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The True Cost of Buying a Fixer-Upper: Essential Insights and Tips

If you’re considering buying a fixer-upper, you’re likely doing so, at least in part, because purchasing a home continues to be expensive. Post-pandemic, prices are still climbing, with a 4.7% uptick in November 2024 versus a year earlier. Adding to the high cost of homeownership is the fact that mortgage rates went from historic lows a few years ago to an average of 7.08% for a 30-year loan as of January 2025.

These economic factors are among the reasons why many people are drawn to fixer-uppers. They hope to find a lower-priced house that can be rehabbed, giving them a piece of the American Dream for less. Are you among their ranks? Here, learn more so you can make an informed buying decision.

Key Points

•   Renovating a fixer-upper isn’t necessarily a bargain. A thorough home inspection is crucial to identify what issues are present and budget for them.

•   The initial purchase price of the home is typically lower, but renovation costs can be unpredictable and vary by location.

•   It’s wise to budget for overages, typically 10% to 25%, to cover unexpected expenses and delays.

•   Common renovation projects include kitchen and bathroom remodels, and roof replacements, with costs varying widely but extending into the five-figure range.

•   Financing options include larger mortgages to reserve cash, home improvement loans, and HELOCs, depending on your financial situation.

Defining a Fixer-Upper

What exactly is a fixer-upper? It’s a home that’s in need of significant work. In many cases, these are older houses with much deferred maintenance or simply a lot of dated, well-worn features.

A fixer-upper might be a home from 100 years ago with an insufficient electrical and heating system, as well as a roof in need of replacement. Or it could be an apartment with a very old kitchen and bathrooms needing an overhaul. These residences might be livable, but they require an infusion of cash and work to make them comfortable by today’s standards.

Initial Purchase Price vs. Renovation Costs

If you’re thinking about buying a fixer-upper, it’s important to look carefully at the initial purchase price versus renovation costs. Granted, the price of the home is likely to be cheaper than that of a brand new home. The Federal Reserve Bank of St. Louis, for instance, found that the median price for an existing home was $388,000 vs. $420,800 for a new home in the most recent year reviewed, so buying an older home can already save you cash.

However, pricing renovation costs can be tricky. Among your considerations:

•  You will have to finance both the purchase of the property and the renovations. You may need to get a home loan and then access additional funds for the renovation.

•  Whether you are planning on doing the work yourself or hiring professionals, issues can often be uncovered as you go. Perhaps a bathroom you thought was fine as-is actually has deteriorating plumbing. Or maybe in the kitchen, the parts you need to repair the aging refrigerator are no longer available. These kinds of discoveries can blow your budget.

•  The location of your home will likely impact prices. Those in a small town, for instance, will probably pay less to get the work done than someone who lives in a pricey suburb of, say, San Francisco or New York.

•  You are likely aware that supply-chain issues can impact your renovation. As the saying goes, time is money. These kinds of delays can throw a wrench in your plans and lead you to spend more as you find ways to finish the job.

•  Don’t forget to think about whether you can stay on-premises during the remodeling process or if you will need to find temporary housing as your property is renovated.

As you contemplate these factors, it’s wise to do a full home inspection of a fixer-upper property, walk through with a contractor or two if you are planning on delegating the work, and draw up a budget to see how renovation costs will add to the initial purchase price.

Evaluating Renovation Expenses

Here’s a closer look at three common fixer-upper remodeling projects, with current costs.

Kitchen Remodel Costs

According to Angi, the home improvement site, the average cost of a kitchen remodel in 2025 is almost $27,000, but there’s a huge range of prices possible, including up to twice that amount or more.

The three elements that contribute most to the cost are the countertops, cabinets, and flooring. The more you lean into custom and luxury options, the higher the price will go. Also, the size of the kitchen will count as well, with bigger being more expensive, and the degree of dilapidation can matter, too.

Bathroom Renovation Costs

The average bathroom renovation ranges from $6,000 for smaller-scale fixes, such as primarily cosmetic updates, to $30,000 for a complete gut do-over, with the average price tag coming in at $12,115 in 2025, according to Angi. A big expense can be moving the plumbing lines. If you can keep the layout as-is, you could save up to 50%.

Roof Replacement Costs

A roof should typically last two to three decades on a home — or longer, if you choose the right material. The average cost for replacing a roof is about $9,511, but that will vary with the size of the home and the material you choose.

