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Does staring at your outdated stairs make you want to climb the walls? You may be considering a staircase remodel or replacement.

A light staircase remodel could cost less than $1,000, while a total makeover could cost upwards of $6,000, according to the home services site Angi. But the average homeowner spends around $2,054.

How Do You Remodel Stairs?

That’s the million-dollar question, really (and no, that’s not a budget estimate). Staircases are the sum of their parts, and each part is an opportunity to increase visual appeal, the value of your home, and your home equity.

Not surprisingly, there’s no shortage of remodeling options. Cosmetic changes, like painting the vertical spindles, restaining treads or risers, or adding a bold carpet runner, can pack a punch without walloping your budget.

For an entirely new look, you may want to consider changing the bones of the staircase — think replacing handrails, spindles, or treads — or relocating the stairs. Those projects may require finding a contractor. That’s especially the case if you want your staircase to meet current building codes (important for safety and when you’re selling the house).

Understanding the project scope from the outset can help ensure that the staircase remodeling costs make sense. As you’re weighing your options, consider factors like:

•   Budget

•   Space

•   Lifestyle

•   Preferred materials and design

•   Building codes in your area

•   Whether you want to do the project yourself or hire a professional

Recommended: Home Renovation Cost Calculator

Staircase Elements and Materials

Being familiar with basic staircase anatomy and common materials can help you refine project goals and have productive conversations if estimates for the job are required.

The focus here will be on interior stairs.

Treads

The stair tread is the part of the stairway that is stepped on. Treads are often made of wood, although they may have another layer on top, such as tile or carpet.

Risers

Stair risers are the vertical pieces that connect the treads: the piece of the staircase in front of your toes as you’re walking up. Risers might be made of wood or an engineered wood product.

Spindles (aka Balusters)

Spindles, or balusters, provide vertical support for the stair railing. Traditional staircases might have wooden spindles, while a more modern stairway might have metal balusters.

Handrails

Also called a banister, this part is simply the rail where you put your hands. Wood, composite, and metal are all standard, although there is room for creativity.

Newel Posts and Caps

The heftier vertical posts that go in line with the spindles and create endings to the railing are the newel posts, and the cap is the decorative element that tops the newel.

Handrails start and end at the newel posts. Materials mirror those of the spindles.

Guardrails

Guardrails must be installed at open spaces on stairs or landings.

Landing

A landing is a horizontal platform that begins or ends a staircase or serves as a transition between changes in stair direction.

Popular Materials Used in Staircase Renovations

The material you use to renovate a staircase can have a big impact on your budget. Let’s look at four common options:

•   Wood. A popular choice for good reason, wood stairs tend to be easy to clean and maintain, though costs can vary based on the type you use.

•   Metal. Want a sleek, modern-looking staircase? Think metal. It’s durable and fire resistant, though you may need to give it some extra maintenance to prevent rust.

•   Glass. Airy and surprisingly sturdy, glass is another top choice for stairwells, particularly the railings. Clean-up is a breeze — just wipe down the surface. However, the material may be prone to scratches.

•   Concrete. Concrete is easy to maintain and customize and can stand up to lots of foot traffic. But the material can be expensive. According to Angi, wooden steps run around $100 to $200 per step; concrete steps cost $200 to $600 per step.

Estimating the Project Scope and Cost

Before you embark on a stair remodeling project, it’s important to gauge what it will involve and how much it will cost. To do that, consider the changes you’ll be making, the materials you’re planning to use, potential labor costs, and the cost of fees, permits, etc. It’s also smart to make a budget and include a little extra to cover any unforeseen expenses.

These stair makeover ideas will give you a good starting point. Minor upgrades can likely be done yourself. Others will require a licensed professional, who can provide you with a quote.

You may also need to take out a personal loan to finance the job, unless you’re paying cash.

Painting the Stairs

Using paint made to withstand wear and tear is essential for the paint job to last. Look for floor, deck, or heavy-duty paint. Water-based, not oil-based, paints will prevent discoloration, especially on light colors.

Painting stairs requires proper preparation (cleaning and sanding), protecting neighboring surfaces, and possibly priming so the paint will adhere correctly. Count on an average of $400 to paint the stairway, handrails, and balusters.

If this is a DIY job, a gallon of latex paint will average $20 to $60. Polyurethane to help protect the new paint finish might start at $50 per gallon. Sandpaper, paint rollers or brushes, tape, and drop cloths could add up to $80 or so.

