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A personal loan can be a relatively low-interest way to access a lump sum of cash, which is usually paid back in monthly payments. This kind of unsecured installment loan (meaning you don’t need to put up collateral) can be used for a variety of purposes. For example, you might pay off high-interest credit card debt, fund a home renovation, or finance a family reunion trip to the beach next summer.

Here, you’ll learn the full story on one popular option, a $10,000 personal loan.

Reasons to Get a $10,000 Personal Loan

Many prospective borrowers are attracted to personal loans because of the freedom and flexibility that they offer compared to some alternatives. Reasons to get a $10,000 loan might include the following:

•   To pay off an unforeseen expense, such as costly car repairs or a major medical bill. (A borrower might use a lesser sum, like a $5,000 personal loan, in some situations.)

•   To consolidate other debts. For example, assume you have a $10,000 balance between two credit cards, each having an interest rate of over 20%. You might be able to secure a $10,000 personal loan with a significantly lower interest rate to pay off that debt.

•   To pay for a home renovation.

•   To start a side hustle.

•   To cover wedding expenses, such as venue costs, catering, or attire, through a wedding loan.

•   Any other legal need for a cash infusion.

Pros and Cons of Taking Out a $10,000 Personal Loan

Consider the pros and cons of taking out a $10,000 personal loan as you explore this option.

$10,000 Personal Loan Terms

Depending on the lender, the repayment periods typically range from 12 months to 84 months.

You can shop around for a personal loan with terms that allow for affordable monthly payments. Keep in mind that a longer term likely means you will pay more interest over the life of the loan.

When calculating the overall costs of a personal loan, consider such factors as the principal amount borrowed, interest rate, fees, and the loan term. You might use an online personal loan calculator to help you tally up costs.

Note: Also keep in mind that some personal loans are secured loans, meaning that you put up collateral which the lender can take ownership of if you default on the loan. Be clear on whether the loan you seek is secured or unsecured.

$10,000 Personal Loan Monthly Payments

Personal loans are typically repaid over a multi-year term through monthly payments. The cost of the monthly payments is influenced by the interest rate that applies to the specific loan. Interest rates are essentially the fees charged by the lender for providing the loan.

The lowest interest rates are typically offered to consumers with a good to excellent credit history and may also be influenced based on other factors including their current income. Generally speaking, lenders charge lower interest rates if they think an applicant is likely to repay their loan in a timely way.

The following chart shows the impact that interest rates have on the monthly payment and also how choosing a longer-term loan can increase the overall cost of the loan.

Personal loan interest rates are generally fixed, which means the monthly payment will remain the same. Variable-rate personal loans are offered by some lenders, and payments will be influenced by market conditions.

Recommended: $20,000 Personal Loan Rates and Requirements

$10,000 Personal Loan Fees

In addition to interest, some lenders charge origination fees that will also increase the overall cost of the loan.

The combination of the interest rate and any applicable fees is the annual percentage rate (APR) of the loan. Calculating the APR is necessary for determining the true cost of the loan. Recent Federal Reserve data shows the average APR of a 24-month personal loan to be 11.14%.

It’s important for applicants to closely review the terms of any potential loan agreement. For example, a lender may charge a late fee when payments are not received on time, and some may have prepayment penalties that apply if a borrower pays off the loan ahead of schedule.

Recommended: 39 Passive Income Ideas to Help You Make Money

What Credit Score Do You Need To Get a $10,000 Personal Loan?

Your credit score is a three-digit number that a lender checks to assess your creditworthiness. The most popular credit scoring systems (like FICO® Score) usually range from 300 to 850. Your credit score is calculated largely based on your credit history because past consumer behavior tends to predict the future.

Here are the usual credit score ranges according to FICO:

•   300 to 579: Poor

•   580 to 669: Fair

•   670 to 739: Good

•   740 to 799: Very good

•   800 to 850: Excellent or exceptional

There’s no single credit score needed for getting a personal loan. Keep in mind that a $10k loan is close to the average personal loan amount (the current average is $11,724). Rates may vary depending on the size of your loan.

Can You Get a $10,000 Personal Loan With Bad Credit?

In general, you need a good credit score to qualify for a personal loan. If you have bad credit (say, in the poor or fair range), you might still be able to secure a loan, but potentially at a higher interest rate. If your credit score is in the very good or exceptional range, you may qualify for even more favorable interest rates and terms.

If a personal loan with bad credit is more expensive than you like, you might look into personal loan alternatives, such as a salary advance or using credit cards.

How Long Does It Take to Get a $10,000 Personal Loan?

Personal loans are known for offering fast processing — or funding — times, particularly among online lenders. Many lenders today offer same-day or next-day funding of personal loans after approval. Applicants should be properly prepared with the documentation necessary to confirm their identity, address, and income, as well as current bank statements.

Requirements for a $10,000 Personal Loan

Requirements will vary across lenders. However, qualifying for a $10,000 personal loan typically requires a credit score in the good range, an active checking account, and a steady, verifiable income, among other factors.

Top $10,000 Personal Loan Lenders

Here’s a look at some of the current leading personal loan lenders, along with interest rate ranges.

How to Compare $10,000 Loan Offers

When comparing offers for a $10,000 personal loan, keep these tips in mind:

•  Focus on the APR vs. simply the interest rate to get a better idea of the actual costs of borrowing, with fees included.

