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It may be tempting to tap your 401(k) retirement savings when you have pressing bills, such as high-interest credit card debt or multiple student loans. But while doing so can take care of current charges, you may well be short-changing your future. Early withdrawal of funds can involve fees and penalties, plus you are eating away at your nest egg.

Here’s a look at the pros and cons of using a loan or withdrawal from your 401(k) to pay off debt, along with some alternative options to consider.

What Are the Rules for 401(k) Withdrawal?

A 401(k) plan is designed to help you save for your retirement, so taking money out early usually isn’t easy — or cheap. Generally, you’re allowed to begin taking withdrawals penalty-free at age 59½. If you take money out before that age, the IRS typically imposes a 10% early withdrawal penalty.

If you’re 59 1/2 or older, you won’t have to pay the 10% penalty. However, the amount you withdraw from a traditional 401(k) will still be taxed as income. If you have a Roth 401(k) and have held the account for at least five years (and you’re at least 59½), however, you can withdraw funds tax-free.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay off debt.

Understanding 401(k) Withdrawal Taxes and Penalties

When you withdraw money from a traditional 401(k), the IRS considers it taxable income. That means you’ll owe income tax based on your tax bracket at the time of the withdrawal, plus a potential 10% penalty if you’re under the age threshold.

For example, let’s say you’re 33 years old and you have enough in your 401(k) to withdraw the $15,000 you need to pay off your credit card balance. You can expect to pay the 10% penalty, which will be $1,500. If you pay a tax rate of 22%, you can also expect to owe $3,300 in taxes. This will leave you with $10,200 to put towards your credit card debt.

Exceptions to Early Withdrawal Penalties

There are some exceptions to the 10% withdrawal penalty. You might be able to withdraw funds from a 401(k) without paying a penalty if you need the funds to cover:

•  Emergency expenses

•  Unreimbursed medical expenses over a certain amount

•  Funeral expenses

•  Birth or adoption expenses

•  First-time home purchase

•  Expenses and losses resulting from a federal declaration of disaster (subject to certain conditions)

Your 401(k) summary and plan description should state whether the plan allows early withdrawals in particular situations. Keep in mind that there may be a cap on how much you can withdraw penalty-free. Also, any withdrawal from a 401(k) is generally taxed as ordinary income.

Federal and State Tax Implications

If you make an early withdrawal from your 401(k), the amount is typically added to your gross income. As such, you will owe federal tax on the distribution at your normal effective tax rate. Depending on where you live, your withdrawal may also be subject to state income taxes.

Taking a 401(k) Loan to Pay Off Debt

If you’re looking to use a 401(k) to pay off debt, you may be able to avoid paying an early withdrawal penalty and taxes if you take the money out as a loan rather than a distribution.

A loan lets you borrow money from your 401(k) account and then pay it back to yourself over time. You’ll pay interest, but the interest and payments you make will go back into your retirement account.

Before going this route, however, you’ll want to make sure you understand the rules and regulations surrounding 401(k) loans:

•  Depending on your employer, you could take out as much as half of your vested account balance or $50,000, whichever is less.

•  You typically need to repay the borrowed funds, plus interest, within five years of taking your loan.

•  You may need consent from your spouse/domestic partner before taking a 401(k) loan.

Here’s a look at the benefits and drawbacks of using a 401(k) loan to pay off debt:

Pros

•  No tax or penalty if repaid on time: You won’t owe taxes or early withdrawal penalties as long as you follow the repayment schedule.

•  You pay interest to yourself: The interest you pay on the loan goes back into your retirement plan account.

•  No impacts to your credit: A 401(k) loan doesn’t require a hard credit inquiry, which can cause a small, temporary dip in your scores. And if you miss a payment or default on your loan, it won’t be reported to the credit bureaus.

Cons

•  You may have to repay it quickly if you leave your job: If you leave or lose your job, the full outstanding loan balance may be due in a short period of time. If you can’t repay it, the IRS treats it as a distribution, meaning taxes and penalties may apply.

•  Loss of investment growth: Money taken out of your 401(k) isn’t earning returns, which can hurt your long-term savings and future security.

•  Borrowing limits: You might not be able to access as much cash as you need, particularly if you haven’t been saving for long. Typically, the maximum loan amount is $50,000 or 50% of your vested account balance, whichever is less.

How Early 401(k) Withdrawals Can Impact Your Financial Future

While paying off debt may feel urgent now, dipping into your 401(k) can have long-lasting effects on your retirement security.

Loss of Compound Growth

One of the most powerful benefits of a 401(k) is compound growth. Then is when your initial investment earns returns, then those returns are reinvested and also earn returns. “Compounding helps you to earn returns on your returns, which can help your earnings grow exponentially over time,” explains Brian Walsh, CFP® and Head of Advice & Planning at SoFi. The longer your money has to grow and compound, the more significant the impact of compounding becomes.

Reduced Retirement Readiness

Using your 401(k) to pay off debt means you’ll have less money later in life. When you withdraw or borrow from your account, you reduce the amount that’s working for you. Even a small early withdrawal can result in tens of thousands of dollars in lost retirement income over the decades.

For many Americans, retirement savings are already insufficient. Reducing your nest egg further could lead to delayed retirement or financial insecurity in your senior years.

Alternatives to Cashing Out a 401(k) to Pay Off Debt

Before tapping into retirement funds, consider exploring these less risky options for managing debt.

Balance Transfer Credit Cards

Some credit cards offer introductory 0% APR on balance transfers for a set period of time, often 12 to 21 months. If you qualify, this can give you a break from interest and allow you to pay off your balance faster. Just make sure you pay it off before the promotional period ends to avoid high interest rates.

