May
31
2022
Secured vs. Unsecured Credit Card: What’s the Difference?

Secured vs. Unsecured Credit Cards: What You Need to Know

By | Building Your Career, Credit, money | Comments Off on Secured vs. Unsecured Credit Cards: What You Need to Know

If you have a thin credit profile or want to rebuild your credit , you may come across secured credit cards when searching for a card you can qualify for. But what’s the difference between a secured vs. unsecured credit card? And how can you gauge which one is right for you?

Let’s take a look at how both types of credit cards work and the differences between secured cards and unsecured credit cards, so you can decide which to choose.

What Is a Secured Credit Card?

Like a traditional, or unsecured, credit card, an unsecured credit card is a type of revolving loan. This means that it offers a line of credit that you can borrow from as needed and then repay. However, with a secured credit card, you’ll need to put down a deposit, which “secures” the credit card.

The bank holds onto that money as a form of collateral if you default on payments, but it’s refundable if you close your account or upgrade to an unsecured credit card. Your secured credit card’s credit limit, an essential part of what a credit card is, usually is the same amount as your deposit. The deposit is typically at least $200 to $500, though it can range as high as $25,000 depending on the specific card and how much you can afford to put down.

A secured credit card is designed for building credit. So, if you’re working on rebuilding your credit or don’t have much in the way of a credit history because you’re young or new to the country, it could be a good option. The age requirement to get a credit card that’s secured is the same as for an unsecured credit card.

How Secured Credit Cards Work

As mentioned before, you’ll need to put in a deposit to open a secured credit card. Your available line of credit is usually the same amount as your deposit. Just like how credit cards work when it’s an unsecured card, you’ll need to repay the balance, and your credit limit will get replenished as you make payments.

Like with an unsecured credit card, there’s a minimum monthly payment you’re responsible for. If you carry a balance from month to month, you’ll incur interest charges. Your credit card activity, including your payment history, is generally reported to the three major credit bureaus, Experian, Equifax, and TransUnion.

Your deposit on a secured credit card isn’t used to make payments should you fall behind or miss payments altogether. If you’re unable to make payments and your account goes to default, you’ll lose your deposit. Plus, it can hurt your credit. If the balance you owe is larger than the deposit, you might be on the hook for the difference owed.

Secured credit cards may offer a “graduation” option. In other words, if you make on-time payments and show a track record of responsible financial behavior, the credit card issuer might offer you an unsecured credit card.

Recommended: Tips for Using a Credit Card Responsibly

Pros and Cons of a Secured Credit Card

Let’s look at some of the advantages and downsides of a secured credit card:

Pros of a Secured Credit Card Cons of a Secured Credit Card
May qualify with a low credit score or limited credit history Need to provide a deposit
Could be easier to get approved for than an unsecured credit card Credit limit is usually low
Can be a way to build or rebuild credit as activity is reported to credit bureaus Can have higher interest rates and more fees than secured credit cards
Offers a revolving line of credit you can use as long as you make payments Could lose your deposit if you’re late or miss payments

What Is an Unsecured Credit Card?

Also known as a traditional credit card, an unsecured credit card doesn’t require a deposit or collateral of any sort. Instead, you’re offered a credit limit based on your creditworthiness and other factors, such as your income and existing debt. The lender simply has your word that you’ll pay back what you borrow, which is why you’ll also generally need a higher credit score and a more robust credit history to qualify.

Just like with a secured credit card, the credit remaining on an unsecured credit card dwindles as you rack up a balance. Once you make a payment, your limit replenishes. For example, let’s say your credit limit is $5,000. If your balance is $500, your credit limit goes down to $4,500. Once you pay off your balance, your credit limit goes back up to $5,000.

The annual percentage rate (APR) and terms associated with an unsecured credit card are usually better than they are for a secured credit card. Typically, the better your credit score, the better your rates and terms are for an unsecured credit card. The average credit card APR as of May 2022 was 14.56%; meanwhile, many of the top secured credit cards have APRs well over 20%.

How Unsecured Credit Cards Work

Because an unsecured credit card is a form of revolving credit, you have access to that credit line as long as you remain in good standing and your account stays open. Unsecured credit cards also require you to make minimum monthly payments to avoid incurring late payment fees and harming your credit score. You’ll owe interest on any balance that carries over from month to month.

Sometimes, unsecured credit cards might offer perks, such as cash-back rewards and travel insurance.