•  Look at the total cost of the loan over its term. You’ll see that a longer term typically reduces your monthly payment but means you pay more interest over the life of the loan.

•  Do look into the fees involved, such as origination and late fees, as well as prepayment penalties. These can make a significant difference in some situations, so you want to take out a loan with a “no surprises” understanding.

Tips for Getting Approved for a $10,000 Loan

If you’re thinking about applying for a $10K personal loan, here are some ways to help improve your odds of success. You’ll see that understanding and optimizing your creditworthiness can be an important step.

•  Work on maintaining or building a credit score that’s at least in the good range, if not very good or exceptional for the most favorable terms.

•  Check your credit report for any errors and work to correct any that you find.

•  Calculate your debt-to-income ratio, or DTI, and focus on keeping it below 36% for the best odds of approval.

•  Only borrow how much you actually need, since applications for higher sums can face a more stringent approval process.

•  Gather all of your documentation (such as pay stubs, tax returns, and bank statements) needed for personal loan approval in advance

•  Prequalify for a loan and compare offers carefully.

The Takeaway

If you’re considering a personal loan, it’s a good idea to take the time to compare the various options available and make sure you understand the terms and costs of a loan. Those with lower credit scores are likely to encounter fewer choices and higher interest rates and fees, while those with a strong financial profile may have a number of solid offers to choose among.

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 is the monthly payment on a $10,000 personal loan?

The monthly payment on a $10,000 personal loan will fluctuate based on your credit score, the loan’s interest rate and fees, and the term of the loan, among other factors.

Do I need at least a 620 credit score to get a $10,000 loan?

There is no formal minimum credit score needed for getting a personal loan. Different minimums may apply across the various institutions that offer personal loans in the $10,000 range. Those with a 640 or higher credit score are likely to find a number of options for a $10,000 personal loan; those with higher scores may have more options as well as more favorable terms.

How long will it take to get a $10,000 loan?

Fast-funding options including same-day and next-day loans are common for 10,000 dollar loans. As long as you are prepared with some basic documentation that verifies your identity, address, and income, rapid approval and funding may be available.

Photo credit: iStock/Edwin Tan

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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A flex loan is a line of credit that is unsecured (meaning no collateral is required). It allows you to withdraw funds as needed up to a predetermined limit. As you pay down the balance, you can continue to borrow from the credit line, similar to a credit card.

While flex loans are usually easier to qualify for than more traditional lending products, they typically come with higher annual percentage rates (APRs) and fees. (Note: SoFi does not offer flex loans, but we do offer personal loans.) Here’s what you need to know about flex loans, including how they work, how much you can borrow, and the pros and cons of using a flex loan for fast cash.

What Is a Flex Loan?

Despite the name, a flex loan isn’t actually a loan — it’s an unsecured personal line of credit. Most commonly, you can find flex loans through cash advance companies, though some select credit unions, banks, and online lenders offer them.

Flex loans allow you to withdraw funds from a credit line up to a preapproved limit. You can use the funds in any way you wish. As you pay down the balance, you can continue to borrow from the credit line, similar to a credit card.

Because flex loans typically don’t require a credit check, they can be an attractive option for those who have a poor or limited credit history. But keep in mind: Because lenders assume additional risk by not checking credit, flex loans typically have higher APRs than other lending products, including personal loans, personal lines of credit, and credit cards. For this reason, you may struggle to make payments if interest and fees continue to accumulate.

How Do Flex Loans Work?

A flex loan works similar to a credit card in that it’s a revolving line of credit. Once approved, you’re given a certain credit limit and can borrow up to that amount. As the balance is paid down, that money is once again available to be borrowed.

You’ll receive regular statements showing how much you’ve borrowed and the interest owed, and typically need to make minimum monthly payments. Like a credit card, you may choose to pay only the minimum, or you can pay more. The more you pay each month, generally the less interest you’ll accrue.

Some flex loan lenders charge fees in addition to interest. This may include a flat fee when you take out the loan, as well as periodic fees, which may be daily, monthly, or each time you draw funds from the loan.

How Much Can You Get With a Flex Loan?

The exact amount you’ll be approved for will depend on the lender, as well as where you live, since state laws regulate credit limit amounts. You may be able to borrow anywhere from $100 to several thousand dollars with a flex loan.

Borrowers often turn to flex loans to cover immediate financial needs, emergencies, or hardships, but you can use the loan funds for almost any reason. However, due to the high APRs, it’s generally a smart idea to draw funds from a flex loan only when necessary.

Will a Flex Loan Hurt My Credit?

Getting a flex loan may not require a credit check so applying for one won’t necessarily affect your credit score. But lenders assume extra risk when they don’t do a credit check, so they might charge higher interest to make up for that.

A flex loan may hurt your credit if you don’t manage it responsibly. As with other types of debt, making late payments or missing payments on a flex loan may adversely affect your credit score. It’s a good idea to budget carefully to ensure you’re not borrowing more than you afford to pay back.

Recommended: Personal Loan Calculator

Benefits of Flex Loans

Flex loans may be beneficial for some borrowers. Here’s a look at some of the advantages of flex loans.

Application Process

•   In many cases, you can apply for a flex loan and receive a lending decision within minutes, especially if you apply online.

Access to Funds

•   You may receive access to your funds on the same day as your flex loan approval. Once approved, you can then make withdrawals from your credit line as needed. Funds are typically directly deposited into your bank account.