Debt Consolidation Loans

If you have high-interest credit card debt, you might look into getting a ​​credit card consolidation loan. This is a type of personal loan that you use to pay off multiple credit card balances, combining them into a single loan with a potentially lower interest rate and a fixed monthly payment. This can simplify debt management and potentially save money on interest over time. Unlike 401(k) withdrawals, these loans won’t impact your retirement savings.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Credit Counseling Services

Nonprofit credit counseling agencies can help you develop a debt management plan, negotiate lower interest rates with creditors, and offer financial education. This approach may take longer, but it protects your retirement future and can help build good long-term financial habits.

Recommended: Debt Consolidation Calculator

What Are Some Ways of Minimizing Risks to Your Retirement?

If you decide using a 401(k) to pay off debt is your best (or only) option, here are a few things that could help you lower your financial risk.

Prioritizing High-Interest Debt Strategically

Consider taking the avalanche approach to paying off debt. This involves paying off debt with the highest interest rate first, while continuing to pay the minimum on your other debts. Once that highest-interest debt is paid off, you move on to the debt with the next-highest interest rate, and so on.

By focusing on the most expensive debt, you minimize the total interest paid over time, which can help you save money and get you out of debt faster.

Increasing Retirement Contributions Later

If you take a loan or withdrawal now, it’s wise to plan on increasing your 401(k) contributions once you’re in a better financial position. Many people underestimate their ability to “catch up” later, but making additional contributions, especially after age 50 (when catch-up contributions are allowed), can help rebuild your nest egg.

The Takeaway

Using a 401(k) loan or withdrawal to pay off debt may seem like an attractive option, especially when you’re feeling overwhelmed. But it’s a decision that shouldn’t be taken lightly. Early withdrawals generally come with taxes and penalties. And both withdrawals and loans remove money from your retirement account that is growing tax-free.

Instead of cashing out your future, consider alternative debt repayment strategies like balance transfer cards, credit counseling, or using a personal loan to pay off high-cost debt (ideally at a lower rate).

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

How much is the penalty for an early 401(k) withdrawal?

If you withdraw from your 401(k) before age 59½, you’ll typically face a 10% early withdrawal penalty on the amount taken out. Additionally, the withdrawn funds are considered taxable income, so you’ll owe federal — and possibly state — income taxes.

Can you take a loan from your 401(k)?

Yes, many 401(k) plans allow participants to take loans from their account. Typically, you can borrow up to 50% of your vested balance, up to a maximum of $50,000. The loan must usually be repaid with interest within five years.
While it’s convenient, taking a loan from your 401(k) can reduce your retirement savings and potential investment growth.

What are alternatives to a 401(k) withdrawal to pay off credit card debt?

Before tapping into your 401(k), it’s a good idea to consider options that won’t jeopardize your retirement savings. Alternatives include using a 0% APR balance transfer card or consolidating credit card debt with a personal loan, both of which can lower interest costs.
You could also negotiate lower interest rates or payment plans with creditors. Boosting income through side jobs or adjusting your budget to free up funds may help too. These options carry less financial risk and don’t incur early withdrawal penalties or taxes.

Does a 401(k) loan affect your credit score?

A 401(k) loan does not impact your credit score because it doesn’t require a credit check to obtain and the loan itself isn’t reported to credit bureaus. However, if you fail to repay the loan on time — especially after leaving your job — it may be treated as a taxable distribution, resulting in penalties and taxes. While that still won’t impact your credit, it can affect your financial health and future security.

What happens if you leave your job with an outstanding 401(k) loan?

If you leave your job with an unpaid 401(k) loan, the remaining balance is usually due quickly. If you don’t repay it in time, the unpaid amount is typically treated as a distribution, triggering income taxes and a 10% early withdrawal penalty if you’re under 59½. This can create a significant tax burden.

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-Q325-010

The average American carries about $6,455 in credit card debt as of early 2025, and that figure is up by $200 year over year, according to TransUnion®, one of the major credit bureaus.

If you’re struggling with credit debt, whether it’s higher or lower than that average figure, one method to consider is taking out a personal loan (ideally with a lower rate than you’re paying on your credit cards) and using the funds to pay off your credit card debt. If you’re currently paying off multiple cards, this approach also simplifies repayment by giving you just one bill to keep track of and pay each month.

Still, there are pros and cons to consider if you’re thinking about getting a personal loan to pay off credit cards. Read on to learn more.

How Using a Personal Loan to Pay Off Credit Card Debt Works

Personal loans are a type of unsecured loan. There are a number of uses of personal loans, including paying off credit card debt. Loan amounts can vary by lender and will be paid to the borrower in one lump sum after the loan is approved. The borrower then pays back the loan — with interest — in monthly installments that are set by the loan terms. Some details to consider:

•   Many unsecured personal loans come with a fixed interest rate (which means it won’t change over the life of the loan), though there are different types of personal loans.

•   An applicant’s interest rate is determined by a set of factors, including their financial history, credit score, income, and other debt.

•   Typically, the higher an applicant’s credit score, the better their interest rate will be, as the lender may view them as a less risky borrower. Lenders may offer individuals with low credit scores a higher interest rate, presuming they are more likely to default on their loans.

•   When using a personal loan to pay off credit card debt, the loan proceeds are used to pay off the cards’ outstanding balances, consolidating the debts into one loan. This is why it’s also sometimes referred to as a debt consolidation loan. Ideally, the new loan will have a lower interest rate than the credit cards. By consolidating credit card debt into a personal loan, a borrower’s monthly payments can be more manageable and cost less in interest.

