and if you do qualify, their interest rates may be high (as in the case of a payday loan or pawnshop loan). A cash-secured loan offers an accessible and relatively inexpensive alternative.

Flexible Repayment Options

With a share-secured loan, you can often choose a repayment term that suits your needs and financial plans. Many lenders offer terms within the 36- to 60-month range.

Credit Building

Finally, one of the most important benefits of share-secured loans is their power to help you improve or build your credit, which can help you qualify for other types of loans in the future. Credit building and credit improvement are two of the best reasons to seriously consider a share-secured loan to fund an expense you might otherwise be able to pay for in cash.

Are Share-Secured Loans a Bad Idea?

There are some risks in using your existing funds as collateral to go into debt. Namely, if you fail to pay back the loan, the lender can seize the funds in your savings account, and you’ll still be responsible for repaying the loan, which can have a negative effect on your credit score.

Additionally, even a low-cost loan isn’t free, and, depending on the loan amount and its term, you may end up spending a significant amount of cash on interest over time.

That said, there are times when a share-secured loan may make sense:

•   You’re a first-time borrower. A share-secured loan offers you access to credit without requiring you to have a lengthy credit history.

•   Your credit is poor. By making consistent payments on the loan, you can rebuild and repair your credit.

•   You need help paying for an emergency expense. A share-secured loan helps you cover unexpected bills without depleting your savings.

Common Uses of a Share-Secured Loan

Share-secured loans are used for a wide variety of reasons and share many of the common uses of a personal loan.

For example, a borrower might use a share-secured loan to cover an unexpected medical bill or car repair payment. Share-secured loans can also be used to cover moving expenses, home improvement costs, or even to pay off other forms of high-interest loans, such as through credit card consolidation, which could help you get back on track financially.

Who Is a Share-Secured Loan Best For?

While it’s important to consider all your options before going into any form of debt, a share-secured loan might be an attractive choice for borrowers who already have a substantial amount of cash in savings but might not have the liquidity to pay for a large expense comfortably.

Additionally, if you have a poor or fair credit score, a share-secured loan may help you qualify for the funding you need while also building up your credit score over time.

Qualifying for a Share-Secured Loan

The good news about qualifying for a share-secured loan is that so long as you have the money in your account saved up, this financial product is very accessible. Many share-secured loans are available for borrowers with poor credit or even no credit history, though it’s always a good idea to shop around and compare rates and terms available from different lenders.

Share-Secured Loans: Alternative Loan Options

While share-secured loans can be a good option for certain borrowers, there are other alternatives worth considering as well:

•   A secured credit card works in a similar way to a share-secured loan. You’ll only be able to use as much cash as you put on the card, and it can help you build credit.

•   If you don’t have substantial savings built up quite yet, a credit-builder loan might work for your needs, though it’s likely to come at a higher interest rate since there’s no collateral involved.

•   A guarantor loan, on which someone cosigns with you and agrees to repay the debt if you default, may make it possible for you to qualify for better terms than you otherwise would with poor to fair credit.

Other Types of Secured Loans

Share-secured loans are far from the only type of secured loans out there. Any loan that involves some form of collateral is considered a secured loan. Some of the most common forms of debt fall into this category, such as:

•   Mortgages, which utilize the home and property as collateral

•   Auto loans, which utilize the vehicle as collateral

•   Secured credit cards, as mentioned above, which require cash collateral

Recommended: Using Collateral on a Personal Loan

The Takeaway

Share-secured loans are a secured type of personal loan that can be used for a wide variety of expenses. Share-secured loans are available for low-credit borrowers, so long as they have substantial cash savings, but there are other options available, too.

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

FAQ

Are share-secured loans a bad idea?

Share-secured loans are not an inherently bad idea, but they can cost the borrower more in interest than if they had paid cash for the purchase. You also risk your savings being seized if you fail to make payments.

Why would someone take out a share-secured loan?

The reasons people take out a share-secured loan are much the same as reasons for taking out a personal loan: medical expenses, moving costs, home repairs and improvements, and more. A share-secured loan lets you borrow money using your savings account, certificate of deposit, or money market account as collateral, allowing you to build credit, secure a low interest rate, and access cash without depleting your savings.

How do share-secured loans work?

The borrower uses funds in their interest-bearing savings account as collateral to secure the share secured loan. If they fail to repay the loan, the lender can seize the savings account as repayment on the loan.