A new paint job, perhaps using light and dark colors on different parts of the staircase, will go a long way toward making it more inviting. Painting just the risers a bold hue can add interest, and some people even create a painted runner for their staircase renovation.

Refinishing Stairs

Refinishing stairs is a much more daunting task than painting. This involves stripping the current finish with solvents and sanding, which is easier to do on flat stair treads than turned spindles or vertical risers.

You’ll want to check for lead paint before you start stripping the paint.

You’ll need paint stripper ($70 per gallon and up), a premium heat gun (as low as $45), a power sander and sandpaper ($60 to $100), heavy-duty rubber gloves and a respirator mask ($50), and a scraper (as low as $8) to strip the original finish. Oh, and lots of time and patience.

If you’re getting bids to refinish hardwood stairs, the width and length of every step, along with the rise of each, will factor in. The price to refinish hardwood stairs and railings ranges from $4.50 to $8 per square foot for materials and labor.

Replacing Staircase Components

Swapping elements like spindles, newels, caps, and handrails for a different style can dramatically change the overall look of a staircase.

If the staircase has historic elements, getting spindles or other pieces to match other elements in the home might require custom work if replacements can’t be found through architectural reuse or salvage sources.

Replacing carpet-covered treads with wood treads can rectify an outdated look, but realize that you may have to contend with lots of nails and staples under the carpet. A contractor might charge $2 to $20 per stair to remove the carpet.

The balusters will have to be replaced if you’re replacing the treads.

Here are some average replacement and installation costs, according to HomeAdvisor:

•   Handrail: $900

•   Newel post: $35 to $550

•   Balusters: $1,200 to $1,600

•   Treads and risers: $1,800 to $2,500

•   Carpet runner: $500 to $2,000

Expect to pay from $50 to $100 per hour on labor, and factor in any necessary permits, HomeAdvisor says.

Another source puts the cost of replacing the treads and risers at $3,000 to $4,000, including the work of master carpenters. Yes, you’ll see a range of estimates out there. If you’re getting bids, a lot depends on where you live, your choice of materials, and the size of the project.

Total Replacement

Completely replacing a staircase is logistically and financially complex, but a millennial homebuyer, for example, might want floating stairs with open risers rather than a chunkier look.

Consulting a building or remodeling professional, such as a licensed construction engineer or residential architect, about safety and fire codes and potential structural implications for the home is a good step to take.

The cost to install a main staircase averages $2,400 to $4,000, according to Angi. But the site gives a range of $8,000 to $12,000 or more to put in a floating staircase, so only bids will narrow the true cost of replacing a staircase or installing a new one.

Competent staircase installers may cost as much as the staircase itself.

Recommended: Common Uses for Personal Loans

The Takeaway

Improving your main staircase can have a major impact on the look, feel, and function of your home. Stair makeover ideas include the fairly simple (think a fresh coat of paint or staining the treads) and the wow-worthy (custom balusters and floating stairs).

Whether you’re sprucing up your existing steps or installing a brand-new staircase, you’ll want to consider your space, budget, lifestyle, and whether you’ll do the work yourself or hire a pro. The cost of a staircase remodel ranges from a few hundred dollars to tens of thousands. Installing a new staircase will typically require several professionals. If a staircase remodel or new staircase install is on your mind, one way to get quick cash is with a personal 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. Checking your rate takes just a minute.

FAQ

How much does it cost to redesign a staircase?

An architect and contractor may be required to structurally redesign a staircase. A staircase remodel, if done by the homeowner, could cost less than $1,000.

How do I modernize my stairs?

Consider changing out dated handrails. Paint can take years off.

Add a punch to the risers with eye-catching paint, tile, or even wallpaper. Consider a bold-colored or -patterned stair runner that allows the stair treads to be exposed at the edges.

A dramatic light fixture at the top of the stairway will offer both illumination and arty interest. And stair cladding — covering the treads and risers with wooden floor planks — will create a big transformation.

How do you renovate stairs on a budget?

Making less expensive changes, like adding a coat of fresh paint, replacing spindles, or adding a runner, can completely change the feel of a staircase — and the living space that surrounds it, making a house feel like a home.

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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.

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.

SOPL-Q424-017

If you’re looking for a tool you can use to borrow money when you need it, you may be wondering which is the better choice: a personal line of credit or a home equity line of credit (HELOC).