•   Using an unsecured personal loan to pay off credit cards also has the benefit of ending the cycle of credit card debt without resorting to a balance transfer card. Balance transfer credit cards can offer an attractive introductory rate that’s lower or sometimes even 0%. But if the balance isn’t paid off before the promotional offer is up, the cardholder could end up paying an even higher interest rate than they started with. Plus, balance transfer cards often charge a balance transfer fee, which could ultimately increase the total debt someone owes.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Understanding Credit Card Debt vs. Personal Loan Debt

At the end of the day, both credit card debt and personal loan debt are both simply money owed. However, personal loan debt is generally less costly than credit card debt. This is due to the interest rates typically charged by credit cards compared to those of personal loans. Also, some people can get trapped by paying the minimum amount on their credit card, which leads to escalating debt as the high interest rate kicks in.

The average credit card interest rate was 24.20% in early 2024. Meanwhile, the average personal loan interest rate was about half that. Given this difference in average interest rates, it can cost you much more over time to carry credit card debt, which is why taking out a personal loan to pay off credit cards can be an option worth exploring.

Keep in mind, however, that the rate you pay on both credit cards and personal loans is dependent on your credit history and other financial factors.

Recommended: Balance Transfer Credit Cards vs Personal Loans

Pros and Cons of Using Loans for Credit Card Debt

While on the surface it may seem like taking out a personal loan to pay off credit card debt could be the best solution, there are some potential drawbacks to consider as well. Here’s a look at the pros and cons:

How Frequently Can You Use Personal Loans to Pay Off Credit Card Debt?

Taking out a personal loan to pay off credit cards generally isn’t a habit you want to get into. Ideally, it will serve as a one-time solution to dig you out of your credit card debt.

Applying for a personal loan will result in a hard inquiry, which can temporarily lower your credit score by a few or several points. If you apply for new loans too often, this could not only drag down your credit score but also raise a red flag for lenders.

Additionally, if you find yourself repeatedly re-amassing credit card debt, this is a signal that it’s time to assess your financial habits and rein in your spending. Although a personal loan to pay off credit cards can certainly serve as a lifeline to get your financial life back in order, it’s not a habit to get into as it still involves taking out new debt.

5 Steps to Successfully Pay Off Credit Cards with a Personal Loan

The steps for paying off a credit card with an unsecured personal loan aren’t particularly complicated, but having a plan in place is important. Here’s what you can expect.

Getting the Whole Picture

It can be scary, but getting the hard numbers — how much debt is owed overall, how much is owed on each specific card, and what the respective interest rates are — can give you a sense of what personal loan amount might be helpful to pay off credit cards. You can also use an online personal loan calculator to see how things stack up in detail.

Choosing a Personal Loan to Pay off Credit Card Debt

These days, you can do most — or all — personal loan research online. A personal loan with an interest rate lower than the credit card’s current rate is an important thing to look for. Just be sure you are looking at the loan’s annual percentage rate, which tallies the interest rate and other charges (such as origination fees) to give you a truer picture of the cost of the loan.

Paying Off the Debt

Once an applicant has chosen, applied for, and qualified for a personal loan, they’ll likely want to immediately take that money and pay off their credit card debt in full.

Be aware that the process of receiving a personal loan may differ. Some lenders will pay off the borrower’s credit card companies directly, while others will send the borrower a lump sum that they’ll then use to pay off the credit cards themself.

Hiding Those Credit Cards

One potential risk of using a personal loan to pay off credit cards is that it can make it easier to accumulate more debt. The purpose of using a personal loan to pay off credit card debt is to keep from repeating the cycle. Consider taking steps like hiding credit cards in a drawer and trying to use them as little as possible.

Paying Off Your Personal Loan

A benefit of using a personal loan for debt consolidation is that there is only one monthly payment to worry about instead of several. Not missing any of those loan payments is important — setting up autopay or a monthly reminder/alert can be helpful.

Creating a Budget for Successful Debt Payoff

Before embarking on paying off credit card debt, a good first step is making a budget, which can help you better manage their spending. You might even find ways to free up more money to put toward that outstanding debt.

If you have more than one type of debt — for instance, a personal loan, student loan, and maybe a car loan — you may want to think strategically about how to tackle them. Some finance experts recommend taking on the debt with the highest interest rate first, a strategy known as the avalanche method. As those high interest rate debts are paid off, there is typically more money in the budget to pay down other debts.

Another approach, known as the snowball method, is to pay off the debts with the smallest balances first. This method offers a psychological boost through small wins early on, and over time can allow room in the budget to make larger payments on other outstanding debts.

Of course, for either of these strategies, keeping current on payments for all debts is essential.

Where Can You Get a Personal Loan to Pay off Credit Cards?

If you’ve decided to get a personal loan to pay off credit cards, you’ll next need to decide where you can get one. There are a few different options for personal loans: online lenders, credit unions, and banks.

Online Lenders

There are a number of online lenders that offer personal loans. Many offer fast decisions on loans, and you can often get funding quickly as well.

While securing the lowest rates often necessitates a high credit score, there are online lenders that offer personal loans for those with lower credit scores. Rates can vary widely from lender to lender, so it’s important to shop around to find the most competitive offer available to you. Be aware that lenders also may charge origination fees.