Credit Score

•   Most flex loan lenders won’t subject you to a credit check, making it less burdensome to qualify for a flex loan even if you don’t have good credit.

Requirements

•   In many cases, flex loans have more lenient requirements compared to other types of loans. In addition to giving the lender your personal details, you may only have to provide proof of employment and income.

Flexible Payment Terms

•   Each month or billing cycle, you can pay the minimum due or more. There are typically no penalties for paying down your debt faster.

Recommended: Typical Personal Loan Requirements Needed for Approval

Dangers of Flex Loans

Flex loans may be an attractive borrowing option because even those with poor credit can borrow money quickly. However, flex loans can present potential dangers.

Interest Rates

•   Flex loans typically carry much higher APRs than traditional lending products like personal loans and credit cards. If you can get a flex loan through a credit union, APRs can range from 24% to 28% or higher. If you get one from a cash advance company, the APR on a flex loan can reach triple digits.

Minimum Payments

•   You have the option to pay only the minimum payments on your flex loan. But if that’s all you pay, fees and interest will continue to grow your debt, making it increasingly harder to pay off the entire balance.

Excessive Debt

•   It can be tempting to borrow money repeatedly with a flex loan, but doing so can come at a high cost. If you continue to borrow money and don’t have a plan to pay down the amount you owe, a flex loan can lead to a cycle of debt that can be hard to break out of.

Risk of Predatory Lending Practices

•   It’s worth noting that some lenders can charge what are considered predatory interest rates, as high as 280% APR vs. an interest rate of, say, 20% you might pay on a credit card. This means borrowers run the risk of being mired in fast-rising debt.

Pros and Cons of Flex Loans

Here’s how the pros and cons look in chart form:

When Should You Take Out a Flex Loan?

A flex loan may be worth considering if you need quick access to cash and don’t want to go through a lengthy application process or can’t qualify for more traditional lending options. A flex loan may also be an option for those who want to have a backup source of funds in case of an emergency, like an unexpected car repair or dental bill.

However, because of the high APRs and added fees, you generally want to consider a flex loan only after exhausting other borrowing options, such as personal loans.

When to Apply for a Flex Loan

There may be other ways to get needed cash without paying interest rates as high as flex loans tend to offer. But if you’ve exhausted all other options, even a loan from a pawn shop, and you have a plan to repay the loan at the lowest possible cost to you, it may be an option you could pursue.

Emergency Expenses

Unfortunately, emergency situations can be part of life. Perhaps you need a major car repair or get hit with a huge dental bill. Or your home’s heating system conks out in the middle of winter. If you don’t have enough in an emergency fund to cover this kind of expense and other financing isn’t available, a flex loan might be an option.

Temporary Cash Flow Gaps

There are times when you may have issues with money coming in and going out. Perhaps you are in between jobs, or you are a seasonal worker and it’s the off-season. In these situations, you may want to access a flex loan to cover bills that need paying.

Alternatives to Flex Loans

Before applying for a flex loan, you may want to consider the following alternatives.

Personal Loan

Even if you have a limited credit history or bad credit, you may still qualify for a personal loan, albeit with a higher interest rate than those with solid credit would likely be offered. It can be worthwhile to see what terms various lenders offer you in this scenario.

Credit Cards

Like flex loans, credit cards are a form of revolving credit you can draw from on a recurring basis. While interest charges for credit cards can be high, they tend to be lower than flex loans. Depending on the card, you may also have an annual fee and other fees based on your use of the account.

Other Options

Here are a couple of other alternatives to a flex loan:

•   Personal line of credit: If you have healthy credit, a personal line of credit may be a worthy alternative because of its typically lower interest rates. However, you will be subject to a credit check, and the application process may take longer compared to a flex loan.

•   Personal loan with a guarantor: If you’re unable to qualify for an unsecured personal loan due to a poor or limited credit history, you might consider asking a friend or family member to help you get a guarantor loan. A guarantor is legally responsible for the repayment of the loan if the borrower defaults, but has no legal claim to any property the funds were used to purchase.

•   Payday alternative loans (PALs) are offered by federal credit unions and may provide an option for a small amount of short-term funding. Interest rates are typically capped at 28%.

Also explore if your employer offers any programs to advance your pay, whether cash advance apps could help, or if a buy now, pay later purchase could help you through a time when money is tight. One last consideration: You might ask a friend or family member for a loan.

Recommended: What Are Hardship Loans?

The Takeaway

Before taking out any type of loan, you’ll want to consider the benefits versus the costs. If you need cash for an emergency, it can be a good idea to look at all your borrowing options before settling on a flex loan due to the high interest rates and fees associated with these loans. (Note: SoFi does not offer flex loans, but we do offer personal loans.) Shopping around is a good way to see what you may qualify for and help you find a lender you feel comfortable working with.

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 is a flex loan?

A flex loan is a form of revolving credit that allows you to withdraw funds up to a certain credit limit. As you pay down your balance, the funds become available to borrow again.

How much can you get with a flex loan?

Borrowing limits for flex loans will depend on the lender and where you live, since state laws regulate credit limit amounts. You may be able to borrow anywhere from $100 to several thousand dollars with a flex loan.

Will a flex loan hurt my credit?

Applying for a flex loan typically won’t affect your credit because lenders typically don’t do a credit check when you apply for the loan. However, lenders may report your borrowing activity to the major consumer credit bureaus. As a result, any late or missed payments could negatively affect your credit.

