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A no-interest, or 0%, credit card means you won’t be charged any interest on your purchases for a certain period of time. In some cases, these cards also offer 0% interest on balance transfers for a set period of time.

But these cards also have some potential downsides. For one, the 0% annual percentage rate (APR) is only temporary. Once the promotional period ends, a potentially high APR will start accruing on any remaining balance you have on the card. In addition, you typically have to pay a fee to transfer your balance, which might negate any savings on interest.

Here are key things to know before signing up for a no-interest credit card.

Pros of No-Interest Credit Cards

Using a 0% APR credit card can create some breathing room within your budget. Here’s a look at some of the key perks, and how to make the most of them.

No Interest During the Promotional Period

Of course, one of the biggest advantages of a zero-interest card is that you’ll pay just that — zero interest — for a certain period of time, which may be anywhere from six to 18 months or perhaps a bit longer. If you use the card to make a large purchase and are able to pay it off in full before the end of the promotional period, it can be the equivalent of getting an interest-free loan.

Opportunity to Pay Down Debt Faster

In some cases, you also get the 0% APR on any balance you transfer over from another credit card. This can make a no-interest card a good option for consolidating and paying off high-interest credit card debt. If you have a plan in place to pay off the debt within the promotional period, a balance transfer could improve your financial situation.

💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

Perks and Bonus Rewards

Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. This might include a welcome offer and/or cash back or rewards points based on each dollar you spend. These extras can lead to even more savings.

For example, say you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory 0% APR for 15 months and a $200 rewards bonus after you spend $500 on purchases within the first three months of opening the account. You decide this will work for your financial situation, so you apply and are approved. After buying the chair with the new credit card, you pay the balance in full before the promotional period ends.

With this example, not only would you have paid nothing in interest, you would also have netted $200 in rewards cash.

Cons of No-Interest Credit Cards

Some might look at no-interest credit cards as too good to be true. That’s not necessarily the case, but there can be some drawbacks to them. Here are some potential pitfalls to be aware of.

Temporary Promotional Rate

Alas, that 0% APR doesn’t last forever. If you use the card for a large purchase but are unable to fully pay it off before the end of the promotional period, any balance will start accruing the card’s regular APR.

At that point, the card may not have any advantages over any other card. In fact, the card could have an APR that is higher than the average credit card interest rate. When comparing 0% rate cards, it’s important to look at what the rate will be when the promo period ends and exactly when it will kick in.

Also keep in mind that you could lose the 0% intro APR before the end of the promo period if you are late with a payment. Here again, it pays to read the fine print.

Fees for Balance Transfers

Some — but not all — no-interest credit cards also feature a 0% APR on balance transfers. However, you typically still have to pay a balance transfer fee, often around 3% to 5% of the transferred balance. If you’re transferring a large balance from another card, the balance transfer fee could actually be significant. You’ll want to do the math before making the switch to be sure it will work in your favor.

Interest May Apply Retroactively

Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly a feature of retail or store cards. If you’ve been asked if you’d like to apply for a store’s credit card when you’re making a purchase, it might be one that comes with a deferred interest promotion.

Like no-interest credit cards, a deferred-interest card doesn’t charge interest as long as the balance is paid in full within a certain time period. The biggest difference between the two: If the balance is not paid in full before the promotional period ends, interest will be applied to the entire purchase — not just the remaining balance. And APRs on deferred-interest cards can be even higher than APRs charged by regular credit cards.

Recommended: Personal Loan Calculator

Can Credit Scores Be Affected by No-Interest Credit Cards?

Applying for a new credit card results in a hard inquiry on your credit report, which can have a minor, temporary negative impact on your credit scores. This is generally nothing to worry about.

However, repeatedly opening new credit cards and transferring balances to them can cause a long-term negative impact on your credit. That’s because too many hard inquiries too close together can lead lenders to believe you’re applying for more credit than you can pay back.

While no-interest credit cards have their advantages, credit card debt could escalate. If that occurs, it can be wise to seek credit counseling or look into a credit card consolidation loan, which can offer a lower interest rate and streamlined payments.