Pros and Cons of an Unsecured Credit Card

Here are some of the pros and cons of traditional, or unsecured, credit cards:

Pros of an Unsecured Credit Card Cons of an Unsecured Credit Card
Higher credit limits compared to secured credit cards Can be harder to get approved for
Need at least a fair credit score to qualify (580+) Can still incur interest and fees
Can help you build your credit May entice you to spend more than you can afford due to higher credit limits
Opportunity to earn rewards and enjoy other benefits Could damage your credit if not used responsibly

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Similarities Between a Secured Credit Card and an Unsecured Credit Card

When it comes to a secured credit card vs. an unsecured credit, there are a number of similarities:

•   Both are revolving lines of credit, so you’ll have access to those lines of credit as long as you keep the card open and your account in good standing.

•   Your payments are reported to credit bureaus. If you make on-time payments, your credit score will improve. Conversely, it can drop if you don’t use your credit card responsibly.

•   The process of how to apply for a credit card is usually similar with a secured vs. unsecured credit card. You can usually fill out an application online, in person, over the phone, or through the mail.

•   Both secured and unsecured credit cards come with interest rates and fees. Depending on the card, there might be an annual fee.

•   Both types of credit cards usually offer a grace period, which is the period between when your billing cycle ends and your payment due date. During this time, you may not be charged interest as long as you pay off your balance in full by the payment due date.

•   While it’s less common among unsecured credit cards, both types of credit cards might feature perks, such as cash-back rewards, car rental insurance, trip and travelers insurance, extended warranties, and price protection.

Recommended: What is a Charge Card

Differences Between a Secured Credit Card and an Unsecured Credit Card

So what’s the difference between a secured and unsecured credit card? There are a handful of items that set these types of credit cards apart:

•   For starters, secured credit cards require a security deposit, whereas unsecured credit cards do not.

•   The credit limit for a secured credit card usually matches the deposit amount. With unsecured credit cards, the credit limit usually depends on a handful of factors, such as your creditworthiness.

•   Secured credit cards generally carry higher interest rates and fees, whereas unsecured credit cards typically have lower interest rates and fees.

•   Unsecured credit cards usually have one variable interest rate, meaning the card’s interest rate fluctuates over time based on an index. Secured credit cards can have a fixed or variable rate.

Secured vs. Unsecured Credit Card: Which Is Right for You?

Now that you know the similarities and differences between a secured and unsecured credit card, you can start to assess which one might be right for you. Here’s a high-level overview to help you better compare what sets secured vs. unsecured credit cards apart:

Secured Credit Card Unsecured Credit Card
Requires a deposit to open Does not require a deposit
Usually available for those with thin credit histories or lower credit scores Usually need at least fair to good credit to qualify
Lower credit limits, which are based on the amount of the deposit Higher credit limits, which are based on creditworthiness
Fewer card options available Variety of card options, such as cash-back cards, travel cards, business cards, and retail cards

Staying on Top of Your Credit After Choosing a Card

No matter if you decide on a secured credit card or an unsecured credit card, it’s important to stay on top of your payments. Ideally, you’ll pay the balance in full each billing cycle. Otherwise, you’ll owe interest.

At the very least, make sure to make the minimum payment each month. That way, your credit will stay intact and you’ll avoid late fees. If you’re struggling to make payments, reach out to the lender and see what they can do. They might be able to change the payment due date so it’s more in line with what’s feasible for you, or let you temporarily skip a payment to catch back up.

Recommended: When Are Credit Card Payments Due

The Takeaway

Whether you should apply for a secured credit card and an unsecured one may depend largely on your credit history and score. A secured card may be best if you have yet to establish credit or have a low credit score, while an unsecured card can be beneficial if your credit is more established and you want to earn rewards.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Is an unsecured or secured credit card better?

Whether a secured vs. unsecured credit card is better depends on your situation. An unsecured credit card might be better for you if you’re having trouble getting approved for a secured card and can afford to make the deposit. On the other hand, a secured credit card may be better if you have at least an average credit score, are looking for a higher credit limit, and would like more card options.

Should your first credit card be secured or unsecured?

It really depends. If you have a thin credit history, are looking to build credit, and can afford the security deposit, a secured credit card might be the best route to take as they’re generally easier to qualify for. Note that you’ll probably need to stomach a higher interest rate and a lower credit limit though. While an unsecured credit card doesn’t require a deposit, it might be harder to get approved for one if your credit is less-than-stellar or you don’t have much of a credit history yet.

Photo credit: iStock/cesar fernandez dominguez

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

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

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

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May
20
2022
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Guide to Student Loan Interest Rates for the 2022 School Year

By | Fresh Out of School, Student Loans, student_loan | No Comments

Once a year, usually in June, the government announces interest rates for federal student loans that will be first disbursed after July 1. Whether you’re a freshman or, say, a junior, these rates apply to the loans you get for the academic year that starts in the fall.