When should you avoid a flex loan?

There are a few scenarios when it can be wise to avoid a flex loan. One case is when the interest rates are excessively high; this can lead to getting deeper in debt. Also be cautious if you feel you don’t have good self-control when it comes to spending. A flex loan could be a path to owing more rather than repaying your debt.

Are there better alternatives to flex loans?

There can be better alternatives to flex loans. You might see what interest rate you are offered for a personal loan or how much it would cost to use a credit card. Or you could investigate payday alternatives loans (PALs), which are offered by federal credit unions at more favorable rates. Cash advance apps, employer paycheck advances, family loans, a personal loan with a guarantor, and buy now pay later purchasing can also be helpful options.

Photo credit: iStock/PeopleImages

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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Qualifying for a personal loan when self-employed can present some challenges. Self-employed individuals may find it difficult to produce traditional documentation — such as W-2s or pay stubs — used to verify income. And their income may not be steady, as it is with 9-to-5 workers. But that doesn’t necessarily mean you’re out of luck if you’re seeking a quick infusion of cash. Here’s a look at some ways to get a personal loan when you’re self-employed.

How to Get a Personal Loan If You’re Self-Employed

A personal loan is a type of installment loan that can be used for nearly any personal expense, including home improvements, a vacation, or consolidating your credit card debt. If you’re considering making a big purchase, like buying an engagement ring, a personal loan can be an alternative to using a high-interest credit card when you don’t have the means to pay the balance off right away.

Personal loans are typically unsecured, meaning a lender won’t require collateral. However, they can also be secured, usually by the asset purchased with the loan. Unsecured loans are usually approved based on the financial standing and creditworthiness of the borrower.

In addition to looking at an applicant’s credit history, lenders will also typically consider a potential borrower’s income when deciding whether or not to approve a loan and, if so, what the rates and terms will be. Those who are self-employed may find it more difficult to show proof of income, especially if their income fluctuates from month to month and year to year.

Self-Employed Loan Requirements

Loan requirements for self-employed individuals will be similar to the typical loan requirements for any borrower as determined by the lender. In addition to evaluating factors like the applicant’s credit score, many lenders will require proof of income.

Typically, the requirements for personal loan approval include pay stubs and W-2s to verify income, which most self-employed people can’t provide. It is possible for self-employed individuals to show proof of income, but it may require a little more legwork, as you’ll learn below.

One point worth noting: In general, lenders are looking for borrowers who have income stability, and it can help if the borrower has been working in a single industry for at least two years. A shorter employment history as a freelancer could be seen as indicating that you are a borrowing risk.

Showing Proof of Income When Self-Employed

Those who are self-employed have a couple of options for showing a lender they have sufficient and reliable income. Here are a few options that self-employed individuals could provide as income documentation.

Tax statements: Self-employed individuals can use their tax returns from the prior two or three years to offer proof of income. These forms include your income earned and taxes paid for those tax years. Lenders often view tax documents as a reliable source of income proof because they are legal documents.

Bank statements: Bank statements could be used if there is a regular history of deposits that illustrate consistent income.

Profit and loss statement: If you own your own business, this document (called a P & L) provides an overview of your costs, expenses, and revenue.

Court-ordered agreements: These may include things like alimony or child support.

Keep in mind that each lender will likely have their own application requirements. Contact the individual lender if you have specific questions on the types of documentation they’ll accept.

Consider Having a Cosigner

In the event that you are still struggling to gain approval for a personal loan with your self-employed proof of income, one option is to consider adding a cosigner. A cosigner is someone who agrees to pay back the loan should you, the primary borrower, default on making payments.

A cosigner can be a close friend or family member, ideally one who has a strong credit history who will strengthen your loan application. Given that a cosigner’s responsibilities are significant, this is not an undertaking to enter into without considerable thought and trust.

Build Your Credit Score Before Applying

Before applying for a personal loan (or any loan, for that matter), it can be wise to check your credit score. If it’s not at least in the good range, you may want to wait to apply for your loan until you can positively impact your rating. In general, the higher your score, the lower the interest rate and more favorable the terms you’ll be offered.

Key ways to build your score include always making payments on time, keeping your credit usage low, having a good credit mix and long credit history, and not applying for too much credit in a short period of time.

Compare Lenders Who Work With Self-Employed Borrowers

As you look for a personal loan, you may want to do an online search for lenders who explicitly say they work with self-employed borrowers. These financial institutions are likely to have systems in place that tailor the process to those who don’t, say, have W-2s. This can make application and approval simpler.

Prepare a Strong Loan Application Package

In addition to gathering the necessary documentation for your application (as detailed above), also consider ways to strengthen your package for a loan as a self-employed person. These include making sure you keep your personal and business finances separate, so you can accurately reflect your financial situation. If you are going to have a cosigner on the loan, ask them to prepare their paperwork as well.

Understand and Avoid Predatory Lenders

As you hunt for a personal loan when self-employed, you may come across unscrupulous predatory lenders, which typically offer no-credit-check loans at exorbitant interest rates (into the triple digits) and with steep fees. Often, they state the interest rate in a way that doesn’t reveal just how high it is (say, they cite a weekly payment vs. the monthly payment most people are accustomed to). They may use high-pressure tactics, such as saying the offer is only good for a very limited time.