The Takeaway

A 0% intro APR card can help you avoid paying interest on your purchases for a set period of time. It can also allow you to consolidate and pay down credit card debt faster.

Keep in mind, however, that cards with no interest often come with a balance transfer fee. Also be aware that your interest rate will likely be much higher when the intro APR offer ends if you haven’t paid off your balance by then. Another option could be paying off high-interest credit cards 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. See your rate in minutes.

FAQ

Is it a good idea to get a zero-interest credit card?

If you make on-time payments and pay off your balance before the intro period ends, then it can be a good idea to get a 0% APR credit card. But if you overspend and carry a balance, you may face high interest rates when the introductory period is over.

Does a 0% credit card affect your credit?

Credit bureaus don’t look at your interest rate, but they do look at your credit limit and what percent of that you are utilizing. So in that way, no-interest cards can impact your credit score. Also, when you apply for one of these cards, the issuer likely conducts a hard credit pull, which will usually lower your score by a few points temporarily.

Is 0% interest a trap?

A 0% interest credit card can be a valuable financial tool if used responsibly. However, if you can’t pay off your balance, when the introductory period ends, you may be stuck with your debt growing thanks to the high interest rate that kicks in. In that way, you could find yourself in a debt trap.

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

SOPL-Q325-043

If you don’t have a bank account, you will likely run into a few obstacles when trying to get any type of loan, including a personal loan. While it’s not impossible to get a loan if you don’t have a bank account, it can be difficult to get approved, will likely cost more in interest and fees, and may require collateral to guarantee the loan.

However, if you need money fast, there are options available. Here’s a look at how to get loans without a bank account.

Is It Hard To Get a Loan With No Bank Account?

Yes, not having a bank account — in particular, a checking account — can make it difficult to qualify for a loan.

When you apply for a personal loan (or any other type of loan) the lender will typically ask for your bank account information and the last one to three month’s worth of bank statements. This helps them verify your income and gives them an idea of whether you have the cash to keep up with your loan payments.

However, if a financial emergency arises and you need money quickly, there may be loan options available that do not require a bank account. The hitch is that these loan products typically come with high interest rates, multiple fees, and short repayment terms.

Why Is Getting a Loan With No Bank Account Hard?

When a lender reviews an applicant to assess their loan requirements, they consider how risky the loan might be to their own business. In other words, they want to predict how likely it is that the borrower will be able to pay the loan back. When a loan applicant doesn’t have a bank account, the lender has more difficulty assessing that person’s income or cash flow.

There is also a logistical issue: Where should the lender send the loan proceeds? Typically, the money is sent to the borrower’s bank account. But if the borrower doesn’t have a bank account, there may be some question of where the money will be deposited and how it will be accessed, as well as how loan payments will be made.

Can You Get a Loan With Bad Credit and No Bank Account?

It’s possible but it might not be a good idea to get a loan without a bank account or good credit, since your options will be limited and expensive.

To assess your risk as a borrower, lenders will not only look at your banking history but also your credit history and scores. Your credit reports contain a record of how you’ve handled credit accounts in the past, including whether you pay your bills on time, what types of credit you use, how much debt you carry, and any delinquencies and collections you’ve experienced. This information is used to calculate your credit scores. Borrowers with excellent credit are not only more likely to qualify for a loan, but also get the best rates and terms.

If you have poor credit and no bank account, you will likely be seen as high risk to lenders. If you’re applying for an unsecured loan (meaning no collateral is required), you may not be approved.

You might, however, be eligible for a secured loan that’s backed by collateral, such as a car or other asset of value that you own. If you are unable to repay the loan as promised, the lender has the right to take that collateral as payment on the loan.

Pros and Cons of Loans With No Bank Account

If you’re looking for a loan with no bank account, you’ll want to carefully consider the pros and cons.

Pros of No Bank Account Loans

•  Fast access to cash No bank account loans, such as payday and title loans, typically provide a lump sum of cash right away.

•  No credit check Some no bank account loans won’t take your credit history or score into account, allowing borrowers with bad credit or who haven’t yet established any credit to access funds.