Photo credit: iStock/Julia_Sudnitskaya

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

SOPL-Q226-039

A personal loan is a flexible way to borrow that can be used for anything from covering the cost of a home repair to consolidating high-interest debt. While there’s no universally required credit score needed for a personal loan, you generally need a score of at least 610 to qualify, and an even higher score to get a lender’s best rates. Some lenders may approve borrowers with a score as low as 580.

Read on for a closer look at what credit score is needed for a personal loan, how your credit score can impact loan amounts and interest rates, plus other factors lenders look at when considering an applicant for a personal loan.

How Your Credit Score Affects Personal Loan Eligibility

A credit score is a three-digit number (typically between 300 and 850) designed to predict how likely you are to pay a loan back on time based on information from your credit reports. There is no universally set minimum credit score needed for personal loans but many lenders require applicants to have a minimum score of around 610.

That doesn’t mean borrowers with lower scores or thin credit are out of luck. Some lenders offer personal loans to applicants without any credit history at all. There are also personal loans on the market designed for applicants with poor or bad credit. Keep in mind, though, that these loans often come with high interest rates and less-than-favorable terms.

Interest Rates and Loan Terms

Personal loan interest rates for those with a high credit score are typically lower than for people with weaker scores. To get approved for more favorable rates, you may need a credit score above 670. And some lenders reserve their lowest rates and largest loan amounts for scores of 800 or higher.

Personal loans typically have a repayment term of two to seven years. The interest rate and loan term and your credit score and other qualifying factors come together to determine your monthly loan payment. Each lender will have its own rules, so it’s a good idea to seek out a quote on your desired loan amount and term from multiple lenders.

Loan Amounts

A personal loan enables you to borrow a specific amount of money to use in virtually any way you like — unlike a mortgage or auto loan, which is earmarked for one specific purpose. Personal loans are offered by banks, credit unions, and online lenders and are generally unsecured (meaning you don’t have to pledge an asset to secure the loan). Lenders determine the ceiling for your loan based on the amount you request and internal policies. Each lender will have a ceiling: a maximum amount it is comfortable lending.

Once you get approved for a personal loan of a certain amount, you receive the funds in one lump sum up front, then repay the money (plus interest) in monthly installments over the loan term.

Other Factors Lenders Consider Beyond Credit Score

These are a few other typical personal loan requirements lenders take into consideration when deciding whether or not to offer you a personal loan, as well as how much to offer and at what rate. Here’s a look at what you may need to show in addition to a credit score for a personal loan.

Debt-to-Income Ratio

Lenders will also look closely at an applicant’s debt-to-income (DTI) ratio, which measures the percentage of a person’s monthly income that goes to debt payments. You generally want your DTI to be as low as possible, because that indicates that your income is well above what you need to cover your monthly expenses.

If you’re applying for a personal loan, lenders typically want to see a DTI of 40% or less. A lender might allow a higher DTI, however, if you have a strong credit score or other compensating factors, like enough money in your savings account to cover several months of living expenses.

Income

To make sure that borrowers have the cash flow to repay a new loan, lenders typically have minimum income requirements for personal loans. Income thresholds vary widely by lender — some require applicants to earn at least $45,000 per year, while others have a minimum annual income requirement of just $20,000. Lenders don’t always disclose their income requirements, so you may not be able to discover these minimums before you apply for a personal loan.

Lenders see your income by looking at your monthly bank statements, last two years of tax returns, and pay stubs. Some lenders also require a signed letter from an employer. If you are self-employed, you can provide tax returns or bank statements to show proof of income.

Credit History

Your credit history is all the details included in your credit report. In addition to looking at your credit score, a lender might consider whether you have any red flags in your history, such as accounts handed to a collection agency, a foreclosure, or a lien or judgment related to unpaid bills. Information flows between lenders and credit agencies, and it’s important to remember that even as your credit affects whether you can get a loan, taking out a personal loan affects your credit, too.

💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

Credit Score Ranges for Personal Loans

When it comes to having the right credit score for personal loans, there is no one set score that disqualifies someone from getting their hands on one, as noted above. That said, having a FICO® Score in the good range (670-739) or higher gives applicants the widest range of lending opportunities and helps borrowers get favorable interest rates.

Take a closer look at how different FICO credit score ranges can affect lending opportunities.

Exceptional

An exceptional credit score qualifies applicants for the widest variety of personal loan options, the most favorable interest rates, and larger loan amounts.