If you are struggling to get approved due to a low credit score or lack of steady income, these lenders may seem to offer you a solution. Beware: These predatory lenders can keep you trapped in a cycle of growing debt.

Recommended: Guarantor vs. Cosigner: What’s the Difference?

Why It’s Difficult for the Self-Employed to Get a Personal Loan

It can be more challenging for self-employed individuals to provide proof of income to lenders, which can make it more challenging for them to get approved for a personal loan. But it’s important to note that each loan application is unique, and employment status is just one consideration.

For example, a self-employed individual who has a stellar credit history and who has been self-employed for a few years may be in a better position to apply for a personal loan than someone who has just transitioned into managing their own business.

The Income Challenge

Proving consistent and stable income can be the biggest challenge when getting a personal loan as a self-employed individual. Because you may not be guaranteed the same payment each pay period, lenders may request specific documentation in order to verify the fact that you have enough cash coming in to make payments on the loan. Some lenders may request tax returns for several years in order to verify your income.

Consistency Matters

Consistency in income is another major hurdle when seeking a loan for the self-employed. It’s not uncommon for self-employed people to experience fluctuation in their income. While some slight fluctuation may be acceptable to a lender, for the most part they are looking for consistent payments getting deposited into your account, even better if there is an increasing trend over time.

Higher Scrutiny During the Underwriting Process

Self-employed borrowers will likely face a higher level of scrutiny during the underwriting process which precedes final loan approval. For instance, if you lack steady, predictable income, you may be asked for additional tax returns or banking documents. Or P&L sheets or letters from your accountant about your business income could be requested. This is because lenders typically view those who are self-employed as less creditworthy and more of a risk to default on a loan.

Personal Loan Alternatives When Self-Employed

Personal loans aren’t the only option for self-employed individuals looking to borrow money to pay for expenses. Personal loan alternatives to consider include a credit card, cash advance, or a home equity loan.

Credit Cards With 0% APR Promotions

Credit cards can have high-interest rates, but ones with a 0% APR promotion (aka a balance transfer card) could be a great tool to pay for an upcoming expense. Just be sure to pay off the credit card before the promotional period ends and interest starts accruing.

Recommended: Average Credit Card Interest Rates

Cash Advances

A cash advance is a short-term loan generally offered by your credit card which allows you to borrow cash against your existing line of credit. Cash advances can provide an avenue for you to get quick access to cash, but there may be additional fees and a higher interest rate than usual. Be sure to read all the terms and conditions outlined by your credit card company before borrowing a cash advance.

Home Equity Loans or HELOCs

If you are a homeowner, you may be able to tap into the equity you’ve built in your home using a home equity loan or home equity line of credit (HELOC). A home equity loan is an installment loan where the borrower receives a lump sum payment and repays it in regular payments with interest.

A HELOC, on the other hand, is a revolving line of credit that the borrower can draw from and, once it is repaid, continue drawing from during a specified period of time.

Business Loans

Small business loans can be used to pay for business expenses. Self-employed individuals may be able to qualify for loans backed by the U.S. Small Business Administration (SBA), as well as private small business loans offered by banks, credit unions, and online lenders.

It is important to keep your personal and business expenses separate as a self-employed person. If you are using the money for a personal expense, you’ll want to avoid borrowing a business loan. Also keep in mind that many lenders don’t allow you to use personal loans for business expenses.

Peer-to-Peer Lending

Peer-to-peer lending bypasses the usual financial institutions and allows companies and individuals to invest in others via loans. You may have heard of some of the popular platforms, such as Kiva, Upstart, and Lending Club. These may be more accommodating for self-employed borrowers who are finding it challenging to secure a loan.

Secured Personal Loan

While most personal loans are unsecured, meaning they are approved based on the applicant’s creditworthiness, some of them are secured, meaning they are backed by an asset, known as collateral. Since these secured loans involve collateral, they are considered less risky. If the borrower defaults, the lender knows they can seize an asset that can help them recoup what is owed. Typical examples of collateral for personal loans include real estate, vehicles, cash in a bank or investment account, and other items of value.

The Takeaway

The challenge for self-employed individuals applying for a personal loan will generally be providing proof of income. Alternatives to traditional proof of income documents include tax or bank statements. Fortunately, many lenders understand that a full-time job isn’t the only qualifier of financial stability and will also consider factors like your credit score, financial history, and whether you have a cosigner.

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 get any loans if you’re self-employed with no proof of income?

It is possible to get a loan if you are self-employed. However, with zero proof of income, it may be challenging to gain approval for a loan. To improve your odds of approval, you may consider adding collateral to the loan or applying with a cosigner.

Are there any loans for self-employed people with bad credit?

While a strong credit history can help strengthen a loan application, it’s not impossible to qualify for a loan with bad credit. If you can show a consistent and stable income history, that could help improve your application. You’ll likely pay a higher interest rate and enjoy less favorable terms than if your score were higher, however. Another option to qualify could be to add a cosigner.

Can self-employed freelance workers get personal loans?

Yes, self-employed freelance workers can qualify for a personal loan. Instead of providing W-2 documents to verify their income, they will need to provide alternatives such as tax documents or bank statements. Applicants who have been working in a specific industry as a freelancer for two years or more may be viewed more favorably by lenders.

What documents do self-employed borrowers need to apply for a loan?