Cons of No Bank Account Loans

•  High costs Lenders who consider applicants with no bank account generally make up for risk by charging extremely high interest rates and fees.

•  Short repayment terms Unlike other types of personal loans, which usually give you years for repayment, no bank account loans (such as title loans and payday loans) often need to be paid in 30 days or less.

•  Can lead to vicious debt cycle Due to the short repayment terms for no bank accounts loans, borrowers often need to roll the loan over into a new short-term loan, leading to a cycle of debt.

5 No Bank Account Loan Options

Even if you don’t have a bank account, you may be able to access a loan. Here’s a look at some potential options.

1. Borrowing Money From Loved Ones

If you’re having a hard time financially, your loved ones may be able to step in. Whether you ask for money from friends or family members, it’s a good idea to have clear, written loan terms, and maybe even have the loan agreement notarized so there’s no confusion. Make sure expectations are clear for each party.

•   Does the loan have interest attached?

•   Are you expected to pay back the loan or is it a gift?

•   Are there in-kind options for paying back the loan, such as babysitting or tutoring hours?

•   What would happen if you were not able to pay back the loan?

Answering these questions can help create clear expectations and lessen the chance of a misunderstanding that could strain your relationship.

2. Payday Loan

A payday loan is usually for a small amount (often $500 or less) for a short period of time, typically until the borrower’s next paycheck. While it can be a source of quick cash, payday loans are problematic, given their high annual percentage rates (APRs).

Some states may cap the maximum allowable APR, but many payday loans charge fees of $10 to $30 for every $100 borrowed. A fee of $15 per $100 equates to an APR of almost 400%, which is significantly higher than the APR of a typical personal loan. If you can’t pay back your payday loan quickly, the fees can add up fast and make your existing financial problems snowball.

Risks of Payday Loans

The drawbacks of a payday loan may outweigh the benefits, and include:

•  High fees Lenders charge exorbitant fees and APRs for payday loans just in case the loan can’t be paid off.

•  Debt spiral If you can’t repay your payday loan on time, you’ll have to roll it over into a new loan and end up with even more fees and interest charges. This makes the loan even harder to pay back and can lead to a dangerous debt spiral.

•  Small loan amounts If you need a large sum of cash, a payday loan likely won’t offer enough, since they are usually $500 or less.

3. Title Loans

If you own your vehicle, you may be eligible for a title loan. Also called an auto title loan or vehicle title loan, this type of loan uses your vehicle as collateral. The lender holds your vehicle title in exchange for the loan. You then may be able to borrow a portion (often 25% to 50%) of the vehicle’s current value. As with payday loans, interest can be exceptionally high — as much as 300% — and there may be additional fees. If you are unable to pay back the loan, the lender has the right to take ownership of your vehicle. This can be a high-stakes situation for borrowers who depend on their car to go to work and school.

4. Pawn Shop Loan

If you have a valuable piece of jewelry, an antique, or other collectible to use as collateral, you might be able to get a pawn shop loan. The pawnbroker will assess the value of the item and provide a loan based on a certain percentage of its value. The loan terms will include interest. If the loan isn’t paid back according to the terms, the pawnshop then owns your item and can sell it.

5. Cash Advance

A cash advance is a short-term loan typically offered by your credit card issuer. A credit card cash advance allows you to borrow a certain amount of money against your card’s line of credit. You can usually get the cash at an ATM or through a bank teller.

A cash advance is a way to access quick cash but the interest rate will likely be higher than your card’s standard purchase APR, and higher than interest rates on personal loans. In addition, you typically need to pay a hefty cash advance fee.

Loan Options With a Bank Account

Before looking into loan options with no bank account, you may want to consider opening a checking account. If you’ve had past checking account errors or misuse, look into a second chance checking account. These accounts are designed to help people who have negative banking history get back in the door.

Borrowers with bank accounts generally have more — and better — loan options available to them. If you are able to open a checking account, here are types of loans you may be able to access.

Personal Loans

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in regular installments over time. Loan amounts can be anywhere from $1,000 to $50,000 or $100,000, and repayment terms range from two to seven years. Personal loans usually have fixed interest rates, so the monthly payment is the same for the life of the loan.