For instance, if you opt for a premium product, like natural slate, you’ll find that the average costs for a 1,500-square-foot roof can be $45,000 in 2025.

Recommended: How to Buy Homeowners Insurance

Hidden Costs in Fixer Uppers

It’s crucial to add up all the costs of potential renovations before you buy a fixer-upper house. You don’t want the dream of owning your own home to cloud your judgment about the work that’s needed. If you don’t do a deep dive on pricing before you buy, you may end up in your own version of The Money Pit movie.

Consider the following:

•  Assess the upfront cost of the home, and add up all potential material and labor needs — think both big and small, like plumbers, electricians, carpenters, all the way down to any new doorknobs you’ll buy along the way. Then, subtract that from the home’s renovated market value. Would this still be a profitable venture and a wise investment?

•  Keep in mind that the impact of inflation can push prices higher than what you believe they will cost during the time you are renovating.

•  It’s important to allow room in your budget and your timeline for overages. It’s not uncommon for home renovations to cost more and take longer than anticipated. It’s wise to have a cushion in your budget, at least 10% but preferably 20% to 25% to cover additional costs. Add wiggle room in your timing, too.

•  Lastly, as noted above, think about whether you will be able to occupy the home as it’s renovated. If you’ll be without heat or air conditioning, bathrooms, and/or a functional kitchen, you may have to pay to live elsewhere for a period of time.

Recommended: How Do Home Improvement Loans Work?

Financing Your Fixer Upper

These considerations can seem overwhelming, but remember, your goal is to bring out your home’s maximum potential, whether for you to enjoy or to capitalize on via a future sale.

You have a few options for how to finance the renovation of a fixer-upper:

•  You could put less money down and take out a larger mortgage. This would allow you to have some cash on hand to pay for the remodeling.

•  You can buy the house and then take out a home improvement loan, which is a kind of personal loan used to finance your home projects. You get a lump sum and pay it back over time with interest,

•  An alternative to a personal loan would be to purchase the fixer-upper and then apply for a home equity line of credit, or HELOC. These are revolving lines of credit that may offer attractive terms (low interest, long repayment). However, keep in mind you are using your home’s equity as collateral. You typically need 15% to 20% equity in your home to qualify.

•  Another option is a home equity loan vs. a HELOC. The difference is that a home equity loan typically distributes a lump sum of money, which is repaid in installments over a period of time.

Recommended: Home Equity Loan or Personal Loan: Knowing Your Options

DIY vs Professional Renovations

If you are considering buying a fixer-upper, a key decision is whether to do the work yourself or hire professionals to complete the job. Making that decision involves keeping the following in mind:

•  Timing: It’s important to look at the timeline of your project. Would you have the bandwidth to get the work done yourself? Or, thinking about the other option, can you find a qualified professional who is available to start when needed?

•  Skill level: Be honest. Are you confident that you have the skills needed to get the job completed and in a way that you’ll be happy with? Can you tackle retiling a bathroom or adding a home addition? Renovations aren’t for novices, and errors can be costly and possibly dangerous.

•  Budget: As you budget after buying a house, do you have money to hire professionals? If you don’t have deep pockets, you may feel your only option is to DIY the project. But, as noted above, there are ways to access funding to get the job done right, such as different types of home improvement loans, if hiring out winds up being the best decision.

Recommended: How to Apply for a Personal Loan

The Takeaway

As home prices continue to rise, a fixer-upper can offer good value for some home shoppers, whether they want to renovate the home themselves or hire professionals to complete the work. However, it’s important to evaluate your costs upfront to make sure you can handle both the purchase of the property and then financing the updates to make your renovation dreams come true.

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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What should I avoid when buying a fixer-upper?

When buying a fixer-upper, don’t be blinded by the property’s potential or guesstimate costs. It’s important to have a full inspection and be aware of such big-ticket expenses as structural damage, outdated plumbing and electrical systems, and any environmental issues (such as mold).

Is it cheaper to build or to buy a fixer-upper?

While a fixer-upper is typically cheaper than a home that’s ready for move-in, it’s hard to generalize whether it’s cheaper to build or buy a fixer-upper. Constructing a simple house in an area where land and labor are affordable could be a wise move, while building in a pricier area on, say, a challenging sloped lot could ratchet up expenses. Similarly, some fixer-uppers require little investment to make them livable, while others require a long and in-depth overhaul. Doing your research and running the numbers can usually provide guidance.