Credit Unions

Another option for getting a personal loan to pay off credit cards is through a credit union. You’ll need to be a member in order to get a loan from a credit union, which means meeting membership criteria. This could include working in a certain industry, living in a specific area, or having a family member who is already a member. Others may simply require a one-time donation to a particular organization.

Because credit unions are member-owned nonprofits, they tend to return their profits to members through lower rates and fees. Additionally, credit unions may be more likely to lend to those with less-than-stellar credit because of their community focus and potential consideration of additional aspects of your finances beyond just your credit score.

Banks

Especially if you already have an account at a bank that offers personal loans, this could be an option to explore. Banks may even offer discounts to those with existing accounts. However, you’ll generally need to have solid credit to get approved for a personal loan through a bank, and some may require you to be an existing customer.

You may be able to secure a larger loan through a bank than you would with other lenders.

Recommended: How to Lower Your Credit Card Debt Without Ruining Your Credit Score

Avoiding the Debt Cycle After Consolidation

Once you’ve paid off your credit card debt, you don’t want to fall back into the same habits that got you in trouble in the first place. Some guidelines:

•   Budget carefully. Try a few different types of budgets until you settle on one that really works for you. Plenty of banks also offer tech tools to help you track the money that’s coming in and going out.

•   Speaking of money going out: Watch your spending carefully. Check in with your money regularly, review your spending habits at least monthly, and scale back as needed.

•   Build an emergency fund (even funneling $25 per paycheck is a smart start) so you can cover unexpected expenses like a big medical bill vs. using your credit card.

•   Avoid credit card spending as much as possible. Use your debit card whenever possible to keep spending in check and avoid interest charges.

The Takeaway

High-interest credit card debt can be a huge financial burden. If you’re only able to make minimum payments on your credit cards, your debt will continue to increase, and you can find yourself in a vicious debt cycle. Personal loans are one potential way to end that cycle, allowing you to pay off debt in one fell swoop and hopefully replace it with a single, more manageable loan.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

Can you use a personal loan to pay off credit cards?

Yes, it is possible to use a personal loan to pay off credit cards. The process involves applying for a personal loan (ideally one with a lower interest rate than you are paying on your credit cards) then using the loan proceeds to pay off your existing credit card debt. Then, you will begin making payments to repay the personal loan.

How is your credit score impacted if you use a personal loan to pay off credit cards?

When you apply for a personal loan, the lender will conduct what’s known as a hard inquiry. This can temporarily lower your credit score. However, taking out a personal loan to pay off credit cards could ultimately have a positive impact on your credit if you make on-time payments, if the loan improves your credit mix, and if the loan helps you pay off your outstanding debt faster.

What options are available to pay off your credit card?

Options for paying off credit card debt include: Taking out a personal loan (ideally with a lower interest rate than you’re paying on your credit cards) and using it to pay off your balances; using a 0% balance transfer credit card; and exploring a debt payoff strategy like the snowball or avalanche method. Other ideas: Consult with a credit counselor, or enroll in a debt management plan.

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-Q225-037

Paying down debt can be an important financial priority, but should you use your savings in order to do so? While it can be tempting to throw your full efforts into paying off debt, maintaining a healthy savings account for emergencies and saving for retirement are also important financial goals.

Continue reading for more information on why it may not always make sense to use savings to pay off debt and ideas and strategies to help you expedite your debt repayment without sacrificing your savings account.

The Case Against Using Savings to Pay Off Debt

While it can feel satisfying to watch your debt balance drop, using savings to achieve that can come with unintended consequences. It’s important to weigh the risks before depleting your savings for the sake of faster debt repayment.

Emergency Funds Provide Financial Security

One of the key arguments for not using savings to pay off debt is the importance of maintaining emergency savings. An emergency fund — typically three to six months’ worth of living expenses — provides a crucial financial cushion in the event of job loss, unexpected medical bills, or an urgent car or home repair. Without that buffer, you might be forced to run up high-interest credit card debt to get by, negating the benefits of having paid off previous debt.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Opportunity Cost of Using Savings

Using your savings to pay off debt means missing out on the opportunity to invest that money or let it earn interest in a high-yield savings account. This is especially relevant with low-interest debt, such as federal student loans, certain car loans, or mortgage balances. If you could earn more interest or investment returns than what you’re paying on your debt, paying off the debt early could potentially cost you money in the long run.

Every financial decision has an opportunity cost. It’s important to consider whether your money might be better utilized elsewhere.

When to Prioritize Paying Off Debt

In some situations, however, it could make sense to pay off debt rather than save money. Here are some scenarios where you may want to use your savings to pay off debt.

High-Interest Debt

Credit card debt is notorious for high interest rates. As of May 2025, the average credit card annual percentage rate (APR) was 22.25% Given the steep cost of these debts, it can be smart to prioritize paying off credit card debt over saving. The interest accruing can quickly outpace any gains from savings or investing, so tackling high-interest debt should usually be a top priority.

Source of Stress

Debt isn’t just a financial burden; it’s often an emotional one too. If your debt causes anxiety, sleep loss, or tension in your relationships, that emotional toll is worth considering. Prioritizing debt repayment to relieve stress and improve mental well-being can be just as valuable as financial gains.

Limiting Financial Flexibility

High debt payments can limit your cash flow and force you to delay important life goals, like owning a home, getting married, going back to school, or starting a family. For example, a high debt-to-income ratio can hinder your ability to qualify for favorable mortgage rates or even a mortgage at all. By paying off debt, you free up money in your budget that can later be redirected towards other goals.

When to Prioritize Saving

While paying down debt is important, there are also compelling reasons to focus on building your savings, especially if your debt isn’t urgent or costly.