In this guide we’ll compare these two types of credit lines — both of which function similarly to a credit card but typically have a lower interest rate and a higher credit limit. We’ll also cover some of the pros and cons of using a personal line of credit vs. a HELOC.

What Is a Personal Line of Credit?

A personal line of credit, sometimes shortened to PLOC, is a revolving credit account that allows you to borrow money as you need it, up to a preset limit.

Instead of borrowing a lump sum and making fixed monthly payments on that amount, as you would with a traditional installment loan, a personal line of credit allows you to draw funds as needed during a predetermined draw period. You’re required to make payments based only on your outstanding balance during the draw period.

In that way, a PLOC works like a credit card. Generally, you can pay as much as you want each month toward your balance, as long as you make at least the minimum payment due. The money you repay is added back to your credit limit, so it’s available for you to use again.

You can use a personal line of credit for just about anything you like as long you stay within your limit, which could range from $1,000 to $100,000, and possibly more.

A PLOC is usually unsecured debt, which means you don’t have to use collateral to qualify. The lender will base decisions about the amount you can borrow and the interest rate you’ll pay on your personal creditworthiness.

Can a Personal Line of Credit Be Used to Buy a House?

If you could qualify for a high enough credit limit — or if the property you want to buy is being sold at an extremely low price — you might be able to purchase a house with a personal line of credit. But it may not be the best tool available.

A traditional mortgage, secured by the home that’s being purchased, may have lower overall costs than a personal line of credit. There are several different types of mortgage loans to choose from.

A variable rate, which is typical of personal lines of credit, might not be the best option for a large purchase that could take a long time to pay off. Your payments could go lower, but they also could go higher. If interest rates increase, your loan could become unaffordable. With a traditional mortgage, you would have the option of a fixed rate or a variable one.

Another consideration: If you use all or most of your PLOC to make a major purchase like a home, it could have a negative impact on your credit score and future borrowing ability. The amount of revolving credit you’re using vs. how much you have available — your credit utilization ratio — is an important factor that affects your credit score. Lenders typically prefer this number to be less than 30%.

What Is a HELOC?

A HELOC is a revolving line of credit that is secured by the borrower’s home. It, too, usually has a variable interest rate.

Lenders typically will allow you to use a HELOC to borrow a large percentage of your home’s current value minus the amount you owe. That’s your home equity.

A lender also may review your credit score, credit history, employment history, and debt-to-income ratio (monthly debts / gross monthly income = DTI) when determining your borrowing limit and interest rate.

Recommended: Learn More About How HELOCs Work

Personal Line of Credit vs HELOC Compared

If you’re comparing a personal line of credit with a HELOC, you’ll find many similarities. But there are important differences to keep in mind as well.

Similarities

Here are some ways in which a personal line of credit and a HELOC are alike:

•   Both are revolving credit accounts. Money can be borrowed, repaid, and borrowed again, up to the credit limit.

•   Both have a draw period and a repayment period. The draw period is typically 10 years, with monthly minimum payments required. The repayment period may be up to 20 years after the draw period ends.

•   Access to funds is convenient. Withdrawals can be made by check or debit card, depending on how the lender sets up the loan.

•   Lenders may charge monthly fees, transaction fees, or late or prepayment fees on either. It’s important to understand potential fees before closing.

•   Both typically have variable interest rates, which can affect the overall cost of the line of credit over time. (Each occasionally comes with a fixed rate. The starting rate of a fixed-rate HELOC is usually higher. The draw period of a fixed-rate personal line of credit could be relatively short.)

•   For both, you’ll usually need a FICO® score of 680. Your credit score also affects the interest rate you’re offered and credit limit.

Differences

The biggest difference between a HELOC and a personal line of credit is that a HELOC is secured. That can affect the borrower in a few ways, including:

•   In exchange for the risk that HELOC borrowers take (they could lose their home if they were to default on payments), they generally qualify for lower interest rates. HELOC borrowers also may qualify for a higher credit limit.

•   With a HELOC, the lender may require a home appraisal, which might slow down the approval process and be an added expense. HELOCs also typically come with other closing costs, but some lenders will reduce or waive them if you keep the loan open for a certain period — usually three years.

•   A borrower assumes the risk of losing their home if they default on a HELOC. A personal line of credit does not come with a risk of that significance.