Personal loans are typically unsecured, meaning they’re not backed by collateral. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

You can generally use a personal loan for almost any purpose, including debt consolidation, home improvement projects, medical bills, emergencies, and refinancing an existing loan.

Recommended: How to Apply for a Personal Loan

Auto Loan

An auto loan is a loan that is used specifically to purchase a vehicle. They are available through banks, credit unions, and online lenders. Typically, auto loans are secured loans, which means the vehicle to be used as collateral for the loan.

When you take out an auto loan, the proceeds go to the vehicle’s seller to cover the cost of the vehicle. You then make monthly payments to the lender for a set period of time, which might be anywhere from two to seven years. The lender owns the car and holds the title until you pay off the loan. If you fail to keep up with payments, the lender can repossess the vehicle.

Student Loans

A student (or education) loan is a sum of money borrowed to finance college expenses, including tuition, supplies, and living expenses. Payments are often deferred while students are in school and, depending on the lender, for an additional six-month period after earning a degree.

Student loans are available from the government as well as through private lenders. Federal loans may have lower interest rates, and some also offer subsidized interest (meaning the government pays the interest on the loan while a student is in college). Private student loans are generally available in higher amounts.

The Takeaway

Getting a personal loan with no bank account may be possible but can be both costly and risky. Before committing to a lender that charges high interest and fees or requires collateral, you may want to explore opening a bank account.

Once you have a checking account, you may be able to access traditional personal loans with more favorable rates and terms.

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

FAQ

Can you get a loan without a bank account?

It’s possible, but you will likely be limited to loans with sky-high rates and short repayment terms, such as payday loans, pawn shop loans, and title loans. The lender may also require collateral (an asset you own, such as a car) that they can seize if you don’t repay the loan.

Can you get a loan with your SSN?

Having a Social Security number (SSN) can make getting a loan easier, since a lender can use it to retrieve information they need to process the loan. In addition to an SSN card, you also typically need to provide an additional proof of identity (such as a birth certificate, driver’s license, passport, or certificate of citizenship); proof of income; an proof of address (such as a utility bill, rental agreement, bank/credit card statement).

Can you get a cash advance without a bank account?

It’s possible, but it may be hard to find a lender who is willing to work with you. Your best option might be a credit card cash advance, which involves withdrawing cash from an ATM or bank using your credit card account. Just keep in mind that credit card advances generally come with high interest rates and fees. Another option for fast cash might be a payday or title loan, though these can have extremely high interest rates and other disadvantages.

Photo credit: iStock/MicroStockHub

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

SOPL-Q325-042

Owing money to the IRS can be stressful, especially if you’re not prepared for a tax bill. Whether it’s due to under-withholding, freelance income, or capital gains from selling an asset, you might find yourself facing a tax bill you can’t afford to cover up front. If that happens, you may wonder: Can I get a loan to pay taxes?

The answer is, yes. Taking out a loan, such as a personal loan, to pay taxes is an option. However, it’s important to weigh the pros and cons carefully against other possibilities like payment plans offered by the IRS.

Below, we explore what tax loans are, the available options for paying taxes when you’re short on cash, and the potential advantages and disadvantages of using a loan to cover your tax obligations.

What Is a Tax Loan and How Does it Work?

A tax loan is any form of financing used to pay off a tax debt. This can come in many forms, including personal loans, home equity loans/credit lines, payday loans, or even credit cards. These loans and credit lines are not issued by the IRS, but rather by private lenders, banks, or online financial institutions.

A tax loan allows you to pay your tax bill in full. You then repay the loan over time according to the lender’s terms. This could include fixed monthly payments over many months or years, along with interest and possible fees. Essentially, you’re swapping your debt to the IRS for a different kind of debt, one with a financial institution.

In some cases, the cost of a loan may be lower than the combination of interest and penalties the IRS charges if you don’t pay your taxes on time. Normally, the late-payment penalty is 0.5% of the unpaid taxes for each month the tax remains unpaid (not to exceed 25% of your unpaid taxes). The IRS also charges interest on your unpaid tax bill. The rate can change each quarter but was set to 7% for the third quarter of 2025.