Low-Interest Debt

If your debt comes with a relatively low interest rate, there may be less urgency to pay it off early. For example, if your mortgage has a 3.5% interest rate, and your retirement investments earn an average of 7%, you’re likely better off contributing to your retirement than accelerating debt payments.

In these cases, the debt is manageable and might even come with tax advantages. This gives you room to prioritize saving and investing instead.

Access to 401(k) Employer Match

If your employer offers a 401(k) match and you’re not contributing enough to get the full match, you’re essentially leaving free money on the table. A 100% match up to 6% of your salary, for example, is an immediate 100% return on investment. That’s far more than you’d save by paying off most debts faster.

In nearly every case, it makes sense to contribute enough to receive the full match before prioritizing additional debt payments.

No Emergency Savings

If you don’t have an emergency fund, it’s wise to build one before aggressively attacking your debt. Without savings, you’re vulnerable to any financial disruption, which could force you into more debt. Establishing a modest emergency fund — say $500 to $1,000 to start — can prevent future financial setbacks and give you some breathing room.

How to Start Paying Off Debt Without Dipping Into Your Savings

You don’t necessarily need to choose between savings and debt repayment — you can do both. Here’s how to get started on your debt without draining your savings account.

Make a Budget

Creating a budget is a crucial step towards effectively paying off debt — and the process is easier than it sounds. Simply gather the last several months of financial statements and use them to calculate your average monthly income and spending.

If you find that, on average, your spending is close to (or higher) than your earnings, you’ll want to find places to cut back. First look for monthly expenses you can cut completely, such as steaming services you rarely watch or membership to a gym you rarely use. Then consider ways to trim discretionary spending, such as eating out less, avoiding impulse purchases, and finding cheaper entertainment options. Any funds you free up can then be funneled towards debt repayment.

Establish a Debt Payoff Strategy

“Focus on paying off one debt at a time,” advises Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “If you spread your money out over many debt payments, your progress may not be as fast as you want. But by focusing on one goal at a time, you can see success sooner, and that can keep your motivation up.”

Two popular debt paydown strategies to consider:

•   Debt snowball: With this approach, you put extra money towards the debt with the smallest balance, while making minimum payments on all the other debts. When that debt is paid off, you move to the next-smalled debt, and so on until all debts are paid off. This method can deliver early wins and help keep you motivated to continue tackling your debt.

•   Debt avalanche: Here, you put extra money towards the debt with the highest interest rate, while paying the minimum on the rest. When that debt is paid off, you move on to the debt with the next-highest rate, and so on. This strategy helps minimize the amount of interest you pay, which can help you save money in the long term.

Consider Debt Consolidation

If you have multiple high-interest debts, you might consider using a personal loan to pay off your balances, a payoff strategy known as debt consolidation. Personal loans for debt consolidation typically have fixed interest rates, so your payments remain the same for the term of the loan. Rates also tend to be lower than credit cards. In addition, debt consolidating simplifies repayment by rolling multiple payments into one.

However, debt consolidation generally only makes sense if you can qualify for a rate that’s lower than what you’re currently paying on your debt balances. Before going this route, it’s helpful to use an online debt consolidation calculator to see exactly how much you can save by consolidating debt with a personal loan.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Look Into Balance Transfer

Another way to pay down credit card debt faster is by doing a balance transfer. This strategy involves moving debt from one or more credit cards to another, ideally with a lower or 0% introductory interest rate. This temporary reduction in the APR allows more of your monthly payments to go towards the principal, helping you pay down debt faster and potentially saving you money on interest charges.

Just keep in mind that if you can’t pay off your balance during the promotional period, you’ll be back to paying high rates again. Also these cards often charge a transfer fee, typically 3% to 5% of the transferred amount, which adds to your costs.

The Takeaway

So should you pay off debt or save money? The answer is that it depends. If you have at least a starter emergency fund and high-interest debt, it may make sense to prioritize paying your balances down, either through an avalanche or snowball plan, debt consolidation, or a balance transfer.

However, if you have debt with a very low interest rate, access to an employer 401(k) match program, and/or no emergency savings, you may want to prioritize savings over debt repayment.

Ultimately, the smartest path forward often involves doing both: saving and paying down debt in tandem, based on your individual situation and future goals. This hybrid strategy can help put you on a path to long-term financial health.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

Why is it risky to use savings to pay off debt?

Using savings to pay off debt can be risky because it leaves you without a financial cushion for emergencies. If unexpected expenses arise, like a medical bill or car repair, you may need to rely on high-interest credit again, putting you back in debt. Also if your savings are in a high-yield account or investment, withdrawing them could mean missing out on compound interest and future growth. It’s important to weigh the long-term impact before using savings to eliminate debt.

Which debt should I pay off first?

It’s generally best to start with high-interest debt, like credit cards, because they cost you the most over time. This strategy, known as the “avalanche method,” can reduce the total interest you’ll pay. Alternatively, you might choose to pay off the smallest balances first. Known as the “snowball method,” this approach provides quick wins, which can help boost motivation. The best game plan for you will depend on your personality and financial goals.

How much should I have saved?

A good rule of thumb is to have three to six months’ worth of living expenses saved in an emergency fund. This provides a safety net in case of job loss, medical emergencies, or unexpected costs. Your exact savings goal may vary based on your income stability, family size, and existing obligations. If you’re just starting out, aim for at least $1,000 to cover small emergencies, then build toward a more substantial reserve while balancing other financial goals like debt repayment.

Are personal loans a good alternative to using savings?