Recommended: Credit Cards vs. Personal Loans

Pros and Cons of HELOCs

A HELOC and personal line of credit share many of the same pros and cons. An advantage of borrowing with a HELOC, however, is that because it’s secured, the interest rate may be more favorable than that of a personal line of credit.

A HELOC may offer a tax benefit if you itemize and take the mortgage interest deduction. But there are potential downsides, too.

Pros and Cons of Personal Lines of Credit

Because you draw just the amount of money you need at any one time, a personal line of credit can be a good way to pay for home renovations, ongoing medical or dental treatments, or other expenses that might be spread out over time.

You pay interest only on the funds you’ve drawn, not the entire line of credit that’s available, which can keep monthly costs down. As you make payments, the line of credit is replenished, so you can borrow repeatedly during the draw period. And you don’t have to come up with collateral.

But there are other factors to be wary of. Here’s a summary.

Alternatives to Lines of Credit

As you consider the pros and cons of a HELOC vs. a personal LOC, you also may wish to evaluate some alternative borrowing strategies, including:

Personal Loan

As you’re thinking about a personal loan vs. a personal line of credit, the big difference is that, with a personal loan, a borrower receives a lump sum and makes fixed monthly payments, with interest, until the loan is repaid.

Most personal loans are unsecured, and most come with a fixed interest rate. The rate and other terms are determined by the borrower’s credit score, income, debt level, and other factors.

You’ll owe interest from day one on the full amount that you borrow. But if you’re using the loan to make a large purchase, consolidate debt, or pay off one big bill, it may make sense to borrow a specific amount and budget around the predictable monthly payments.

Personal loan rates and fees can vary significantly by lender and borrower. You can use a loan comparison site to check multiple lenders’ rates and terms, or you can go to individual websites to find a match for your goals.

Auto Loan

If you’re thinking about buying a car with a personal loan, you may want to consider an auto loan, an installment loan that’s secured by the car being purchased. Qualification may be easier than for an unsecured personal loan or personal line of credit.

Most auto loans have a fixed interest rate that’s based on the applicant’s creditworthiness, the loan amount, and the type of vehicle that’s being purchased.

Down the road, if you think you can get a better interest rate, you can look into car refinancing.

Beware no credit check loans. Car title loans have very short repayment periods and sky-high interest rates.

Mortgage

A mortgage is an installment loan that is secured by the real estate you’re purchasing or refinancing. You’ll likely need a down payment, and borrowers typically pay closing costs of 2% to 5% of the loan amount.

A mortgage may have a fixed or adjustable interest rate. An adjustable-rate mortgage typically starts with a lower interest rate than its fixed-rate counterpart. The most common repayment period, or mortgage term, is 30 years.

Your ability to qualify for the mortgage you want may depend on your creditworthiness, down payment, and value of the home.

Credit Cards

A credit card is a revolving line of credit that may be used for day-to-day purchases like groceries, gas, or online shopping. You likely have more than one already. Gen X and baby boomers have an average of more than four credit cards per person, Experian has found, and even Gen Z, the youngest generation, averages two cards per person.

Convenience can be one of the best and worst things about using credit cards. You can use them almost anywhere to pay for almost anything. But it can be easy to accrue debt you can’t repay.

Because most credit cards are unsecured, interest rates can be higher than for other types of borrowing. Making late payments or using a high percentage of your credit limit can hurt your credit score. And making just the minimum payment can cost you in interest and credit score.

If you manage your cards wisely, however, credit card rewards can add up. And you may be able to qualify for a low- or no-interest introductory offer.

Credit card issuers typically base a consumer’s interest rate and credit limit on their credit score, income, and other financial factors.

Student Loans

Federal student loans typically offer lower interest rates and more borrower protections than private student loans or other lending options.

But if your federal financial aid package doesn’t cover all of your education costs, it could be worth comparing what private lenders offer.

The Takeaway

A HELOC or a personal line of credit can be useful for borrowers whose costs are spread out over time, especially those who don’t want to pay interest from day one on a lump-sum loan that may be more money than they need.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

FAQ

What is better, a home equity line of credit or a personal line of credit?

If you qualify for both, a HELOC will almost always come with a lower interest rate.

Can I use a HELOC for personal use?

Yes. HELOC withdrawals can be used for almost anything, but the line of credit is best suited for ongoing expenses like home renovations, medical bills, or college expenses. Some people secure a HELOC as a safety net during uncertain times.