Federal student loan interest rates are determined differently than private student loan interest rates. Here’s what you should know about federal and private student loan interest rates in 2022 and 2023.

Federal Student Loan Interest Rates for 2022

As just noted, interest rates on federal student loans for the upcoming academic year are set by the government. By federal law, they’re based on the 10-year Treasury note auction in May. The rates set for the 2022 to 2023 school year are for loans first disbursed from July 1, 2022 to June 30, 2023.

For the 2023-2024 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 5.50%, the rate on Direct Unsubsidized loans for graduate and professional students is 7.05%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 8.05%. The interest rates on federal student loans are fixed and are set annually by Congress.

How Federal Student Loan Interest Rates Work

Interest rates on federal student loans are fixed for the life of the loan. That means that if you borrowed a Direct Subsidized Loan for the 2020 – 2021 school year, and your interest rate was 2.75%, that interest rate is locked in at 2.75% for the life of that loan.

But, if you borrowed another Direct Subsidized Loan to pay for the 2021 – 2022 school year, your new loan will be disbursed with the 3.73% interest rate offered during that school year.

Since 2006, interest rates on federal student loans have fluctuated from anywhere between 2.75 to 8.50%, depending on the type of loan.

Difference Between Federal and Private Student Loan Interest Rates

Unlike federal student loans, interest rates for private student loans are set based on economic factors and underwriting unique to each lender that issues them. Lenders typically take into account a borrower’s credit history, earning potential, and other personal financial factors.

If you borrowed a private student loan, you may have applied with a cosigner to secure a more competitive interest rate. That’s likely because most college students don’t have much credit history or employment history, so interest rates on private student loans can be higher than those on federal student loans without a well-qualified cosigner.

While federal student loans have a fixed-interest rate, private student loans can have either a fixed or variable interest rate. Borrowing a variable rate loan means that the interest rate can change periodically.

How Private Student Loan Interest Rates Work

The frequency of changes in the interest rate will depend on the terms of the loan and on market factors; typically, private lenders adjust the interest on variable-rate loans monthly, quarterly, or annually. Interest rates on private student loans are typically tied to the London Interbank Offered Rate (LIBOR) or the 10-year Treasury yield.

So as the LIBOR changes, for example, interest rates on variable-rate student loans can change as well. Typically, lenders will add a margin to the LIBOR, which is determined based on credit score (and, the credit score of your co-signer if applicable).

Generally, the LIBOR tracks the federal funds rate closely. In June 2020, the Federal Reserve announced that it plans to keep the federal funds rate close to zero, likely through 2022.

This means that, so long as the federal funds rate remains low, the interest rates on private student loans are not likely to increase during that time period. However, it’s important to pay attention to interest rates, especially for borrowers with private student loans with a variable-interest rate, since these changes could cause fluctuations to the interest rate of the loan.

And given that LIBOR is scheduled to be discontinued around the end of 2021 , rates could change in other ways as new indices are chosen by lenders.

Lowering the Interest Rate on a Private Variable-Rate Loan

If you have a private variable-rate loan and are worried about interest-rate volatility, there are options available to protect against an interest-rate hike. One option is switching to a fixed-rate loan via student loan refinancing.

When you refinance your student loans, you take out a new loan (typically with a new lender).

The new loan effectively pays off your existing loans, and gives you a new loan with new terms, including a new interest rate. Private lenders, like SoFi, review personal financial factors like your credit and employment history, among other factors, to determine a new interest rate.

If you qualify to refinance, you’re then able to choose between a fixed or variable rate loan, so if you’re worried about rising interest rates in the future, you may have a chance to qualify to lock in a new (hopefully lower) fixed interest rate.

Monthly Payments and Private Loans

You should also have the opportunity to set a new repayment plan, either extending or shortening the term of the loan. If you extend your student loan repayment term, you’ll likely have lower monthly payments, but will pay more in interest over the life of the loan.

Shortening your repayment plan typically has the opposite effect. You may owe more each month, but will most likely spend less on interest over the life of the loan.

To get a general idea of how much refinancing your student loans could impact your repayment, take a look at SoFi’s student loan refinance calculator, where you can compare your current loan to current SoFi refinance student loan rates.

Refinancing Federal Student Loans

Federal student loans can be refinanced, too. Typically, a student wouldn’t do this while still in school, since the government is paying the interest on certain federal loans during this time. Also, federal student loan interest rates are generally lower than rates for private loans disbursed in the same time period.

It should be noted, however, that refinancing a federal student loan with a private lender means you’ll no longer be eligible for federal programs and protections like income-driven repayment, forbearance, or Public Service Loan Forgiveness (PSLF).