To apply for a personal loan, a self-employed person should probably gather tax returns, bank statements, profit and loss statements, and any documentation of other income sources (such as alimony). If you are working with a cosigner, they will also need to gather their documentation.

How can self-employed people improve their chances of getting approved for a loan?

Ways that a self-employed person can improve their chances of personal loan approval include building your credit score, working with lenders who specialize in loans for the self-employed, and considering whether to add a cosigner.

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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A personal loan can be a useful option when you need to borrow money to cover a medical bill, fund a home repair, or consolidate debt. This kind of loan can offer a considerable lump sum of cash at a relatively low interest rate, but the lender may charge fees. You’ll need a good credit score to qualify.

Before you decide that a personal loan is right for you, it’s important to understand the pros and cons that come along with them. Here, the information that can help you make a wise choice.

What Are Personal Loans?

What is known as a personal loan is money that you borrow from a bank, credit union, or online lender. Typically, it’s a lump sum amount you receive and, since it’s an installment loan, agree to repay the loan principal and interest at regular intervals — usually monthly.

The interest rate for a personal loan is likely to be fixed-rate, and the loan’s term is usually between two and seven years.

When you apply for a personal loan, your lender will run a hard credit check, which will help determine your interest rate. Generally speaking, borrowers with higher credit scores have a better chance of being offered lower interest rates and more favorable terms. The higher your interest rate, the more money it will cost you to borrow.

With many lenders, you will need at least a good FICO® credit score to qualify, and a higher score will probably allow you to get more favorable rates.

Recommended: 11 Types of Personal Loans

How Personal Loans Work

Before delving into the pros and cons of personal loans, it’s worthwhile to familiarize yourself with the basics of this kind of loan and how they typically function.

Loan Terms and Repayment

Personal loans are made up of the principal (the amount you are borrowing), the interest rate you will be charged, and any fees you will pay, such as origination fees. The annual percentage rate (APR) helps you evaluate the amount the loan will cost you in terms of both interest and fees. You’ll repay the loan in monthly installments over the loan’s term, which is usually between two and seven years.

Fixed vs Variable Rate

A personal loan can have either a fixed or variable interest rate. Most have a fixed rate, meaning you’ll lock in a rate when the loan begins, and that rate (and your monthly payment) will stay constant over the life of the loan.

However, you may be able to find variable rate loans, if you prefer. In this case, the interest rate will fluctuate with the market, meaning your payments may rise and fall over the loan’s term.

The Benefits of Personal Loans

Personal loans are a flexible option for borrowers looking to accomplish a variety of goals, from consolidating other debts to remodeling their home. Here’s a look at some of the advantages.

Comparatively Low Interest Rate

Personal loans offer relatively low interest rates when compared to other methods of short-term borrowing. The average personal loan interest rate is 12.25% as of October 2025.

Credit cards by comparison had average interest rates of over 20% at the same moment. A personal line of credit, which allows the borrower to withdraw funds up to a limit during the draw period, may have interest rates that vary between11% and 21%, depending on credit score and other variables.

Some forms of predatory short-term lending, such as payday loans, can charge the equivalent of many times these rates to borrow. Some even have annual percentage rates (APRs) of 400%, so it can be wise to proceed with caution and see what lower-cost sources of funding may be available.

Comparatively High Borrowing Limits

Small personal loans are usually for amounts of a couple of thousand dollars or less. (Smaller loans often come with lower interest rates.) However, $10,000 personal loans are offered by many lenders, and some will offer large personal loans of up to $100,000 to cover major expenses and life events, which may be quite a bit more than other credit options.

The average credit limit for credit cards, by comparison, is $31,165, according to credit reporting bureau Experian.

Personal lines of credit often have a range of limits from $1,000 to $50,000, which can be more than a credit card but less than a personal loan.

Personal Loans Can Be Used for Many Things

Some types of loans must be used for designated purposes. Auto loans must be used to buy a car, and a mortgage must be used to finance a home. Personal loans, on the other hand, have few restrictions on how you must use the money, and you can generally use it for any legal purpose, except business expenses and tuition.

Popular uses for personal loans can include:

•  Medical, dental, or car repair bills

•  Home improvement projects

•  Debt consolidation

•  Travel

•  Weddings or other major celebrations

•  Holiday shopping

•  Summer camp or other expenses for children

No Collateral Necessary

Unsecured personal loans are the most common type of personal loans. They are not backed by collateral, such as your car or home.

Some personal loans are secured, however, and require you to borrow against the equity in your personal assets, like a home or your savings. With a secured vs. unsecured personal loan, the lender can seize your collateral if you default, selling it to recoup their loss. As a result, secured loans present less risk for the lender and often come with lower interest rates than unsecured loans.

Simple to Manage

You can use personal loans to consolidate other higher-interest debt, for example, by paying off the balance on several high-interest credit cards. A single personal loan can offer less expensive interest, lowering the cost of your debt over time. And it may be easier to manage, since you only have one bill to pay each month. A debt consolidation calculator can help you do the math and evaluate your options.

Can Be Quick to Obtain

Policies will vary, but some lenders may offer same-day approval and funding within just a few days.

Can Help Building Credit

Your lender will likely report your personal loan and payment history to the three credit reporting bureaus — Experian®, TransUnion®, and Equifax®. In fact, 35% of your FICO® score — the most commonly used credit score — is determined by your payment history.