Options to Pay Taxes

Before turning to a loan, it’s a good idea to consider all your options. The best choice for you will depend on your credit profile, financial health, and how quickly you can repay any borrowed funds.

IRS Payment Plans

The IRS offers payment plans, which you can apply for online. These plans allow you to spread the amount you owe into smaller payments without involving a third-party lender. Interest and penalties on your unpaid tax bill continue to accrue while you’re on an IRS payment plan, but the late-payment penalty drops to 0.25% per month.

There is a short-term plan for those who owe less than $100,000 and can pay the balance within 180 days. There is also a long-term plan for those who owe less than $50,000 but need more than 180 days to pay their balance. It’s free to set-up the short-term plan but the long-term plan comes with a set-up fee ($22 if you enroll in direct debts or $69 if you don’t).

Credit Cards

If your tax debt is relatively small and you have room on your credit card, paying the IRS with plastic can be a quick fix. However, this option should be approached with caution.

While the IRS allows tax payments via credit card, it does so through third-party payment processors that charge a convenience fee of around 1.75%. And if you can’t pay the credit card balance off immediately, you’ll be stuck paying high interest rates that can add up quickly.

One exception: If you can qualify for a credit card that offers a 0% introductory rate, using a credit card could be an affordable way to pay your tax bill over time. The key is to pay off your balance before the promotional rate ends (often 15 to 21 months). Otherwise this could be a costly way to get a loan to pay your taxes.

Loved Ones

Borrowing from family or close friends might be a viable option if you’re short on cash and want to avoid high-interest loans. This type of informal loan can offer flexibility in repayment terms, and often, little or no interest. It also doesn’t require a credit check, which can make it an appealing choice for people who may have a limited or poor credit.

However, mixing money with personal relationships can be tricky. If you don’t make agreed-upon payments on time or run into trouble repaying the loan, it could strain or damage relationships.

If you do decide to go this route, it’s important to be clear about expectations from the beginning. You might even want to draw up a simple agreement to outline expectations.

Payday Loans

Payday loans are short-term, high-interest loans intended to cover urgent financial needs until your next paycheck. They are typically easy to get and require little credit history, making them seem attractive for those looking for fast cash who might not qualify for other borrowing options.

However, payday loans come at a steep cost. According to the Consumer Financial Protection Bureau, fees often run around $15 for every $100 borrowed, which equates to an annual percentage rate (APR) of nearly 400%. Repayment periods are also typically short, generally two to four weeks.

Many borrowers fall into a cycle of renewing loans or taking new ones to pay off the previous ones, leading to a dangerous spiral of debt. These should only be considered as an absolute last resort.

Home Equity Loan or Line of Credit

A home equity loan and a home equity line of credit (HELOC) are both ways to borrow money using the equity in your home as collateral. A home equity loan provides a lump sum of money with a fixed interest rate, while a HELOC functions like a credit card, allowing you to borrow, repay, and borrow again against a set credit limit, often with a variable interest rate.

Home equity financing typically comes with lower interest rates than unsecured loans. But if you default on your loan or line of credit, you could potentially lose your home. This type of funding can also take some time to get, as the underwriting process typically requires multiple steps (including a home appraisal).

Personal Loans

A personal loan can be a practical solution for paying off taxes. There are different types of personal loans but typically these loans are unsecured, meaning you don’t need to put up any type of collateral. You borrow a fixed amount and repay it in equal installments over a predetermined term, typically one to seven years.

Interest rates vary widely depending on your credit score, income, and the lender’s policies. For borrowers with excellent credit, rates can be relatively low. However, those with fair or poor credit may face higher rates and fewer options.

Recommended: Personal Loan Calculator

Pros and Cons of Using a Personal Loan to Pay Taxes

Taking out a personal loan to pay taxes can be a smart financial move in some cases, but it’s not for everyone. Here’s a breakdown of the advantages and drawbacks.

Pros

•   Fixed repayment terms: Personal loans come with fixed monthly payments, which can make budgeting easier and help you plan your finances. Term lengths also tend to be longer than what you could get with an IRS payment plan.