Personal loans can be a viable alternative to using savings to pay down debt, especially if you can secure a lower interest rate than your current debt carries. However, loans add to your overall debt load and come with fees and interest. Using savings avoids interest, but could leave you vulnerable if emergencies arise, so it’s important to weigh your options carefully.

How do I balance saving and paying off debt at the same time?

Balancing saving and debt repayment involves setting clear priorities and budgeting effectively. Start by building a small emergency fund (e.g., $500-$1,000) while making minimum payments on all debts. Then, focus on aggressively paying down high-interest debt while still contributing modestly to savings. Once high-interest debt is reduced, you can shift more income toward savings. The goal is to avoid future debt by preparing for emergencies and long-term financial goals.

Should I use my savings to pay off credit card debt?

Using savings to pay off credit card debt can make sense if the debt carries high interest and your savings exceed your emergency needs. Since credit cards often charge upwards of 20% interest, paying them off can save you money long term. However, you should keep a basic emergency fund — typically $1,000 or more — so you don’t fall back into debt when unexpected expenses arise. If your savings are limited, consider a blended approach — pay down some debt while maintaining a small safety net.

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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The allure of a quick loan can be hard to resist when there is a pressing need for cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who charge extremely high interest rates and offer loan terms that are difficult to meet.

This is called predatory lending, and it works in the best interests of the lender, not the borrower. When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.

Guide to Predatory Loans and Avoiding Them

Learning more about loans can help you avoid those with predatory rates and terms, ones that can trap you in a cycle of debt. Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less than reputable, those two things become even more important.

One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AnnualCreditReport.com. Personal information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.

Checking the accuracy of items on your credit report is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.

Once you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.

What Is Predatory Lending?

Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and/or for other unfair and discriminatory reasons.

Lenders who offer what are considered predatory loans do not have the best interests of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics. They may deceive borrowers into accepting three-digit interest rates or extreme prepayment penalties, for example. This can result in the loan holder struggling to repay what they owe and being caught in a debt cycle.

Recommended: What to Know Before You Borrow Money Online

How Predatory Lending Impacts Borrowers

As mentioned above, predatory lending, with its high interest rates and unfavorable terms, can keep borrowers trapped in a cycle of debt. In other words, they can’t “get ahead” of what they owe, or make a dent in the loan principal. This can be, of course, extremely stressful.

Financial Consequences of Predatory Lending

Those who have predatory loans can face severe financial consequences. Due to the stratospheric interest rates, they may find the amount they owe rising quickly. They may have to refinance their loan multiple times since they can’t pay it off, and each time, new fees can be added. This can damage the borrower’s credit rating as their debt-to-income ratio rises.

Predatory lending can also lead to the loss of an asset, if one was used to secure the loan. For example, if a person used their home or car as collateral, the lender could seize that if the loan goes into default. (Many personal loans are, however, unsecured loans, meaning no collateral is required.)

Predatory Lending Tactics and Practices

Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.

Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.

To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.

•   An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS)®. Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠.

•   Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.

•   High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.

•   Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.

Recommended: What Is Considered a Bad Credit Score?

Common Types of Predatory Loans

Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.

Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.

Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — say, 400% APR.

Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.

Subprime mortgages are another predatory lending example. This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.

How to Spot a Predatory Lender

There are some telltale signs of predatory lending that it’s wise to be aware of. These include high-pressure sales tactics, such as the lender saying you have to sign right away or the offer will expire. They may also say that you are guaranteed for approval, regardless of your credit rating; this could indicate a personal loan scam. Responsible lenders review your credit background and then offer you the appropriate rate and terms.

Red Flags in Loan Terms and Conditions

When considering loans, here are some warning signs that you may be dealing with a predatory lender:

•   Extremely high interest rates. The rates are often significantly higher than average. They may be expressed in an unconventional way, such as not as an annual percentage rate, to make them appear lower.

•   Excessive fees. Some lenders may have fees that are hard to discern. Make sure you check whether there is, say, a prepayment penalty for paying off your loan early, or origination and processing fees. All of these can drive up the overall cost of the lona.

•   Balloon payments. Predatory lenders may entice you with low initial payments, but the amount you owe can then balloon, or grow steeply, as you move further into the repayment process.

•   Frequent refinancing. Some lenders know that borrowers will struggle to make payments and offer the option of frequent refinancing (called loan flipping). This, however, can lead to more fees and interest piling up, creating a debt cycle.

•   Collateral requirements. Some secured loans, which use assets to back the loan, are totally legitimate. But when lenders require collateral along with the other factors mentioned above, it can lead to a scenario where a loan goes into default and a home or car is seized.

What Are Good Lending Practices?

A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.

•   Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.

•   Answering your questions. When you have questions about a lender’s personal loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.

•   Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans. You can use an online personal loan calculator to get an idea of how much you might qualify for.

•   Realistic offers. A lender that has your best interests in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.

What Can Be Done If You Are a Victim of a Predatory Loan?

One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.

All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.

Personal Loans as an Alternative to Predatory Loans

When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.

If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.

A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can positively impact your credit profile — and not doing so can have a negative impact.

Recommended: Typical Personal Loan Requirements Needed for Approval

Are Smaller, Short-Term Loans the Same as Predatory Loans?

There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.

Some lenders do have minimum amounts they will lend, sometimes $3,000, $4,000, or $5,000, just as they have maximums of, say, a $50,000 personal loan or even a $100,000 one. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.

What Is the Smartest Way to Get a $5,000 Loan?

A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.

A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.

Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.

The Takeaway

There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan. Comparing loan offers can be a smart move.