How many years do you have to pay off a HELOC?

Most HELOCs have a “draw period” of 10 years, followed by a repayment period.

What happens if you don’t use your home equity line of credit?

Having a HELOC you don’t use could help your credit score by improving your credit utilization ratio.

How high of a credit score is needed for a line of credit?

Personal lines of credit are usually reserved for borrowers with a credit score of 680 or higher. A credit score of at least 680 is typically needed for HELOC approval, but requirements can vary among lenders. Some may be more lenient if an applicant has a good debt-to-income ratio or accepts a lower loan limit.

Does a HELOC increase your mortgage payments?

The HELOC is a separate loan from your mortgage. The two payments are not made together.

Photo credit: iStock/KTStock

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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 requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
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SOHL-Q424-142

There’s no such thing as a good time to lose your job. Unfortunately, a layoff typically does not stop the influx of bills.

Luckily, individuals who find themselves in such a tough position have options. Before resorting to pulling out the big guns, like forbearance or other alternatives that can potentially hurt your credit, it’s worth taking a look at all of the choices on the table. That way, you’ll fully understand your options and their implications before making a move when you’ve lost your job and can’t pay your bills.

Assess Your Financial Situation

Whether you’ve lost your job or are in a precarious employment situation, getting your financial house in order is an important first step. Start by evaluating your current income and recurring expenses and looking for areas where you can cut back.

A good way to keep monthly spending in check is to create a budget, either on your own or with the help of a budget planner. If you’ve lost your job and your income has dropped, you’ll want to prioritize the essentials: food, utilities, housing, and transportation.

Explore Financial Assistance Options

Even with modified spending habits and a new budget, a loan due is a loan due — or at least a situation that won’t go away without dealing with it. Here are some options to consider.

Reaching for Lifelines

Even with modified spending habits and a new budget, a loan due is a loan due — or at least a situation that won’t go away without dealing with it. The reason you lost your job will form a fork in the road of sorts about how to proceed.

Unemployment Benefits

If you voluntarily quit without good cause, then unemployment benefits probably will not be available. But usually the first part of a survival plan for unemployment is to get into the system for unemployment, if possible. To get started, an unemployment benefits finder can help, as can exploring unemployment resources by state.

Hardship Loans

These types of personal loans are designed to help borrowers overcome a job loss or other financial difficulty. Whether they’re unsecured or secured, hardship loans for unemployed borrowers can provide much-needed funds during a difficult time. You may be approved within a couple of days and could receive the money in about a week or less.

Forbearance and Deferment Programs

Many lenders have forbearance and deferment programs in place for their customers, but it’s generally up to the customer to reach out and ask for help.

Forbearance — a pause in monthly payments toward a loan — is an option offered in many lending agreements. The terms vary, but it can open the door to a revised agreement that may allow for decreased or delayed payments for a specific period of time. Some lenders may even offer to reduce the interest rate charged on the debt.

On the surface, this sounds positive, but note that these options can significantly affect your credit scores. The impact depends on the type of loan and the lender. What’s more, interest will usually accrue and be added to your principal balance at the end of a forbearance period.

Communicate With Lenders

As we mentioned, it’s a good idea to contact your lenders as soon as possible if you’ve lost your job and are struggling to make your monthly payments. Discuss your situation with them, and explain how your job loss is impacting your ability to repay your debt.
Then explore options that may be available to you. Two strategies to consider:

•   Negotiate a reduced balance on the account. Most creditors would rather receive a partial payment than none at all. If you’re having a difficult time making ends meet, you may want to propose paying a lump sum for less than what you owe. If the lender agrees, be sure to get the arrangement in writing.

•   Ask about hardship programs. Depending on the lender, you may be offered relief measures like a lower interest rate, waived late fees and penalties, a temporary pause in payments, or lower minimum payments.

Explore Loan Modification or Refinancing

Instead of falling into potential debt traps like payday loans or credit cards with high interest rates, look for solutions that make monthly payments more affordable — without saddling you with hefty interest rates and fees. A loan modification or refinancing are two such options.

With a modification, a lender agrees to change your loan’s rate, repayment term, or both to an amount you can afford. For example, they may extend the number of years you have to pay back the loan, lower your interest rate, or reduce your principal balance. Keep in mind that lenders are under no obligation to offer loan modifications, and they’ll likely first require you to provide proof of financial hardship.