You can help build a strong credit history over time by avoiding late or missed payments.

Recommended: Personal Loan Calculator

The Disadvantages of Personal Loans

These loans do have some downsides, which can potentially make personal loans a bad idea for some borrowers. Here’s a closer look.

Higher Interest Rates Than Some Alternatives

Personal loans may carry higher interest rates than some alternatives. For example, if you’re looking to remodel your home, you might consider taking out a home equity loan or a home equity line of credit (HELOC). Keeping in mind the current average interest rate of 12.25% for personal loans, consider the following:

•  A home equity loan uses your home as collateral to offer you a lump sum of money to use. In October 2025, the average interest rate on a 10-year fixed home equity loan ranged from 7.24% to 8.20%.

•  A HELOC, on the other hand, is a form of revolving credit line that uses your home as collateral. You draw against your limit as needed during the draw period and, after a set number of years, enter the repayment period. As of October 2025, the average interest rate on a HELOC was 7.75 to 7.81%.

Also, your rate will likely vary depending on your credit score: The higher your score, the lower your interest rate may be.

Fees and Penalties

Some lenders may charge fees and penalties in association with personal loans. For instance, an origination fee helps pay for the processing of your loan application and is usually equal to a percentage of the loan amount. Fortunately, it’s possible to avoid origination fees.

Lenders may also charge prepayment penalties if you pay off your loan ahead of schedule, to make up for profit they are losing on interest payments.

Can Increase Debt

Take out a personal loan only if you are sure you can pay it off and if it makes financial sense. For example, a home remodel could increase the value of your home, and consolidating credit card debt could save you money in interest payments. But taking out a personal loan to fund a lavish wedding could wind up interfering with your ability to save for the down payment on a house.

Avoid taking out a loan that is for more money than you need to avoid the risk of taking on more debt than necessary.

Potential Impact on Credit Score

Taking out a personal loan and paying your debt on time can build your credit score, as mentioned above. However, a personal loan can also negatively impact your credit score in a few ways. When a hard credit inquiry is done during the application process, your credit score is typically lowered by several points for at least a few months. The personal loan will also increase your debt load, which could hurt your credit score. And if you are late when making a payment on a personal loan or miss it altogether, that can lower your score.

Alternatives to Personal Loans

You may want to explore personal loan alternatives, described below, as you search for the best source of funding.

•  Credit cards allow users to make purchases using credit. Borrowers must make minimum payments and owe interest on any balance they carry from month to month. As noted above, the interest rates are typically high.

•  A personal line of credit (PLOC) is similar to a credit card. It allows you to tap your credit line as needed. Credit is replenished when you pay back your loan.

•  A home equity loan uses a borrower’s home as collateral. The value of the property contributes to determining the loan amount that is transferred to the borrower as a lump sum.

•  A home equity line of credit is a revolving source of credit, like credit cards and PLOCs. As with home equity loans, HELOCs use the borrower’s home as collateral.

The Takeaway

A personal loan is a type of installment loan, usually unsecured, that allows you to obtain a lump sum of money, typically at a fixed interest rate and to be repaid in up to seven years. The pros of these loans can include their flexibility (you can use the money as you like), lower interest rates than some other sources of funding, and the speed, high limits, and convenience they offer. Among the cons: the possibility of having to pay fees and penalties, and the fact that you might be able to get a lower rate with a secured loan elsewhere.

If you’ve explored your options and decide that a personal loan is right for you, it’s wise to shop around to find the right loan.

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 is a personal loan?

A personal loan is a loan you receive from a bank, credit union, or online lender, and it can be used for a variety of purposes. Borrowers pay back the principal and interest in regular installments. These loans are typically unsecured (meaning collateral is not needed) and offer a lump sum payment, usually at a fixed rate of interest, with a term of up to seven years.
 

What can you use a personal loan for?

Personal loans have few usage restrictions. Basically, you can use them for any legal purposes, though in most cases, lenders restrict business and tuition usage. They can provide funding for everything from unexpected medical bills to home improvement projects to vacations to credit card debt consolidation.

How much money can you get from a personal loan?

Personal loan amounts typically range from $1,000 to $100,000, depending on the lender and the applicant’s qualifications.

What credit score do you need to qualify for a personal loan?

Many lenders require a credit score in the good range or higher to be approved for a personal loan. However, there are lenders who offer loans to those with fair or poor credit. The interest rates tend to be higher, though, and the terms less favorable than what those with higher scores are offered.

How long does it take to get approved for a personal loan?

Policies vary, but some personal loans can be approved on a same-day basis.

Photo credit: iStock/Anchiy

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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You may feel proud of yourself for paying off a debt early, but doing so could trigger prepayment fees (ouch). The best way to avoid those charges is to read the fine print before you take out a loan that involves this kind of fee.

If you neglected to do that, however, it doesn’t necessarily mean you’re stuck with a prepayment penalty. Read on to learn ways to avoid paying loan prepayment penalties.

What Is a Prepayment Penalty?

A prepayment penalty is when a lender charges you a fee for paying off your loan before the end of the loan term. It can be frustrating that a lender would charge you for paying off a loan too early. After all, many people may think a lender would appreciate being repaid as quickly as possible.

While that’s true in theory, in reality, it’s not that simple. Lenders make most of their profit from interest, so if you pay off your loan early, the lender is possibly losing out on the interest payments that they were anticipating. Charging a prepayment penalty is one way a lender may recoup their financial loss if you pay off your loan early.