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 predatory lending a crime?

Many states have enacted anti-predatory lending laws. Some states have completely outlawed payday lending, while others have placed caps on the amount lenders can charge. However, many violations go unpunished because consumers aren’t aware of their rights.

What are the most common predatory loans?

The most common types of predatory loans include payday loans, car title loans, and subprime mortgages.

What APR is considered predatory?

Predatory loans generally have interest rates in the triple digits. Loans with annual percentage rates (APRs) no higher than 36% are considered affordable loans.

What should I do if I suspect I’ve taken out a predatory loan?

If you think you have taken out a predatory loan, collect your loan documents, get guidance from a consumer lawyer or a certified financial counselor, and file a complaint with government agencies. Also, be sure not to sign any more loan documents or refinance the debt with the lender without having received professional guidance.

How can I report a predatory lender?

There are several ways to report a predatory lender. You can file a complaint with the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), your state’s attorney general, your state’s consumer protection agency, and/or the Internet Crime Complaint Center. After a bit of research, you may want to file complaints with multiple organizations.

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

SOPL-Q425-062

If your credit is not quite up to a lender’s preferred level to get favorable interest rates and terms on your own, you might consider a joint personal loan. With this type of loan, you would have a co-borrower, an additional borrower who is obligated to repay the debt alongside you, the primary borrower. A co-borrower who has solid credit, income, and other financial credentials can help you qualify for a personal loan.

Here are key things to know about using a co-borrower on a personal loan.

What Are Joint Personal Loans?

Joint personal loans are loans that take into account multiple borrowers’ creditworthiness in the approval process. There are typically two borrowers on this type of loan — a primary and a secondary borrower — to establish joint personal loan eligibility.

Being a co-borrower on a loan comes with different rights and responsibilities than being a cosigner on a loan.

•   Co-borrowers, along with the primary borrower, have equal ownership of loan funds or what is purchased with the loan funds and are equally responsible for repayment of the loan over the life of the loan.

•   Cosigners have no ownership of the loan funds or what they’re used to purchase, and they are responsible for repayment only if the primary borrower fails to make payments.

How to Use Joint Personal Loans

If you don’t feel confident about qualifying for a loan, or have concerns about a potentially higher interest rate due to your overall creditworthiness or other reasons, finding a reliable co-borrower might help improve your chances of approval, along with the interest rate and terms you’re offered.

Couples can use a joint personal loan for a wide variety of purposes, including consolidating high-interest debts, paying for a large expense or event (like a wedding), or funding a remodeling project.

Recommended: Using Collateral on a Personal Loan

Why Do People Use Joint Personal Loans?

One common reason why someone might consider a joint personal loan is that they cannot qualify for a loan on their own, or they would like to snag a lower interest rate or qualify for a larger loan amount than they could on their own.

Some reasons people may seek a co-borrower are:

•   They don’t have a long credit history.

•   They’ve just entered the workforce.

•   They’re in the process of rebuilding their credit.

•   They are seeking a larger loan than they could on their own.

How Much Can You Save With Joint Personal Loans?

Having two borrowers on one personal loan may help you to qualify for a more favorable interest rate than if just one person’s income and credit are considered. Different lenders will have different qualification requirements, though, so it’s a good idea to compare lenders.

Using a joint personal loan for debt consolidation can be one way to lower the amount of interest paid on outstanding debt. Again, how much savings is accomplished depends on multiple factors, such as the interest rate offered and how long it takes to pay down the debt.

Factors That Affect Joint Loan Approval

Here are some important points about applying for a loan with a co-borrower and understanding what impacts your odds for approval.

Combined Income and Debt Obligations

When your application for a joint personal loan is reviewed, the lender will look at your combined income and debt obligations. Perhaps the primary borrower has a relatively low income and high debt load. By adding a co-borrower who has a strong salary (say, a spouse’s salary in the six figures) and minimal debt, the odds for loan approval could be enhanced.

Say that the primary applicant has a debt-to-income ratio, or DTI, of 48%, which is above the 36% many lenders prefer. If a co-borrower has a DTI of 22%, the couple’s DTI as a whole is 35%, bringing it to a level that may gain approval.

Credit History of Both Applicants

Similarly, lenders will take into account both applicants’ creditworthiness. Perhaps the primary borrower has what’s known as a thin file, meaning they don’t have a very deep credit history, or has a fair credit score. If their co-borrower has a credit score in a higher range (very good or exceptional), that could convince a lender to approve the loan and potentially at a lower rate and with more favorable terms. The co-borrower could help assure the lender of the duo’s creditworthiness.

What Credit Score Is Required for a Joint Personal Loan?

There is no definite answer to this question, but, in general, applicants with higher credit scores qualify for loans with lower average personal loan interest rates. And, vice versa, applicants with lower credit scores generally qualify for loans with higher interest rates.

Lenders tend to be risk-averse and prefer to lend money to people who they believe will repay it in full and on time. An applicant’s credit report — a summary of how responsible they are with credit that has been extended to them in the past — and credit score are tools lenders use to assess risk.

Before applying for a joint personal loan, it’s a good idea to review your credit report. If there are errors or discrepancies, you can file a dispute with the credit reporting agency. If you have poor credit or a limited credit history, you might consider taking some time to improve your credit profile before applying for a loan. Lenders will look at both applicants’ credit reports during the joint personal loan approval process, so it’s worth it for your credit to be in good shape.

Recommended: What Credit Score Do You Need for a Personal Loan?