What is the most expensive part of remodeling a house?

Typically, the most expensive part of remodeling a house is renovating the kitchen and bathrooms. These rooms often require pricey appliances and fixtures, custom cabinetry, and the work of plumbers and electricians.


Photo credit: Stocksy/Karina Sharpe

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 .

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.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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How to Freeze Your Credit

Freezing your credit involves contacting the credit bureaus online, by phone, or by mail to lock down your information for free.

Credit cards and personal information can (and do) get hacked or stolen. Because of this unfortunate reality, it’s important to know how to freeze your credit. A credit freeze can help prevent identity theft or obstruct bad actors from taking out new loans or accounts in a borrower’s name.

Once you know how to freeze (and unfreeze) your credit, it can be quite useful in the right situations.

Key Points

•   A credit freeze restricts access to credit reports, helping prevent identity theft.

•   Freezing and unfreezing credit is available at no cost through major credit bureaus.

•   Individuals can still access their annual credit report even with a freeze in place.

•   The freeze process involves contacting credit bureaus online, by phone, or mail.

•   Unfreezing credit can be done quickly, typically within an hour.

What Is a Credit Freeze?

A credit freeze, also known as a security freeze, allows individuals to limit access to their individual credit report. By freezing their credit, the person makes it more difficult for an identity thief to open a new credit account or loan in their name. This is due to the fact that creditors generally review credit reports before okaying new lines of credit, known as a hard credit inquiry.

However, freezing one’s credit does not prevent a person from viewing their free annual credit report. Moreover, it won’t restrict a person from opening a new account in their own name. They’ll simply need to unfreeze their credit to do so (more on unfreezing later).

Recommended: What’s the Difference Between a Hard and Soft Credit Check?

What Does Freezing Credit Actually Do?

A credit freeze does not actually freeze all outstanding accounts, such as credit cards and loans. Instead, it simply limits others from viewing a person’s credit reports. Under a credit freeze, only a limited number of entities will still be able to view a person’s file, including creditors for accounts that individual already holds and certain government agencies.

This means that credit bureaus can’t give out personal information about a borrower with a frozen account to new lenders, landlords, hiring managers, or credit card companies. Typically, this halts the lending, renting, and hiring process — as well as anyone attempting to steal a person’s identity and open a new account in their name.

Freezing Credit: What’s the Process?

If a person wants to freeze their credit, they need to reach out to at least the three major credit bureaus:

•   Equifax : 1-888-298-0045

•   Experian® : 1-888-397-3742

•   TransUnion® : 1-888-916-8800

People can take it one step further by reaching out to two lesser-known credit bureaus, Innovis (866-712-4546) and the National Consumer Telecom & Utilities Exchange (866-349-5355).

Typically, the agencies will ask for a Social Security number, birth date, and other information confirming a person’s identity prior to freezing their account. The bureaus will then give the person a password, which they may use to unfreeze their account. Make sure to store this information in a safe place.

Recommended: Biweekly Savings Challenge

Does Freezing Credit Cost Anything?

It costs nothing to freeze and unfreeze one’s credit. This is thanks to the Economic Growth, Regulatory Relief, and Consumer Protection Act, which mandates that credit bureaus must offer the service free of charge to everyone.

The credit bureaus must fulfill the request within one business day when a consumer requests a freeze through any method aside from mail. When consumers request to lift the freeze by phone or online, however, the credit bureaus must do so within one hour. This frees up the consumer to quickly do what they may need to do, whether that’s applying for a new apartment or one of the various types of personal loans.

Differences Between a Credit Lock and a Credit Freeze

A credit lock works in much the same way as a credit freeze, allowing consumers to protect their credit reports against bad actors and scammers. But, a credit lock can come with a bit more convenience, as borrowers can opt to open and close their locked credit via an app (rather than needing to reach out to each credit bureau with their password to unfreeze it).

While a credit freeze is complimentary thanks to the federal mandate, a credit lock may require paying a small fee. For example, Equifax offers credit locks for free, while Experian offers credit lock as part of a paid subscription.