The Takeaway

Interest rates for federal student loans reset every year in June for the upcoming school year. For the 2022 school year, rates are up roughly 1% compared to the previous year, which saw the lowest rates in years.

If you refinance your student loans with SoFi, there are no origination fees or prepayment penalties. The application process can be completed online, and you can find out if you prequalify for a loan, and at what interest rate, in just a few minutes.

Ready to take control of your student loans in 2022 and beyond? See how refinancing with SoFi can help.



SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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

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

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

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

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May
05
2022
How to Spot and Avoid Credit Card Skimmers

How to Identify a Credit Card Skimmer and Protect Yourself

By | Credit, Financial Independence, money | Comments Off on How to Identify a Credit Card Skimmer and Protect Yourself

Unfortunately, credit card fraud is all too common, accounting for 393,207 of the nearly 1.4 million reports of identity theft in 2020. There are many different ways for identity theft to occur. One hazard to look out for is the credit card skimmers that are most commonly lurking at ATMs or gas station pumps.

To help protect yourself against theft, keep reading to learn what credit card skimmers are, how to spot a credit card skimmer, and what to do if your credit card is skimmed.

What Is a Credit Card Skimmer?

Credit card skimming is a form of theft that occurs when someone installs a small electronic device, known as a credit card skimmer, into a card reader. This device can read and collect information from a credit card when someone makes a purchase. The skimmer does this by reading the magnetic strip on a debit or credit card, which provides the full name on the credit card as well as the credit card number and credit card expiration date.

Credit card skimmers have been around since 2015. They are most commonly attached to gas station pumps, ATMs, and other types of machines that accept payments from both secured and unsecured credit cards as well as debit cards.

Identifying Credit Card Skimmers

Knowing how to check for credit card skimmers is a great way to protect against potential theft. Especially when using an outdoor payment machine like a gas pump or ATM, take a look at the card reader for signs of a credit card skimmer. See if the card reader is sticking out at an angle or looks any different from other nearby card readers. Also check if the card reader is loose or the keypad is unusually bulky.

When skimmers first came into play, it was easier to spot a credit card skimmer as the card reader often appeared to be tampered with or wiggled when used. Today, skimmers can fit snugly over the scanner, which makes it much harder to tell if something is amiss.

In the instance that all seems well with the card scanner at a gas station, double check the pump. If a gas pump is open, unlocked, has had the tamper-evident security tape altered or removed, or anything else seems amiss, it’s a good idea to use a different pump.

If possible, it’s best to use a credit card pump that has an encrypted credit card reader. Ideally, use one that has an illuminated green lock symbol near the credit card reader — this symbolizes that it’s been encrypted.

What Happens When a Credit Card Is Skimmed

When a credit card skimmer reads a magnetic strip on the back of a credit or debit card, it can obtain the cardholder’s full name, credit card number, and the credit card expiration date. Sometimes, scammers add a small camera into the equation in order to watch someone enter their PIN number when using a debit card. Really, one of the few things that’s safe is the CVV number on a credit card, which is why it’s so important to keep this secure.

Once the thief has this information in hand, they can use the card anywhere that accept credit card payments. They may have access to the cardholder’s bank account and could steal their identity. Or, the thief can sell the information on the dark web.

Recommended: 10 Common Credit Card Scams and How to Avoid Them

Protecting Yourself From Credit Card Skimmers

If you’re old enough to get a credit card, it’s critical to know how to use it responsibly and safely. Here’s a few tips to keep in mind to avoid falling prey to credit card skimmers.

Use NFC or Supervised ATMs

To help avoid coming into contact with a card skimmer, try to use payment terminals that are supervised by security cameras or skip using the card reader altogether and make a Near Field Communication(NFC) payment. NFC payments are secure transactions made with a smartphone, allowing you to avoid swiping your card at all.

Check and Recheck the Keypad

When it comes to how to spot a credit card skimmer, remember to check the keypad for any signs of tampering. These days it’s a bit harder to identify when a keypad has a skimmer on it, but if anything seems amiss, use another payment machine or go inside the gas station or bank to make a transaction or withdrawal.

Don’t Leave Your Card Unattended

Whenever possible, make a transaction or withdrawal inside of a gas station or bank. The odds of a criminal accessing inside payment terminals with a clerk watching are much lower compared to outside payment terminals. It only takes criminals a few seconds to add a skimmer to an outside payment terminal where no one is watching.

Just like taking the time to compare the APRs on credit cards, spending a few extra minutes going inside to buy gas or take out cash can pay off. It could help you avoid countless hours of dealing with identity theft as a result of credit card skimming.