Individual vs Joint Loan Applications

The basic process of applying for a loan is the same, no matter the number of applicants. Lenders will typically request the same information on either an individual or a joint loan application: proof of identity and address and verification of employment and income, in addition to any lender-specific information. For an individual loan application, there is just one person’s information to verify. Joint loan applications require information for each applicant.

Cosigned Loan vs Joint Personal Loan: The Advantages

Arguably, the primary borrower on either a cosigned loan or a joint personal loan has a bigger advantage than the cosigner or co-borrower. Depending on one’s perspective, however, all parties involved can reap benefits from these partnerships.

The Advantages of Choosing a Cosigned Loan

The advantage lies almost exclusively with the primary borrower on a cosigned loan. If they default, the cosigner is responsible for repaying the loan, although the primary borrower’s credit will likely be negatively affected. Ownership of the loan funds or what they purchased with the money is solely the primary borrower’s.

A personal loan cosigner’s main advantage may be in the form of a benevolent feeling from helping a close friend or family member.

The Advantages of Choosing a Joint Personal Loan

The main advantages of a joint loan are two-fold. There is equal ownership of the loan funds or the property purchased with those funds. Choosing a joint loan also means you may be able to present a more positive financial profile when applying than you could alone, signaling to lenders that it’s more likely the monthly loan payments will be made. This could pay off with a lower interest rate and more favorable terms.

Because joint loans give both co-borrowers equal rights, they are well-suited for people who already have joint finances or own assets together.

Cosigned Loan vs Joint Personal Loan: The Disadvantages

Both cosigned and joint loans include an additional borrower. However, a co-borrower taking out a joint loan has different rights and responsibilities than a cosigner, which can be risky.

The Disadvantages of Choosing a Cosigned Loan

The disadvantages of a cosigned loan lie mostly with the cosigner, not the primary borrower. The cosigner does not have any ownership rights to the loan funds or anything purchased with the loan funds. They are, however, responsible for repayment of the loan if the primary borrower fails to make payments.

The cosigner’s credit can be negatively affected if the primary borrower defaults on the loan, and their future borrowing power could be affected if a lender decides extending more credit would be too risky.

The Disadvantages of Choosing a Joint Personal Loan

People who already share financial responsibilities — married couples or parents and children, for example — may be the ones who consider joint personal loans, so there is typically some familiarity present.

That trust matters because co-borrowers have equal ownership rights to the loan funds or what the loan funds purchased. And it’s also important to have confidence in a co-borrower’s ability to repay the loan because each borrower is equally responsible for repayment over the entire life of the loan.

What’s the Better Loan Option?

If you’re seeking a loan with a spouse or relative and one of you has the strong credit history needed to get a favorable interest rate and terms, then a joint loan as co-borrowers may be right for you.

However, if you’d rather have a loan in your name with a little added security, then having a cosigner may make more sense.

No matter which situation you find yourself in, it’s important to weigh all of the options and do the necessary research that will allow you to arrive at the best joint personal loan option for you. (You might also consider personal loan alternatives as part of your research.)

After all, taking out a loan and repaying it responsibly has the power to put someone on a path to a more secure financial future, but it can also come with risks for each party.

Recommended: Exploring the Pros & Cons of Personal Loans

Where Do You Find a Joint Personal Loan?

It’s not uncommon for lenders to offer joint personal loans, but some research is necessary to find the right lender for your unique financial situation.

Looking at lenders of joint personal loans online is a good first step. Prequalifying to check joint personal loan eligibility is a fairly quick and easy process.

If you’re already an established customer at a local bank or credit union, you may also want to look at loan options there.

Tips for Applying for a Joint Personal Loan

If you decide to pursue a joint personal loan, consider these points to make the process easier.

Communicate Financial Responsibilities Clearly

As you apply for a joint personal loan, it’s wise to make sure you both agree on the details, such as the loan amount, the monthly payment you can afford, and who will pay it (will you split it 50/50?), and when. Develop a contingency plan if you struggle to make a payment.

Compare Lenders and Loan Terms Together

It’s also important to make sure the two of you are aligned on reviewing and deciding upon your loan. It’s wise to consider at least a few loan offers to see what rates and terms are available. For instance, a shorter loan term can mean higher monthly payments but less interest paid over the life of the loan. That might be preferable, if you can afford it, versus a longer term with a lower monthly payment, because that winds up often costing more in total.

Also make sure you both understand the consequences of late or missed payments before embarking on the loan together.

The Takeaway

Co-borrowers may help a primary borrower secure a personal loan by presenting a more positive financial profile and securing more favorable rates. However, these joint loans also require a great deal of forethought since both borrowers have access to the funds and responsibility for repaying the debt.

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

FAQ

Can you apply for joint personal loans?

As long as the lender allows co-borrowers, you can apply for a joint personal loan.

What is the maximum amount of people for a joint personal loan?

Typically, a joint personal loan has two co-borrowers, but the maximum number of co-borrowers is up to the individual lender. Some allow for more than two borrowers.

Do joint personal loans get approved faster?

It’s likely to take more time for a joint personal loan to be approved than an individual loan because the lender will check the credit of each applicant.

Does a joint loan affect both credit scores?

Yes, a joint loan affects both borrowers’ credit scores. If loan payments are made on time, the borrowers could see a positive impact on their credit. If, however, payments are late or missed entirely, that can negatively impact each of the borrowers’ credit.

Can one person be removed from a joint personal loan?

Removing one person from a joint personal loan is dependent on the lender’s specific guidelines. It can be a complicated process that may involve refinancing the loan into a new individual loan, provided the solo borrower qualifies.

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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