Just as you’d crunch the savings numbers with a personal loan calculator, make sure to weigh the costs and benefits between these two options as well.

When to Consider a Credit Freeze

It’s really up to individual consumers and their own risk tolerance to decide when it’s time to freeze their credit report. That being said, if a person isn’t actively shopping for a personal loan or a new credit card, for instance, it may be a good idea to freeze their credit preemptively. This way, a consumer can feel a bit more confident that their credit information is in safe hands.

Another time to consider a credit freeze is when a borrower believes their personal data may have been breached, or if their Social Security number was recently disclosed, made public, or stolen.

How to Unfreeze Your Credit

Unfreezing credit is simple. All a consumer has to do is reach out to the credit bureaus by phone or online and plug in the password or PIN provided to them when they first froze their credit. Generally, it takes a few minutes for the account to become unfrozen.

A person can choose to unfreeze their report at one or all of the credit bureaus, but they will have to contact each individual credit bureau separately. They also need to go through the entire process again if they ever want to refreeze their credit down the road.

Individuals can ask to unfreeze their credit for a specific amount of time, such as if they are applying for and hoping to get approved for a personal loan or need someone else to access their account temporarily. Then, the freeze should return automatically when that period ends.

Alternatives to Freezing Credit

While not overly complex, freezing and unfreezing one’s credit can be time-consuming. Additional options are available to consumers.

Setting Up Credit Monitoring

Those who aren’t interested in freezing their accounts might instead consider signing up for a credit monitoring service. While these services charge a fee, they’ll alert users to any and all activity on their credit report. So, any time someone requests information, the person would find out and could then confirm or deny the authenticity of the request.

This could help stop any potential identity theft in its tracks. Still, it should be noted that this service cannot fully prevent theft, and the consumer may not know their identity was stolen until after the fact.

Requesting a Credit Report

For those interested in monitoring their credit for free, it’s possible to get a free copy of one’s credit report each year from all of the major credit bureaus, and possibly even more often. The consumer might then review the report, in detail, to ensure they recognize all of the activity and accounts described.

If the consumer spots anything out of line, they can then take steps to flag and fix it.

Consolidating Credit Card Debt

Another way that some consumers choose to keep track of their credit is by consolidating credit card debt with a personal loan from a private lender. Taking out an unsecured personal loan could help substantially lower the amount a person pays each month to different credit card companies.

By consolidating credit card debt into a single personal loan — one of the common uses for personal loans — a borrower may be able to take advantage of a single fixed-rate debt rather than juggling several high-interest rate cards. Additionally, having a single loan to repay each month can make it easier to monitor payment activity.

Recommended: Personal Loan Calculator

The Takeaway

If you are considering freezing your credit, this can be done for free with the credit bureaus. This can help protect your credit from unauthorized access and identity theft. Typically, you can freeze your credit online, by phone, or by mail and unfreeze it as well, with your file being accessible within an hour. Freezing your credit can help if you are seeking to protect your personal data and better control your personal finances.

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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is freezing your credit a good idea?

If you think your personal information or identity has been compromised (say, through a data breach), it could be wise to freeze your credit to protect you from unauthorized access to your credit report.

What is the easiest way to freeze my credit?

You can freeze (and then unfreeze) your credit report with each of the three major credit bureaus. You can do this online, by phone, or by mail. Of these options, online may be the fastest option.

How much does it cost to do a credit freeze?

It’s free to freeze your credit with the credit bureaus Equifax, Experian, and TransUnion.


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 .

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

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.

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Debt Buyers vs Debt Collectors

While these two services may sound similar, debt buyers purchase past-due accounts from lenders, whereas debt collectors work on behalf of whoever owns the debt in an attempt to get the borrower to pay.

If you find yourself struggling with debt, it’s important to understand what may happen to your debt so you can better work through the situation. That’s why it can be smart to know the difference between a debt buyer and a debt collector. Both of these services are used by lenders, like banks, to move debts off of their liability balance sheets.

Here, take a closer look at how each of these services operates.

Key Points

•   Debt buyers purchase past-due accounts from lenders.

•   Debt collectors work to collect debts for lenders or debt buyers.

•   Debt buyers often pay a fraction of the debt’s face value.

•   Debt collectors can report to credit bureaus.

•   Timely debt repayment helps avoid collection issues.

When and Why Do Companies Sell Your Debt?