Use Credit Cards With a Chip

If you’re familiar with what a credit card is, you’ll know that most new credit cards come with a “chip” that allows consumers to make payments without actually swiping their credit card. With an EMV chip, it’s possible to simply tap a credit card instead of swiping it to make a payment, which helps avoid credit card skimming.

Be Vigilant

If someone does need to use an outdoor ATM or gas pump, use one that is close to the building and preferably in the line of sight of an attendant, security guard, or security cameras. The more hidden a payment terminal is, the more likely it is that there is a credit skimmer placed on it. Also make sure to be aware of your surroundings when using any exterior payment terminals.

Sign Up for Credit and Debt Alerts

One way to catch fraud is to sign up for alerts that send a notification any time a purchase is made with the card. After all, it’s unlikely a fraudster’s activity will result in a negative balance on a credit card.

By receiving an alert right when a purchase is made, you can confirm whether or not you made it. If you believe an unauthorized purchase was made, contact your bank or credit card issuer immediately.

Check Your Account Regularly

To be extra vigilant, double check debit and credit card statements frequently to make sure that no unauthorized charges slipped through the cracks. It can be easier to stay on top of charges if you check in throughout the month rather than waiting until you receive your credit card statement and being shocked that you’re almost at your credit card limit due to unauthorized spending.

Can You Get a Refund if Your Card Gets Skimmed?

If you realize your credit card or debit card has been skimmed, check in with your bank or credit card issuer about next steps. You should also put a freeze on your credit report to ensure that the fraudsters aren’t applying for new credit cards in your name. In some cases, you may need to file a police report.

The credit card issuer or bank will have fraud protections in place and should refund you for any money lost. These protections are an important part of how credit cards work. Still, the sooner you cancel the cards and stop the fraud, the better. Most top credit cards have zero-liability policies that will refund the full amount of the fraudulent charges. If they don’t, the maximum liability anyone has as a consumer is $50.

The Takeaway

Skimmers are unfortunately all too common. With a debit card, consumers aren’t entitled to as much protection regarding theft, so it’s helpful to use a credit card whenever making purchases at an outdoor payment terminal that’s vulnerable to skimmers. Still, it’s important to know how to spot credit card skimmers so you can hopefully avoid them.

It can also help to have a credit card with security measures in place and a zero-liability policy. The SoFi Credit Card, for instance, offers cell phone protection as well as Mastercard theft protection, which can help detect potential fraud.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What does a credit card skimmer do?

Credit card skimmers illegally collect information from credit and debit cards. Skimmers are typically attached to outside payment terminals like ATMs or gas stations.

Are card skimmers illegal?

Yes, credit card skimmers are illegal. This is why credit card issuers are creating new technology like chips to help make purchases more secure.

How common is credit card skimming?

Unfortunately, credit card skimming is all too common. Out of the nearly 1.4 million reports of identity theft in 2020, 393,207 cases were due to credit card fraud.

Photo credit: iStock/greyj

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

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Apr
14
2022
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Can You Roll Your Student Loans Into Your Mortgage?

By | Debt Payoff, Home Ownership, Student Loans, student_loan | No Comments

It’s possible to roll student loans into a mortgage using a cash-out refinance. In order to to do this, you’ll already need to have enough equity in your home. While this could potentially help you secure a lower interest rate, it’s not the right choice for everyone. Read on for more information on situations when it may make sense to roll your student loan into a mortgage and other strategies to pay off student loan debt.

Paying Your Student Loans

Paying off one loan with another is a standard form of debt reshuffling or consolidation. When it comes to student loans, though, your options may seem limited. It is, however, possible to roll student loan debt into a new mortgage through a cash-out refinance loan — as long as you have sufficient equity in your home.

But just because you can, it doesn’t mean you should. Here are some tips on how to consolidate student loans into a mortgage — and whether it may be the right move for you.

Rolling Student Loans Into a Mortgage

A cash-out refinance is a type of mortgage loan that enables you to turn a portion of your home’s equity into cash. Simply refinance your existing mortgage for more than what you currently owe into a new loan with new terms and keep the difference.

Once you have the cash in hand, and as long as there are no loan conditions to pay off specific debt with the cashout, you can do whatever you want with it, including paying off your student loans.

You may need to do the legwork of determining how much you need to add to the new proposed loan and may be responsible for ordering the final payoff. If it is not a condition of the new mortgage loan, the lender would normally not request escrow to order the payoff and pay the loan in full at loan closing. If you would like escrow to perform this service for you, just let them know.

Once you’ve completed the loan consolidation process, you may still have the same amount of debt as you did before (possibly more if you added any applicable closing costs to your new loan). You’ll just be paying it all in one monthly payment, based on your new mortgage terms.