•   Lower interest rates (with good credit): For borrowers with strong credit, personal loans typically offer lower rates than credit cards.

•   Quick funding: Many lenders can approve and fund a personal loan within a week; some even faster. That can be helpful if your tax payment deadline is looming.

•   Avoid IRS Penalties: Using a loan to pay your taxes on time can help you avoid late payment penalties and compounding interest from the IRS.

•   Credit Building: Successfully managing and repaying a personal loan can have a positive impact on your credit profile.

Recommended: Paying Tax on Personal Loans

Cons

•   Interest costs: Depending on your credit, personal loans can carry high interest rates that add significantly to your overall repayment amount.

•   Fees: Some personal loans come with origination fees, prepayment penalties, or late fees, which can increase the total cost of borrowing.

•   Could negatively impact credit: Taking out the loan will trigger a hard credit inquiry which can cause a small, temporary drop in your credit scores. Any late or missed payments could have a more damaging effect on your credit profile.

•   Increases your DTI: Since a personal loan adds another monthly debt payment, it directly increases your debt-to-income ratio (DTI) (a metric that compares your monthly debt payments to your gross monthly income). This could make it harder to qualify for other types of financing, such as a mortgage or car loan, in the future.

•   Not a long-term fix: A personal loan is a temporary solution. If your tax issue stems from deeper financial problems, it’s important to address the root cause.

The Takeaway

If you can’t pay your full tax liability by the deadline, it may be possible to get a loan, such as a personal loan or home equity loan, to cover the shortfall. This can help you avoid owing penalties and interest to the IRS, but it’s important to keep in mind that loans generally come with their own costs.

Before you borrow, you’ll want to carefully evaluate your financial situation, shop around for the best loan terms, and compare the total cost of borrowing against using an IRS payment plan. Understanding your options and choosing wisely can help you stay out of trouble with the IRS and protect your long-term financial health.

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

FAQ

Can I get a loan to pay taxes?

Yes, you can potentially get a loan to pay your taxes. One option is to apply for a personal loan from a bank, credit union, or online lender, and use it to cover your tax debt. If you own a home and have sufficient equity, another option is to take out a home equity loan or line of credit and use the funds to pay your taxes. A 401(k) loan or a credit card (ideally with a low a 0% promotional rate) are other potential options.

Before you borrow money to pay your taxes, however, it’s a good idea to explore an IRS payment plan. While the agency continues to charge interest and penalties on your unpaid balance, the cost could be lower than some borrowing options.

What is a tax loan?

A tax loan is any form of financing used to pay off a tax debt. For example, you can use a personal loan as a tax loan. This type of financing offers a lump sum you can use to pay the IRS or your local tax authority immediately. This helps avoid penalties, interest charges, or tax liens. However, tax loans also come with costs, so it’s important to weigh your options carefully.

How does a tax loan work?

A tax loan often works like a standard personal loan. You apply through a lender (such as a bank, credit union, or online lender) and if approved, you receive a lump sum, which you use to pay your tax bill. You then repay the loan in fixed monthly installments over a set period with interest.

A tax loan can be helpful if you don’t have enough cash to cover your tax bill, but it’s important to consider their potential costs and risks to determine if it’s the best approach for your situation.

Is using a personal loan for taxes better than using a credit card?

Using a personal loan for taxes can be better than using a credit card, depending on the terms. Personal loans often have lower interest rates than credit cards, especially for borrowers with good credit. They also offer fixed repayment terms, which can make budgeting easier. However, if you can qualify for a credit card with a 0% introductory rate and can pay off the balance before the rate goes up, that option might be more cost-effective.

What credit score do you need for a tax loan?

If you’re thinking of getting a personal loan to pay your tax bill, lenders generally prefer borrowers with good or excellent credit scores (mid 600s and above), though requirements vary. Borrowers with higher scores are more likely to qualify for better interest rates and loan terms. If your credit score is lower, you may still qualify through subprime lenders, but you’ll likely face higher rates. Many lenders also consider other factors — such as income, employment history, and debt-to-income ratio — when evaluating your application, not just your credit score.

Can I use a personal loan to pay property taxes?