A borrower will likely only ever deal with the company they’re borrowing from — so long as they make payments on their debt regularly and on time. However, if the borrower does not make timely payments, the debt may get sold to a third party, known as a debt buyer.

The lender will sell the debt in an effort to lower their liability. There’s no real timetable for when debt may be sold or go into collections — it can depend on the state you live in, the lender’s policies, and the type of debt it is. Debt collectors can then attempt to collect the debt from the debtor. They operate on behalf of the business that owns the debt, and their goal is to get the debtor to pay what they owe.

What Is a Debt Buyer?

A debt buyer is a company that purchases past-due accounts from a business, such as a bank or a credit card company. They typically purchase the debt for a small percentage of what’s actually due to the original lender. The amount a debt buyer pays for debt can vary, but it’s often just cents on the dollar.

For example, a debt buyer may only pay $100 for a $1,000 debt from the original lender. This means that if the new debt buyer actually collects the debt they purchased, they will make a $900 profit. Debt buyers can typically purchase older debt for even lower amounts because it’s less likely to actually get collected.

Debt buyers don’t typically do this as a one-off purchase. Instead, they’re usually in the business of purchasing many delinquent debts at once to increase their odds of turning a profit. This strategy has the potential to be quite lucrative. If, for example, a debt buyer purchases 10 different $1,000 debts at $100 apiece, the buyer needs just one person to pay their debt to break even, and just two out of the 10 people to pay their debts to turn a profit.

Recommended: Common Uses for Personal Loans

What Is a Debt Collector?

Debt collectors are third-party companies that collect debts on behalf of other companies. They can attempt to collect debts on behalf of the original lenders, or they can attempt to collect debts for debt buyers.

Debt-buying companies may also function as debt collection agencies to collect the debts they’ve purchased. But a debt-buying company can also assign debts to another third-party debt collecting company, paying it a portion of the profit they make when the debt is paid.

To get the debt paid, debt collectors will typically attempt to contact the original debtor through letters and phone calls, letting them know what’s owed and attempting to convince them to pay the debt. Collectors will often use the internet to find a person or even go as far as hiring a private investigator. Debt collectors also can look into a person’s other financial information, such as their bank or brokerage accounts, to assess if they’re theoretically able to repay their debts.

However, a debt collector typically cannot seize paychecks. The only way a collector may be able to seize a paycheck or garnish wages is if there is a court order, known as a judgment, requiring the debtor to pay. For this to happen, the debt collector must first take the debtor to court within the debt’s statute of limitations and win the judgment. Still, there could be other negative consequences, such as collectors reporting a debtor to credit agencies, which could affect their credit score for some time to come.

Debt collectors often get a bad reputation for using aggressive tactics. The federal government introduced the Fair Debt Collection Practices Act to protect people from predatory practices. The law dictates certain reasonable limitations under which a debt collector can contact the debtor. If the collection company violates the law, the debtor could bring a lawsuit against it for damages.

Recommended: How to Finance a Wedding

How to Avoid Collections and Pay Off Debt

Paying off all debt on time is the best way to avoid encountering either a debt buyer or a debt collector. But if you’ve found yourself in debt, don’t despair. Rather, take a bit of time to plot out the best method of repayment for your financial situation, which could entail getting into the nitty gritty of your spending or crunching the numbers with a personal loan calculator.

Here are some of the different strategies to pay off debt you might consider:

•   Creating a monthly budget: This can help to track spending and identify potential areas to cut back in order to pay off debts faster. After sitting down and looking through your monthly expenditures, you might be surprised how much fat there is to trim. Then, put all of that extra cash toward paying down your debts.

•   Using the snowball or avalanche method: The snowball method focuses on paying off your debts in order of smallest to largest balances, while continuing to pay the minimum due on each debt. With the avalanche method, you’d target the debt with the highest interest rate first while continuing to make minimum payments on other debt balances. In both methods, after the first debt is paid off, the amount that was going toward that debt is put toward the second debt on the list, and so on, thus helping to pay down each consecutive balance as fast as possible.

•   Consolidating your debts: Another option to try is consolidating debts with a debt consolidation loan, which is one of the types of personal loan. Typically, a debt consolidation loan offers lower interest rates than credit card interest rates, which can make those debts more affordable and easier to pay off.