If you want to refinance student loans into a mortgage, it could be beneficial in some situations. However, it’s important to understand the benefits and drawbacks of doing so and also to compare the benefits of this option with other alternatives.

One such drawback is that you may no longer be eligible for federal student loan benefits , such as the ability to pursue federal student loan forgiveness or federal student loan repayment plans. This includes income-driven repayment plans, where your monthly student loan repayment changes according to your income.

Pros and Cons of Rolling Student Loans into a Mortgage

Depending on your debt situation and your credit profile, consolidating student loans and your mortgage into new terms could be a smart idea or a terrible one. Here are some of the pros and cons to consider.

Pros of Rolling Student Loans into Mortgage

•   It could lower your interest rate: If you pay a higher interest rate on your student loans and current mortgage vs. a new Cash-Out Refi, consolidating may help reduce how much you pay in overall interest.

•   It could lower your monthly payment: If you qualify for a lower interest rate and choose a longer repayment period with the new loan, it may significantly lower the total amount you pay each month for your mortgage and student loans combined. Keep in mind that extending the life of the loan may mean you pay more in interest in the long-term.

•   It simplifies your finances: Having a single monthly payment might make your finances easier to manage. The fewer monthly payments you have to keep track of, the better. If you have multiple student loans, rolling them into your mortgage can make your life easier.

Cons of Rolling Student Loans into Mortgage

•   You could end up paying more interest over time: Stretching a 10-year student loan repayment term to up to 30 years could end up costing you more in interest, even if the interest rate is lower. Also, if you have paid down a 30 year mortgage for a few years and originate a new 30 year mortgage, you will be extending your existing loan term and may be paying additional interest over the life of the loan.

•   You may not be eligible: To qualify for a cash-out refinance loan, you typically need to have at least 20% equity left over after the new loan amount on the cash-out refinance. Even if you do have more than 20% equity right now, the difference might not be enough to pay your student loan in full.

•   You may pay closing costs: Depending upon the rate and term you choose, you may have applicable closing costs. FannieMae offers a program for student loan cash-out refinance loans. Consider getting a quote for this program and compare the rate and fees of this program to a standard cash-out refi.

•   You may be reducing the amount of available equity in your home: Taking cash out of your home can reduce the amount of available equity in your home. Market value fluctuations can also impact the amount of available equity.

3 Alternatives to Rolling Student Loans into a Mortgage

Before you seriously consider consolidating student loans into a mortgage, it’s important to know what other options you may have for paying down your debt faster.

1. Refinancing Your Student Loans

Whether you have federal or private student loans, you can refinance your student loans with a private lender like SoFi. Depending on your credit, income, and financial profile, you may qualify for a lower interest rate, monthly payment, or both.

You can also gain some flexibility by choosing a longer or shorter repayment term. Keep in mind that refinancing federal student loans means they’ll no longer be eligible for any federal programs or borrower protections, such as income-driven repayment plans.

2. Seeking Repayment Assistance

Employers are increasingly offering student loan repayment assistance as an employee benefit. Well-known companies that provide this repayment benefit include Aetna, Fidelity, PricewaterhouseCoopers, SoFi, and more. If your current employer doesn’t offer student loan repayment assistance, consider finding a job that does when you are next seeking employment.

3. Apply for Student Loan Forgiveness or Grants

Depending on your career path, you may qualify for student loan forgiveness or grant programs. Examples of these programs include (but are not limited to):

•   Health care

•   Veterinary medicine

•   Law

•   Military

•   STEM

If you’re working in one of these fields or a similar one, check to see if there are forgiveness or grant programs for which you may qualify. As previously mentioned, a cash-out refi may make you ineligible to participate in these programs. Check on any possible loss of benefits before considering a refinance of these loans.

Deciding If Rolling Student Loans into a Mortgage Is Right for You

Using a cash-out refinance to consolidate student loans and a mortgage into one affordable monthly payment sounds appealing, especially if you can get a lower interest rate than what you’re currently paying. But it’s crucial to consider all of the costs involved before you make a decision.

A lower interest rate, for instance, doesn’t necessarily mean you’ll pay less interest over the life of the loan. Work with a mortgage loan officer or run an amortization schedule in order to do the math.

Also, keep closing costs in mind. Closing costs can vary depending upon the loan scenario and is tied to factors such as the interest rate you choose, your credit score, loan type, property type, and more.

And paying closing costs is not a given. For instance, you can choose to take a higher interest rate (if it is still lower than what you currently have) and use the lender rebate money built into that higher rate to cover some or all of your applicable closing costs. When the time comes to lock in your rate, speak with your chosen lender about various loan programs and the estimated closing costs tied to each rate and term option.