Another option is to explore refinancing opportunities. While it can be harder to qualify for refinancing when you don’t have a job, it is possible. Lenders like to see borrowers with a strong credit history and a good debt-to-income ratio. Asking a trusted friend or family member to be a cosigner may also help bolster your application.

As you weigh your choices, consider enlisting the help of a financial advisor or mortgage specialist who can help you find the solution that’s right for you.

Build an Emergency Fund

Losing a job can be stressful, but there are ways to prepare financially while you’re still employed. One effective strategy is to build an emergency fund.

There are several approaches you can use to help you establish a safety net, including:

•   Creating a budget — and sticking to it

•   Building a savings plan so you’re able to cover at least three to six months’ worth of unexpected expenses

•   Exploring high-yield savings accounts

•   Automating your savings contributions

•   Paying down debt

Seek Professional Guidance

If you’re struggling to pay off your loans after losing a job, you may think you have to figure out all the answers on your own. You don’t. Help is available.

•   Consult with a financial planner or credit counselor. These professionals can help you manage your finances after a job loss and get back on firmer financial ground once you land a new job.

•   Seek assistance from nonprofit organizations. Services vary by organization but may include resume building programs, education and training opportunities, and job placement programs.

•   Consider debt counseling or debt consolidation. With debt counseling, a professional will offer advice on your finances and debt, help you create a budget and debt management plan, and provide financial education. Debt consolidation is when you combine multiple debts into a single loan, ideally with a lower interest rate. However, it may lead to longer payment terms or involve fees.

The Takeaway

The main thing to remember for anyone who is out of work and still responsible for loans is: You are not alone. It might seem difficult, even impossible, but it is doable — and even the longest journeys begin with taking the first steps.
After you’ve started tracking your expenses, cutting back on costs, and reaching for lifelines through unemployment benefits and your lender, the next step in dealing with loan payments after a job loss is to explore your options. Rather than turning to potential debt traps like payday loans and credit cards, you might consider jobless loans.

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

SoFi 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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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 .

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.

SOPL-Q424-055

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

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

Understanding Payday Loans

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

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

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

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

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

Risks of a Payday Loan

The risks of payday loans include sky-high fees and the potential for falling into a cycle of debt. Many states set a limit on payday loan fees, but they can still run from $10 to $30 for every $100 borrowed. Consider that a $15 fee for $100 is the equivalent of a nearly 400% APR.

By comparison, the average personal loan interest rate as of December 2024 is 12.33%, according to the Federal Reserve of St. Louis.

Pros and Cons of Payday Loans

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

Exploring Installment Loans

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

Personal loans are a good example of an installment loan.

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

How Installment Loans Work

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

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

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

Pros and Cons of Installment Loans

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

Pros and Cons of Installment Loans

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

•   Proof of identity

•   Proof of income

•   Proof of address

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

Key Differences Between Payday Loans and Installment Loans

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

Choosing the Right Loan for Your Needs

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

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

The Takeaway

Payday loans and installment loans both provide quick cash to cover emergency expenses. However, because of their astronomical fees — equivalent to a 400% APR — payday loans fall under the heading of “predatory lending.” On the other hand, installment loans vary in their terms but generally are a much better deal, provided that you meet eligibility requirements.

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

FAQ

Are payday loans installment loans?

No, payday loans usually require you to pay off the loan amount in full on your next payday, usually two to four weeks from when the loan was made.

What is an installment loan?

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

Are personal loans installment loans?

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

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Applying for a personal loan is a big financial decision — and it’s important to know exactly what you’re getting into before you sign any paperwork. Finance has vocabulary that may be unfamiliar to some people, which can make it difficult to understand.

This easy-to-reference glossary may help you read your new loan agreement with confidence and understand what each clause of the document means. From APR to cosigners vs. co-borrowers, we’ve got you covered.

What Is a Personal Loan?

Before we dive in, a quick bit of review to get us started: What is a personal loan? A personal loan is a closed-end loan that is disbursed in one lump sum and repaid in equal installments over a set amount of time.

There are many types of personal loans, and it’s common for them to be unsecured, which means there’s no collateral required.

People use personal loan funds for many reasons, from home renovations to debt consolidation to vacations.

What Are the Main Terms Used in a Personal Loan Agreement?

Understanding personal loan terminology will help you navigate the loan process with confidence.