   This is why debt consolidation is among the common uses for personal loans. Plus, with a debt consolidation loan, you’ll just have one monthly payment to stay on top of.

Recommended: Get Your Personal Loan Approved

The Takeaway

A debt buyer vs. collector plays a different role when it comes to debt, but they are both parties you might encounter if you’re way past due on payments. Debt buyers purchase debt from lenders, often for pennies on the dollar. Debt collectors, however, can take a number of steps in an effort to collect owed debt on a company’s behalf, including reporting that debt to the credit bureaus. To avoid encountering either of these, consider ways to manage your debt more effectively.

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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

Want to avoid debt collection? A personal loan with SoFi may help.

🛈 SoFi is not a debt buyer or debt collector. We offer products that may help you manage your debt.

FAQ

Do I have to pay debt if it’s been sold?

Yes, you still have to pay debt if it’s been sold. The difference is that you now need to pay the debt collector vs. the original creditor.

What is the 777 rule for debt collectors?

The 7-in-7 rule is a guideline established by the Consumer Financial Protection Bureau regarding how often a debt collector can contact a debtor in a seven-day period. They cannot call more than seven times in seven days, nor any sooner than seven days after having had a conversation with a debtor.

How much do debt buyers pay for debt?

While the exact figure will vary, data indicates that some debt buyers pay as little as four to five cents on the dollar when buying debt from credit card companies.


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 .

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Understanding Purchase Interest Charges on Credit Cards

In a time of relatively high interest rates, you may be more aware of purchase interest charges on your credit card statement. These purchase interest charges are a wordy way of describing interest, which you owe when you don’t pay your credit card statement balance in full.

In the most recent year studied, Americans paid $130 billion in credit card interest and fees — the highest figure the Consumer Financial Protection Bureau (CFPB) has ever recorded. Read on to learn more about credit card interest, including how it works, how to find your card’s interest rate, and how to manage your debt more effectively.

Key Points

•   Purchase interest charges on credit cards arise when users fail to pay their full statement balance by the due date, leading to accrued interest on purchases.

•   Different types of balances, such as purchases, cash advances, and balance transfers, may incur varying annual percentage rates (APRs), which are detailed in the cardmember agreement.

•   Interest is typically calculated daily, using a method that compounds interest charges, making it crucial to pay off balances promptly to avoid accumulating debt.

•   To mitigate interest charges, consumers can seek credit cards offering introductory 0% APR promotions, allowing them to pay down balances without incurring interest during the promotional period.

•   Awareness of various fees, including late payment and cash advance fees, is essential in managing credit card costs and maintaining financial health.

What Is Credit Card Interest?

Credit card interest is what you’re charged by a credit card issuer when you don’t pay off your statement balance in full each month. Card issuers may charge different annual percentage rates (APRs) for different types of balances such as purchases, balance transfers, cash advances, and others. You may also be charged a penalty APR if you’re more than 60 days late with your payment.

An interest charge on purchases is the interest you are paying on the purchases you make with the credit card but don’t pay in full by the end of the billing cycle in which those purchases were made. The purchase interest charge is based on your credit card’s APR and the total balance on that card — both of which can fluctuate.

Taking a closer look at your credit card balance and interest rate can help you figure out the best way to pay it off. Here’s some information about how purchase interest charges work and, in general, how interest works on a credit card.

Recommended: Average Credit Card Interest Rates

How Does Credit Card Interest Work?

Credit cards charge different APRs on purchases, cash advances, and balance transfers. The cardmember agreement that was included when you first received your credit card outlines the different APRs and how they’re charged. This information is also included in brief on each monthly billing statement, or you can contact your credit card issuer’s customer service department for this information. Another place to find how interest works on various credit cards is through the CFPB, which maintains a database of credit card agreements from hundreds of card issuers.

Some credit cards offer an introductory 0% interest rate. But once that promotional period ends, paying your balance in full each month is how you can avoid interest charges.

For example, you get a new credit card with a $5,000 available credit limit and 0% interest for three months. You use the credit card to buy a new computer that costs $3,000 and a designer dog house for your poodle that costs $1,000.

For each of the three interest-free months you pay only the minimum balance due. But since the full balance hasn’t been paid, your fourth statement will include a purchase interest charge. That is the interest you now owe because you did not pay off your credit card statement balance in full.