Very Good

Having a very good credit score qualifies applicants for most if not all of the same rates and lending opportunities as exceptional applicants.

Good

Having a good credit score puts a borrower near or slightly above the average of U.S. consumers, and most lenders consider this a good score to have. Applicants shouldn’t struggle to find a personal loan, but they may not be approved for the lowest interest rates.

Fair

A fair credit score is below the average score of U.S. consumers. Many lenders will approve loans with this score, but rates and terms might not be as desirable as they are for higher scores.

Poor

A poor or “bad” credit score is well below the average score of U.S. consumers and demonstrates to lenders that the applicant may be a lending risk, which greatly limits the applicant’s borrowing options. If they do qualify for a personal loan they likely can expect to be approved at high interest rates.

Recommended: How a Personal Loan Can Boost Your Credit Score

Alternatives to Personal Loans

If your credit score makes it difficult to qualify for a personal loan, you may want to explore alternative lending options. Here are some to consider.

•   Credit card cash advance: Consumers with credit cards may be able to request a cash advance from their credit card, which can make it easy to get access to cash quickly. These cash advances typically come with higher interest rates than a regular credit card purchase.

•   Peer-to-peer loans: There are some web-based lending sites that offer some flexibility in qualification requirements. Since these sites are not lenders, and more like matchmakers, they may help you find an investor who is willing to look at other factors besides your credit score.

•   Cross-collateral loans: If you already have a loan secured by collateral with a lender (such as auto loan or mortgage), you may be able to qualify for another loan with the same lender using that same collateral. However, not all lenders allow cross-collateral loans. And there are risks involved for borrowers. To have a lien released from the asset used as collateral, you typically need to pay both loans in full.

Personal Loan Rates From SoFi

The average personal loan interest rate, as noted above, will depend on several factors. SoFi makes personal loans of up to $100,000 with repayment terms of two to seven years. The fixed interest rate a borrower qualifies for will depend on their credit score and other details. No-fee loan options are available, though some borrowers choose to pay a one-time fee to obtain a lower interest rate.

The Takeaway

What credit score is needed for a personal loan will depend on the borrower’s needs and qualifications and the lender’s guidelines. Some lenders may allow a borrower to qualify for a personal loan with a credit score as low as 580, but generally speaking, you’ll need a minimum score of 610 to qualify for a personal loan with most lenders. And a credit score of 670 or better can help you obtain a better interest rate.

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

FAQ

Is a different credit score required for loans of different sizes?

Generally, the higher your credit score, the larger the loan you can qualify for. Maximum amounts for personal loans range from $500 to $100,000. If you have strong credit, you may qualify for a larger loan than you need. Be sure to consider how much you can afford to repay each month before deciding what size loan to take out.

Can you get a personal loan without having a credit score at all?

There are some personal loans on the market with no credit check. Since the lender can’t rely on your credit history, they will typically focus on other indicators of your ability to pay back the loan, such as your income, employment history, rental history, and any previous history with the lender.

When applying for a personal loan with no credit check, you’ll want to carefully weigh the benefits against the costs. Lenders will often charge higher interest rates and impose more fees to lessen their risk.

Can getting a personal loan affect a credit score?

Getting a personal loan can affect credit scores both positively and negatively. Applying for a personal loan typically results in a hard credit inquiry, which may cause a small, temporary drop in your credit score. On the flip side, taking out a personal loan can have a positive impact on your credit by increasing your credit mix. Making on-time payments can also improve your credit profile. (Late payments, however, can have a negative impact on your credit.)

What credit score do you need to get the best personal loan rates?

The best personal loan interest rates are typically reserved for borrowers with a credit score of 800 or better, which is considered an exceptional score. (The average credit score in the U.S. in early 2026 was 713.)

What is the minimum credit score for a SoFi personal loan?

The minimum credit score SoFi will accept for a personal loan will depend on the loan amount requested and the borrower’s credit history and debts. It would not be unusual to need a score of 620 to qualify for a loan of $3,000, for example.

Photo credit: iStock/Moyo Studio

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.

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If you need cash to cover an emergency expense, such as a car repair or medical bill, a payday loan or an installment loan are two options you may consider. However, these two loans are different in key ways that are important to understand before making a choice between them. Namely, a payday loan tends to have a short turnaround before you need to pay it off and typically offers extremely high interest rates.

We’ll explain more about the features of each loan type and why people choose payday loans vs. installment loans.