Lenders might calculate the prepayment fee based on the loan’s principal or how much interest remains when you pay off the loan. The penalty could also be a fixed amount as stated in the loan agreement.

Can You Pay Off a Loan Early?

Say you took out a $5,000 personal loan three years ago. You’ve been paying it off for three years, and you have two more years before the loan term ends. Recently you received a financial windfall and you want to use that money to pay off your personal loan early.

Can you pay off a personal loan early without paying a prepayment penalty? It depends on your lender. Some lenders offer personal loans without prepayment penalties, but some don’t. A mortgage prepayment penalty is more common than a personal loan prepayment penalty.

Recommended: When to Consider Paying off Your Mortgage Early

Differences in Prepayment Penalties

The best way to figure out how much a prepayment penalty would be is to check a loan’s terms before you accept them. Lenders have to be upfront about how much the prepayment penalty will be, and they’re required by law to disclose that information before you take on the loan.

Personal Loan Prepayment Penalty

If you take out a $6,000 personal loan to turn your guest room into a pet portrait studio and agree to pay your lender back $125 per month for five years, the term of that loan is five years. Although your loan term says it can’t take you more than five years to pay it off, some lenders also require that you don’t pay it off in less than five years.

The lender makes money off the monthly interest you pay on your loan, and if you pay off your loan early, the lender doesn’t make as much money. Loan prepayment penalties allow the lender to recoup the money they lose when you pay your loan off early.

Mortgage Prepayment Penalty

When it comes to different types of mortgages, things get a little trickier. For loans that originated after 2014, there are restrictions on when a lender can impose prepayment penalties. If you took out a mortgage before 2014, however, you may be subject to a mortgage prepayment penalty. If you’re not sure if your mortgage has a prepayment penalty, check your origination paperwork or call your lender.

Checking for a Prepayment Clause

Lenders disclose whether or not they charge a prepayment penalty in the loan documents. It might be in the fine print, but the prepayment clause is there. If you’re considering paying off any type of loan early, check your loan’s terms and conditions to determine whether or not you’ll have to pay a prepayment penalty.

How Are Prepayment Penalties Calculated?

The cost of a prepayment penalty can vary widely depending on the amount of the loan and how your lender calculates the penalty. Lenders have different ways to determine how much of a prepayment penalty to charge.

If your loan has a prepayment penalty, figuring out exactly what the fee will be can help you determine whether paying the penalty will outweigh the benefits of paying your loan off early. Here are three different ways the prepayment penalty fee might be calculated:

1. Interest costs. If your loan charges a prepayment penalty based on interest, the lender is basing the fee on the interest you would have paid over the full term of the loan. Using the previous example, if you have a $6,000 loan with a five-year term and want to pay the remaining balance of the loan after only four years, the lender may charge you 12 months’ worth of interest as a penalty.

2. Percentage of balance. Some lenders use a percentage of the amount left on the loan to determine the penalty fee. This is a common way to calculate a mortgage prepayment penalty fee. For example, if you bought a house for $500,000 and have already paid down half the mortgage, you might want to pay off the remaining balance in a lump sum before the full term of your loan is up. In this case, your lender might require that you pay a percentage of the remaining $250,000 as a penalty.

3. Flat fee. Some lenders simply have a flat fee as a prepayment penalty. This means that no matter how early you pay back your loan, the amount you’ll have to pay will always be the prepayment penalty amount that’s disclosed in the loan agreement.

Recommended: Debt Payoff Guide

Avoiding a Prepayment Penalty

Trying to avoid prepayment penalties can seem like an exercise in futility, but it is possible. The easiest way to avoid them is to take out a loan or mortgage without prepayment penalties. If that’s not possible, you may still have options.

•   If you already have a personal loan that has a prepayment penalty, and you want to pay your loan off early, talk to your lender. You may be offered an opportunity to pay off your loan closer to the final due date and sidestep the penalty. Or you might find that even if you pay off the loan early and incur a penalty, it might be less than the interest you would have paid over the remaining term of the loan.

•   You can also take a look at your loan origination paperwork to see if it allows for a partial payoff without penalty. If it does, you might be able to prepay a portion of your loan each year, which allows you to get out of debt sooner without requiring you to pay a penalty fee.

For example, some mortgages allow payments of up to 25% of the purchase price once a year, without charging a prepayment penalty. This means that while you might not be able to pay off your full mortgage, you could pay up to 25% of the purchase price each year without triggering a penalty.

Some lenders shift their prepayment penalty terms over the life of your loan. This means that as you get closer to the end of your original loan term, you might face lower prepayment penalty fees or no fees at all. If that’s the case, it might make sense to wait a year or two until the prepayment penalties are less or no longer apply.

When it comes to your money, you don’t want to make any assumptions. You still need to do your due diligence by asking potential lenders if they have a prepayment penalty. The Truth in Lending Act (TILA) requires lenders to provide documentation of any loan fees they charge, including a prepayment penalty. Also, under the TILA, consumers have the right to cancel a loan agreement within three days of closing on the loan without the lender taking any adverse action against them.

The Takeaway

A prepayment penalty is one fee that can be avoided by asking questions of the lender and looking at the loan documents with a discerning eye. This may hold true both when you are shopping for a loan and when you are paying your loan off.

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.

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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