Amortization

Amortization refers to listing the loan’s repayment schedule over the life of the loan, which the lender does when processing the loan. An amortization schedule lists the amounts of principal, interest, and escrow (if included in the loan) that each payment consists of.

A loan may be re-amortized, also. For example, the remaining repayments can be recalculated if you’re thinking of making a lump sum payment on the loan. You would be able to see the change in interest owed over the life of the loan and how much quicker the loan could possibly be paid in full. With this information, you could determine if the extra payment would be worthwhile for your financial situation.

Annual Percentage Rate

An annual percentage rate (APR) is the percentage of the loan principal you can expect to pay in interest over the course of a single year, including any additional fees that might be charged by the lender.

Application Fee

Some loans may require you to pay a fee when you apply for the loan. Not every lender charges an application fee, though, so it’s worth shopping around to find one that doesn’t.

Automatic Payment

Many lenders make it possible to set up an automatic bill payment that will be taken directly from your bank account on the loan’s monthly due date. This strategy can simplify your financial housekeeping — but make sure you’ll have enough funding in the account each month to avoid an overdraft.

Borrower

The borrower is the person or party who is borrowing money as part of the loan agreement. (Most likely, that’s you.)

Collateral

Collateral is an asset a borrower offers to secure a loan, making it less risky for the lender. For example, in a mortgage, the house is used as collateral — which is why a bank can seize and sell a home if the buyer goes into default, a process called foreclosure. Similarly, in an auto loan, the car is used as collateral, which is why it can be repossessed by the bank if the borrower fails to make the loan payments.

Co-borrower

If a loan applicant doesn’t have strong enough financial credentials to be approved for a loan on their own, they might choose to add a co-borrower to the application. This person, ideally with a more robust financial profile than the primary borrower, will also be financially responsible for the loan.

Co-borrowers are applying for a loan together and typically have shared ownership of the borrowed money or asset it purchased. For example, you and your spouse might apply as co-borrowers on an auto loan for a jointly owned car.

Cosigner

Similar to a co-borrower, a cosigner can help bolster the primary loan applicant’s chances of approval. A parent may be a cosigner on their child’s student loans. This person will be responsible for making the loan payments if the primary borrower fails to do so, but they have no ownership of the loan proceeds or asset they purchased.

Credit Agency

A credit agency, also known as a credit bureau, is a company that compiles information on individuals’ and businesses’ debts. These are the companies that calculate and report credit scores to creditors that make an inquiry.

The three main credit bureaus are Equifax, Experian, and TransUnion. You can request a full credit report from each of them once a week at no charge, which you can access at AnnualCreditReport.com .

Recommended: Everything About Tri-Merge Credit Reports

Credit History

Credit history refers to the broad scope of your experience with debt. Positive credit history is one that shows timely payments on debts owed to creditors. Negative credit history will reflect missed or late payments on debts. Some people, typically young people who have never taken on debt, will have no credit history. However, there are ways to build credit over time.

Credit Report

A credit report is a document that details your credit history, including both open and closed accounts, on-time or late payment history, accounts in default or collections, bankruptcies, liens, judgments, and other financial information. It’s important to check your credit reports regularly to detect any incorrect information and correct it as early as possible.

Credit Score

Your credit score sums up your creditworthiness with a numeric score.

Lenders most commonly refer to your FICO® Score, which can range from 300 to 850. VantageScore, which uses the same scoring range, is also used by lenders, but less commonly.

The higher your credit score, the less of a credit risk lenders tend to assume you will be. The average credit score of U.S. consumers is 717 (FICO).

Debt Consolidation

Debt consolidation is an approach to debt repayment wherein you take out one larger debt — like a personal loan — in order to pay off multiple, smaller debts such as credit cards. Doing so can help simplify your monthly finances by having fewer payments to make. You could potentially pay less in interest than you would on the former debts or lower your monthly debt payments, making it easier to meet your financial obligations each month.

Default

Defaulting on a loan means failing to repay it as agreed (for example, not making payments at all), and can lead to a loan going into collections.

Fixed Interest Rates

Fixed interest rates are those that don’t change over time. You’ll pay the same set amount of interest on the loan for its entire term. Comparing rates on personal loans from several lenders is a good way to find a rate that works with your financial situation.

Floating Interest Rates

Floating interest rates rise and lower in accordance with the market. They might also be called adjustable or variable interest rates.