Credit card interest is variable interest, based on the prime rate, and banks typically calculate interest daily. A typical interest calculation method used is the daily balance method.

•   The bank will calculate the daily periodic rate, which is the APR divided by 365.

•   To each day’s balance, the bank will add any interest charge from the previous day (compounded interest) and any new transactions and fees, then subtract any payments or credits. This is the new daily balance.

•   The daily periodic rate is multiplied by the daily balance each day.

•   At the end of the billing cycle, each day’s balance is added together, resulting in the amount of interest owed.

•   If the amount owed is less than the minimum interest charge shown on the credit card’s fee schedule, the bank will charge the minimum.

You can make a payment toward your balance due at any time — you don’t have to wait until the due date. Since interest is commonly calculated daily, making multiple smaller payments rather than one large payment on the due date is one way to decrease the amount of interest you might owe at the end of the billing cycle. This can be a good strategy to use if you don’t pay your credit card bill in full each month. You’ll still owe some interest, but it may be less.

What is a Purchase Interest Charge?

Sometimes also known as a finance charge, an interest charge on purchases is simply interest you pay on your credit card balance for purchases you made but didn’t pay in full. If you don’t pay off your balance each billing cycle, a purchase interest charge for the unpaid amount then becomes part of the total balance you owe.

For example, let’s say you owe $1,000 on a credit card, and because you did not pay that $1,000 in full you were charged a purchase interest charge of $90. You now owe $1,090, and then the next month’s purchase interest charge will be calculated based on a balance of $1,090.

This is called compound interest and can lead to a cycle of credit card debt. The interest charges continue to accrue if you’re not paying your balance in full every month. (Some people may consider getting a credit card consolidation loan, a kind of personal loan which may charge lower interest rates, as they work to lower their debt.)

How Do You Get Rid of a Purchase Interest Charge?

For a temporary reprieve from paying an interest charge on purchases, you might look for a credit card that has an introductory 0% APR. Some credit card issuers offer introductory rates for anywhere from 12 to 18 months for qualified applicants. If you make a plan for paying off the balance before the promotional period ends and you’re diligent about sticking to it, you could forgo paying interest on purchases made during that period.

Some people might choose this strategy rather than taking out a personal loan for a specific purchase. If you’re sure you can pay the balance in full while the APR remains at 0%, it could be a good strategy.

The only sure way not to pay a purchase interest charge is to pay your credit card balance in full each month. This can help you avoid credit card debt. If that’s not possible, paying more than the minimum and investigating methods like the debt snowball payoff technique can be wise.

Recommended: 11 Types of Personal Loans & Their Differences

Different Types of Credit Card Interest

Interest charges on purchases are just one type of interest charged on a credit card. Other transactions and fees may apply and must be disclosed to credit card applicants. The information can be found in a credit card’s rates and fees table often referred to as the “Schumer Box” after legislation introduced by Sen. Chuck Schumer as part of the Truth in Lending Act. The APR for purchases is typically at the top of the list, with others below.

•   Balance transfer APR: If you transfer a balance from one credit card to another, this is the rate you’ll pay on the amount of the transfer. You’ll also be charged interest at this APR on any balance transfer fee your card issuer might charge you.

•   Cash Advance APR and fee: Cash advance APRs tend to be much higher than purchase APRs, and there’s typically no grace period — interest starts accruing immediately. Like a balance transfer fee, you’ll be charged interest on a cash advance fee, too.

•   Penalty APR: If your credit card payment is more than 60 days late, your credit card issuer may increase your APR. If you make the next six consecutive payments on time, the card issuer must reinstate your original APR on the outstanding balance. But they are allowed to keep the higher penalty APR on any new purchases.

In addition to interest charges, there may also be other credit card fees charged. All of these fees could potentially accrue interest at their respective rates if the credit card’s balance is not paid in full by the payment due date.

•   Annual fee: Some credit cards charge an annual fee to the card holder.

•   Balance transfer fee: A fee of 3% to 5%, typically, on the amount transferred.

•   Cash advance fee: The greater of a flat dollar amount or a percentage of the cash advance.

•   Foreign transaction fee: A percentage of each transaction amount, in U.S. dollars.

•   Returned payment fee: Having insufficient funds in the bank account used to pay your credit card bill could result in a returned payment fee.