Finally, take a look at some of the other options out there and determine whether you could potentially save more money in interest with them. The more time you spend researching, the better your chances of settling on the option that is most affordable overall.

Can You Buy a House With Student Loans?

While existing debt can impact whether you’re approved for a loan, or the interest rate and loan terms if you are approved, it’s still possible to buy a house with student loan debt. When you apply for a mortgage, the lender will review your complete financial picture including your debt obligations, which might include student loans, credit card debt, or a car loan.

Debt-to-income ratio is one important consideration for lenders. This is a measurement of how much debt one has in comparison to how much money you earn and lenders rely on this metric to inform whether or not you’d be able to make the monthly payments on a new loan, considering your existing debt. Generally speaking, lenders are unlikely to approve anyone for a mortgage with a debt-to-income ratio higher than 43%, though lenders may be more inclined to lend to someone with a debt-to-income ratio lower at or less than 36%.

Beyond debt-to-income ratio, lenders will also evaluate factors such as the borrower’s credit score.

Before applying, do some number crunching to see what a mortgage might cost and how it will impact your overall debt-to-income ratio. This might be helpful in understanding the mortgage rates you may be eligible for.

In addition to traditional home loans there are programs available for first-time home buyers that might make buying a home with student loan debt more achievable.

Refinancing Student Loans With SoFi

If you are interested in consolidating your student loan debt at a lower interest rate but don’t want to roll them into your mortgage, you may instead want to consider student loan refinancing. With SoFi student loan refinancing, you can refinance your private or federal loans (or both!) with no application fees, origination fees, or prepayment penalties. And you still get the benefit of consolidating your loans to one payment, with a new (and potentially better) interest rate and loan terms. Keep in mind that refinancing any federal loans will eliminate them from federal programs and borrower protections such as income-driven repayment plans or deferment options.

The Takeaway

When paying down student loan debt faster, there’s no one-size-fits-all solution. The more information you gather about your options, the easier it will be to eliminate your debt as quickly as possible.

If you’re interested in refinancing your student loans, consider SoFi. Student loan refinancing at SoFi has no fees and as a SoFi member, borrowers qualify for perks such as career coaching, community events, and more.

Learn more about SoFi student loan refinancing.

FAQ

Is it a good idea to roll your student loans into a mortgage?

Evaluate all loan details carefully before rolling your student loans into a mortgage. Factors such as closing costs, loan term, any additional fees, and interest rate can all influence how much it will cost to borrow money over the life of a loan. In some cases, it may be possible to qualify for a lower interest rate when borrowing a mortgage. In other cases, extending the repayment of your student loans over a 30-year period with your mortgage may make it more expensive. If you have any questions on your personal financial situation, consider speaking with a qualified financial professional or mortgage loan officer who can offer a personalized assessment.

Can student loans be included in a mortgage?

Student loans can be included in a mortgage if you have enough equity in your home. Rolling student loans into a mortgage generally requires the borrower to take out a cash-out refinance loan, which allows you to turn a portion of your home’s equity into cash. Once you have the cashout in hand, you can pay off your existing student loans.

Terms may vary by lender. There are certain programs, such as Fannie Mae’s Student Loan CashOut Refi that specialize in this type of borrowing.

How much of student loans is counted for a mortgage?

Student loans are evaluated as a part of your overall debt-to-income ratio. In general, lenders avoid lending to borrowers with a debt-to-income ratio greater than 43%.

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

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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

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

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

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Mar
10
2022
Tips for Choosing a Medical School

Choosing the Right Medical School

By | Going to College, Student Loans, student_loan | Comments Off on Choosing the Right Medical School

Medical school is a big commitment. Not only will students spend four years of their life working towards a medical degree, but they’ll pay a big chunk of change for it (financing medical school is a major undertaking and can lead to debt). Which is why choosing the right medical school is so important. Keep reading for insight into how to pick the right medical school and how to finance it.

What Is Medical School?

Medical school is a necessary step towards becoming a doctor and generally, it takes four years to complete in order to receive an M.D., N.D., or D.O. degree. After medical school, graduates will need to pursue a medical residency in their specialty before they can become practicing doctors.

Recommended: How to Pay for Medical School

Different Types of Medical Courses

One of the first steps potential medical students can take to find the right medical school for them, is to better understand the different types of medical courses there are. Once they know what type of medical courses they want to take, they can narrow their search to just medical schools that offer those courses.