Understanding Payday Loans

There’s no set definition of a payday loan. Generally speaking, they’re short-term loans that are due to be paid back on your next payday. Payday loans don’t charge interest per se, but they do charge high fees.

Payday loans are typically for relatively small amounts. In fact, many states limit the amount of a payday loan to $500. Borrowers usually repay the loan in a lump sum on their next payday. The specific due date is often between two and four weeks from when the loan was made.

To repay the loan, borrowers must make out a post-dated check to the lender for the full balance of the loan plus any fees. As an alternative, borrowers can give permission for the lender to electronically debit the funds from their bank account on a certain date. If the borrower doesn’t repay the loan by the due date, the lender can cash the check or debit the funds. Either way, the lender gets paid.

In some states, borrowers may be able to roll over the amount of the loan, paying only the fees when it comes due, while the lender pushes out the due date.

To qualify for a payday loan, you generally need to be 18 years or older and have proof of income, a valid ID, and an active bank, credit union, or prepaid card account.

Risks of a Payday Loan

The risks of payday loans include sky-high fees and the potential for falling into a cycle of debt. Many states set a limit on payday loan fees, but they can still run from $10-$30 for every $100 borrowed, which is the equivalent of a very high annual percentage rate (APR). Consider that a $15 fee for $100 is the equivalent of a nearly 400.00% APR.

By comparison, the average personal loan interest rate as of April 2026 is 11.40%, according to the Federal Reserve’s G.19 Consumer Credit Statistical Release.

Pros and Cons of Payday Loans

Before signing on for a payday loan, carefully consider the advantages and disadvantages.

Exploring Installment Loans

When a borrower receives an installment loan, their lender will give them a lump sum upfront, which the borrower has to repay in fixed payments with interest over a set period of time.

Personal loans are a good example of an installment loan.

They can range in size from a few hundred dollars to $100,000, and the money can be used for any reason, from covering unexpected expenses or consolidating debt to remodeling a home. Repayment terms may stretch from a few months to a few years.

How Installment Loans Work

During the loan application process, lenders will consider factors such as a borrower’s credit score and reports, their income, and the amount and length of the loan.

Typically, borrowers with good credit scores will receive the best terms and interest rate options. These loans may have variable interest rates or fixed, meaning they don’t change over the life of the loan.

Installment loans may be secured or unsecured. Unsecured loans, such as unsecured personal loans, don’t use collateral to back the loans. Secured loans do require collateral and may offer borrowers a lower interest rate since they present less risk to the lender.

Pros and Cons of Installment Loans

Personal installment loans tend to offer borrowers the option of borrowing at lower rates than those available through revolving credit or payday loans. However, it’s still important to consider disadvantages in addition to benefits.

Eligibility Requirements for Installment Loans

Eligibility requirements vary by lender, but generally speaking, you’ll need:

•   Proof of identity

•   Proof of income

•   Proof of address

Your credit score is an important factor, as it helps determine the interest rate you’re offered.

Key Differences Between Payday Loans and Installment Loans

By now, you’ve likely got a good sense that installment loans and payday loans differ in some important ways. Here’s a side-by-side comparison.

Choosing the Right Loan for Your Needs

As you can see, there are important differences between payday and installment loans. Not sure which sort of loan is right for you? A good place to start is to determine what your short- and long-term financial goals are and which type of loan best aligns with them. Interest rates, terms, fees, and repayment options are all factors to consider.

You’ll also want to assess your repayment capabilities. Can your income cover your normal expenses plus the loan debt? Finally, check your credit score and the eligibility requirements of potential lenders to see where your application is more likely to be approved.

The Takeaway

Payday loans and installment loans both provide quick cash to cover emergency expenses. However, because of their astronomical fees — equivalent to a 400.00% APR — payday loans fall under the heading of “predatory lending.” On the other hand, installment loans vary in their terms but generally are a much better deal, provided that you meet eligibility requirements.

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

FAQ

Are payday loans installment loans?

No, payday loans usually require you to pay off the loan amount in full on your next payday. Loans are usually fully repaid within 2-4 weeks from when the loan was taken out.

What is an installment loan?

When you take out an installment loan, you immediately receive the money you’re borrowing. You then pay it back to your lender in a series of regular fixed payments known as installments.

Are personal loans installment loans?

Personal loans are one type of installment loan. Money from the loan can be used for any purpose, such as debt consolidation or a home remodel.

Photo credit: iStock/Prostock-Studio

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.

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