•   Late payment fee: Payments made after the statement due date will incur a late fee that’s typically between $25 and $40, but the CFPB is working to cap these at $8.

Where Can I Find My Credit Card’s Interest Rates?

There are several places you can locate your credit card’s interests rates and fees.

Anytime you receive a solicitation for a credit card, which is basically an advertisement, the credit card issuer is required by law to disclose the card’s possible interest rates and fees, as well as how interest is calculated. Since the recipient of this advertisement hasn’t been approved for the credit at this point, these numbers are estimations.

If you are going through a prequalification process for a credit card, the issuer should be able to provide you with more specific APRs so you can decide if that card is a good financial tool for you.

After you’ve been approved, the credit card issuer will mail you a packet containing your physical credit card and detailed information in a cardmember agreement. It’s a good idea to read this document thoroughly so you’re aware of all possible APRs and fees you could be charged.

If you access your credit card account online or via an app, you can also find this same detailed information on the card issuer’s website. You can call the card’s customer service telephone number for the information.

Recommended: A Guide to Unsecured Personal Loans

The Takeaway

If you’re one of the many people who carry a credit card balance, knowing how much interest you’re paying on different types of charges is important. Interest charges on purchases are likely the most common interest charges, and the amount of interest you may pay can add up quickly.

To keep from paying interest on purchases at all, it’s important to pay your credit card balance in full each month. If you don’t, you’ll accrue interest, which compounds and can create a debt cycle.

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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

Learn more about how a personal loan from SoFi can help you get out of credit card debt.

FAQ

Why am I getting a purchase interest charge on my credit card?

You typically are assessed a purchase interest charge on your credit card if you haven’t paid your balance in full by the payment’s due date. The interest that you pay reflects your card’s APR and the debt owed.

How do I avoid purchase interest charges?

You can avoid purchase interest charges on your credit card by paying your bill in full every month.

What does 24% interest rate on my credit card mean?

A 24% APR on a credit card means that if you owe, say, $1,000, you would divide 24% by 365, and get 0.066% as a daily rate, or about 66 cents per day. To calculate how much you would owe in interest per month on a balance of $1,000, you would multiply the daily rate by the number of days in your billing cycle.


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 .

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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What Are Hardship Loans and How Do They Work?

Financial Hardship Loans: What Are They and How Can You Apply?

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

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

Key Points

•   A hardship loan is a kind of personal loan that can help manage unexpected financial challenges, such as job loss or medical bills.

•   Proof of financial hardship, like termination notices or medical certificates, may be required.

•   Community-based resources, government programs, and employer assistance can offer alternative support.

•   Credit cards can cover expenses but may result in higher interest charges and increased debt.

•   Home equity loans or HELOCs allow borrowing against home value.

What Is a Hardship Loan?

A hardship loan is a loan that can help you get through unexpected financial challenges like unemployment, medical bills, or caregiving responsibilities. These are considered a kind of personal loan, and they typically require you to validate that you are facing severe financial issues in order to qualify. If approved, you get a lump sum of cash and pay it back over time with interest.

That said, it’s wise for potential borrowers to be informed and carefully consider their terms and options so they don’t wind up incurring more debt than they can manage.

What Can You Use a Hardship Loan For?

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

•   Rent or mortgage payments

•   Past-due bills

•   Everyday expenses like groceries and transportation

•   Medical needs

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

Hardship Borrowing Options

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

Personal Loans

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

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

Typically, personal loan interest rates are lower than credit card interest rates, making them an attractive alternative to credit cards. When it comes to getting your personal loan approved, expect lenders to look at your credit history, credit score, and other factors.

Recommended: How to Apply for a Personal Loan

Credit Cards

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

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

Peer-to-Peer Lending

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

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

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

Home Equity

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

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

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

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

401(k) Hardship Withdrawal

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

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

Alternative Options

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

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

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

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

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

The Takeaway

Researching all of your options for financial relief is a wise move. You might find help from government or community resources, your employer, or a friend or family member. Or, you might consider options such as a financial hardship loan, a home equity loan, or a P2P loan. Understanding the total cost of getting help and repayment terms is an important step in the process.

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


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What qualifies as a hardship loan?

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

What qualifies as financial hardship?

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

What proof do you need for financial hardship?

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


Photo credit: iStock/staticnak1983

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


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 .

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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