Traditional Courses

Some medical students may be attracted to more traditional courses that have students finish two years of pre-clinical work before they move on to the three years of clinical work they need to complete to get their degree. Typically, pre-clinical work occurs in a classroom setting. This is where medical students can learn the key principles of medical science. Once they move on to the clinical work portion of their studies, they will need to work in hospitals or clinics with direct supervision, while attending lectures.

This combination educates students on medical practices while making sure they get the hands-on experience they need to use their pre-clinical knowledge in real life situations.

Integrated Courses

Integrated courses are becoming more and more popular at medical schools, as this style, of course, combines pre-clinical and clinical education. In an integrated course, medical students can expect to learn practical clinical skills and work through problem-based learning.

Often in integrated courses, a lot of the students’ work is self-directed and early patient contact is encouraged.

Intercalated Courses

Intercalated courses are unique, as they allow students to take a year out of medical school to earn a BSc or MSc in a related subject. It’s not a guarantee that every medical school will allow students to do this, but in some schools students have the option or are mandated to do intercalated courses.

Recommended: Making Sense of the Rising Cost of Medical School

How to Choose Your Medical School

Every medical student had to ask themself at one point, which medical school is right for me? Here’s a few factors medical students can take into consideration to make answering that very important question easier.

1. Cost

Med school tuition is pricey and it’s not uncommon for students to take on debt for medical school. On top of tuition, students will also need to pay additional costs such as service fees and textbooks.

While medical schools do offer financial aid such as grants and medical school scholarships to their students, it’s important to prepare for the cost of medical school as not everyone receives financial assistance.

Attending an in-state school could help medical students find a lower tuition cost than at out-of-state or private options. For example, at the University of Utah, tuition for medical school if the student lives in-state is about $40,000 a year, whereas out-of-state students can expect to pay closer to $77,000 a year on tuition at the same school.

Each school charges different tuition rates, but generally, staying in-state can save medical students a lot of money.

Recommended: Average Cost of Medical School

2. Programs Offered

Apart from their general MD program, medical schools typically have multiple programs to choose from that lead to different careers paths. Before applying to medical school, students can take into consideration how many different programs are offered, how many students are accepted to each program, how long their ideal program takes to finish, and how that program aligns with their career goals.

3. Admissions Criteria

One of the easiest ways to start a search for the right medical school is by looking for schools where the applicant meets the admissions criteria. Students can do some research on the admissions criteria for each school to make sure their qualifications lineup, as well as what they need to do to apply to each specific school.

4. Location

Location matters. The location of a medical school can affect how much it costs a student to attend, what their housing situation looks like, and what their lifestyles outside of school is like. By choosing a local school, students may be able to save money on tuition or be able to cut costs by living with a family member. Not to mention, some locations simply have a higher cost of living than others. Students can crunch the numbers on what it would cost them to live at each medical school they want to apply to, so they can get a better idea of what attending medical school will cost them as a whole.

5. Career Path Opportunities

There are a wide variety of career opportunities that can arise after medical school and not all of them involve working as a practicing doctor. Medical school graduates can pursue teaching, research, and business opportunities amongst other exciting career paths. Students can check what career path opportunities a school’s curriculum and counseling center support before they apply to get a feel for if that medical school can help them meet their unique career goals.

SoFi’s Private Student Loans For Medical School

Students that need to take out medical school student loans, may find that SoFi’s private student loans can meet their needs. It only takes minutes to apply online and borrowers can apply with a cosigner. Keep in mind that because private student loans don’t have to offer the same benefits or protections as federal student loans (like the opportunity to apply for Public Service Loan Forgiveness), they are generally considered by students only after they have thoroughly reviewed all other financing options.

Borrowers can repay their SoFi student loans in a way that works for them by choosing a monthly student loan payment and rate that fits their budget. Borrowers never have to worry about fees and can enjoy a six-month grace period after graduation so that they have time to get settled in their post-grad life before they need to start making monthly loan payments.

Recommended: Smart Medical School Loan Repayment Strategies

The Takeaway

Choosing medical schools to apply to is a lot of work, but that research is a key step students need to take to find the best medical school for them.

For help covering the costs of medical school, learn more about SoFi private student loans.

FAQ

Is 30 too old for med school?

No, 30 is not too old to attend medical school. Applicants that apply for medical school will be in their mid-thirties four years later whether or not they pursue a degree. It’s up to them if those four years make a difference in the scheme of things.

What makes a good med school?

A good medical school is one that meets the needs of the student, when it comes to location, finances, and program opportunities.

How do you compare med schools?

Potential medical students can take factors like cost, location, and areas of study into account to compare and contrast their different medical school options.

Photo credit: iStock/Courtney Hale

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

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

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

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