Guarantor

A guarantor is similar to a cosigner or co-borrower in that they can bolster the strength of a loan application. Like a cosigner, a guarantor has no ownership of the loan proceeds or asset purchased with them. The biggest difference between a cosigner vs. guarantor is that a guarantor is only called upon to repay the loan if the primary borrower goes into default.

Gross Income

Your gross income equals the money you earn each year from working, investment returns, and other sources before deductions or withholding.

Installment Loans

Installment loans are loans that are repaid in regular monthly installments. Personal loans, auto loans, and mortgage loans are examples of installment loans.

Interest Rate

The interest rate is the base percentage charged when borrowing money. It does not include fees or other charges that may be associated with a loan.

Hard Credit Check

A lender will perform a hard credit check, or hard inquiry when you apply for a loan or open a line of credit. A large number of hard credit checks in a short period of time can have a negative effect on your credit score.

Late Payment

A late payment is a debt payment made after its due date. Since payment history is one of the most important factors used to calculate your credit score, late payments can have a major negative impact on your credit score.

Lender

The lender is the party lending the money, whether that’s a bank or credit union, or a friend or family member.

Line of Credit

If you don’t need a lump sum of money at one time, a line of credit might be an option when looking for financing. Lines of credit have limits, but the borrower can draw funds as needed instead of all at once. The borrowed funds can be repaid and borrowed again, up to the credit limit.

Recommended: Personal Loan vs Personal Line of Credit

Loan Agreement

The loan agreement is the legally binding contract you sign with your lender to initiate a loan. It will include details about each party’s rights and responsibilities. For the borrower, it may include the loan amount, interest rate, APR, potential fees and penalties, the payment schedule, and other information. It’s important to read the loan agreement carefully and ask questions about anything that you don’t understand.

Origination Fee

Some lenders might charge an origination fee when a loan is initiated — an up-front fee that remunerates the lender for the work of setting up the loan. These fees are typically a percentage of the principal and vary by lender.

Payday Loans

Payday loans are a type of short-term loan, typically for small amounts, meant to fill in a financial gap until the borrower’s next payday.

Despite their relatively low balances, these loans can be exorbitantly expensive. The Consumer Financial Protection Bureau says their rates can typically hover around 400% APR. Payday loans are usually worth avoiding in favor of other, lower-cost loan options.

Payment Terms

The payment terms of a loan are the terms and conditions the borrower agrees to when signing a loan agreement. Your payment terms can include how long the loan will last, how much will be repaid each month, the amount that can be charged for late payment, and other loan details.

Prepayment Fees

Prepayment fees, or penalties, are sometimes charged by lenders when a borrower pays their loan in full before its final payment due date. The lender will not make as much profit from the loan if the borrower pays it off early, and a prepayment fee is a way to recoup some of that loss.

Principal

The principal amount of a loan is the amount borrowed, not including interest or fees. For example, if you take out a personal loan for $10,000, that $10,000 is the principal amount. You’ll pay the lender more than that over the lifetime of the loan with interest factored in.

Revolving Credit

Revolving credit allows you to borrow funds as needed, up to your credit limit, making at least a minimum payment each month you have a balance. Credit cards are a common form of revolving credit.

Secured Loan

A secured loan requires the borrower to pledge collateral, an asset owned by the borrower, to the lender as a guarantee that they’ll repay the loan. If the borrower defaults on the loan, the lender can take ownership of the asset in repayment of the loan. Common examples of secured loans are mortgages or auto loans.

Unsecured Loan

The foundation of unsecured personal loans is trust. The lender trusts that the borrower will repay the loan without requiring collateral to back up that promise. Unsecured loans can come with higher interest rates than secured loans, however, because they present additional risk to the lender.

The Takeaway

When you’re acquainted with personal loan vocabulary, you have a better chance of getting a personal loan that fits your unique financial situation and needs, and understanding your loan agreement before signing it.

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

FAQ

What is personal loan terminology?

Personal loan terminology is terms and definitions of words and phrases you might see in a loan agreement or other documents related to a personal loan.

What are the main terms used in a personal loan agreement?

Common references in a personal loan agreement are principal, interest, APR, origination fee, borrower, and lender.

What is the definition of a personal loan?

A personal loan is a closed-end loan disbursed in one lump sum and repaid in equal installments over a set amount of time.

Photo credit: iStock/nd3000

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

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

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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