Yes, you can use a personal loan to pay property taxes. This option can be useful if you’re facing a large, unexpected bill or trying to avoid late fees or a tax lien. A personal loan provides quick funding and fixed monthly payments, allowing you to spread the cost over time. Before going this route, however, it’s a good idea to compare interest rates and loan terms to other options, such as payment plans from your local tax authority.

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

SOPL-Q325-012

When comparing different interest-bearing accounts, you may come across the terms APY (annual percentage yield) and interest rate. While similar, they are not the same thing.

The interest rate is the base rate the financial institution offers, while APY factors in how often that interest is compounded (or credited to the account). The more frequently interest is compounded, the faster your money grows, since interest is earned on previously earned interest more often. As a result, APY gives you a more accurate picture of potential earnings over time.

Ready to learn more about APY vs. interest rate and how each impacts your finances

APY and Interest Rate Defined

Both APY and interest rate indicate how much you’ll earn on your balance in a savings account, or other interest-bearing account, but there is a key distinction between the two.

What Is APY?

If you deposit money into any type of savings account, you will earn an annual percentage yield (APY) on that money. The APY is a useful number because it tells you how much you’ll earn on your deposits over the course of a year, expressed as a percentage. The APY calculation takes into account the interest rate being offered, then factors in whether or not the financial institution offers compounded interest.

Compound interest is the interest you earn on the interest you’ve already earned. Depending on the bank or credit union, interest may compound daily, monthly, quarterly, or annually. The more frequently interest compounds, the faster your money grows.

What Is an Interest Rate?

When it comes to a savings account, an interest rate is simply the percentage return you’ll earn on your original balance, without compounding. The higher the interest rate, the more you’ll earn on your deposits. But interest rate is only one component of the account’s APY, which also factors in compound frequency — or how often interest is paid.

When it comes to loans (e.g., a mortgage, car loan, or credit card), the interest rate refers to the price you pay for using that money. The higher the interest rate, the more you’ll pay back in addition to the principal amount. The interest rate on a loan doesn’t include any fees associated with the loan, such as origination fees, application fees, or other charges. To understand the total cost of a loan, you’ll want to look at its APR (annual percentage rate).

APY vs. Interest Rate Explained

Why does interest rate vs. APY matter? When you are opening a bank account, it can make a difference as one can give you a better picture of how your money will grow while on deposit.

The interest rate tells you the basic rate at which your money will accrue interest. The APY, however, gives you better insight to how much interest you will earn by the end of a year because it factors in the boost that compound interest can deliver.

Recommended: Different Ways to Earn Interest

The APY Formula

For those who want to delve in a bit deeper, the actual formula for APY calculation is as follows: (1 + r/n)ⁿ – 1.

•   The “r” stands for the interest rate being paid.

•   The “n” represents the number of compounding periods within a year.

If, for example, the interest rate is 3.50%, then that’s what you’d use for the “r.” If interest is compounded quarterly, then “n” would equal four.

The “n,” or compounding frequency, can cause two different savings accounts with the same interest rates to have different APYs. For example, if two different banks offer a savings account with the same interest rate but one compounds quarterly and the other compounds annually, that the account that compounds annually would have a lower APY than the account that compounds quarterly or daily.

Fortunately, if you want to compare savings rates from one bank or credit union to another, you don’t need to perform any in-depth calculations.

Financial institutions are required to provide information on APY as part of the Truth in Savings Act. And, here’s the heart of it all: The higher the APY, then the more quickly the money you deposit can grow.

Recommended: APY calculator

Calculating APR

The APR vs. interest rate of a loan tells you how much the loan will cost you over one year, including both the loan’s interest rate and fees, and is expressed as a percentage. A loan’s APR gives you a better sense of the true cost of the loan than the loan’s interest rate, since it includes fees. The higher the APR, the more you’ll pay over the life of the loan.

Thanks to the federal Truth in Lending Act, lenders must provide the APR of a loan. This allows you to compare loans apples to apples. A loan with a low interest rate but high fees may not be a good deal. In fact, you may be better off with a loan that charges a higher interest rate but no or lower fees. APR allows you to be a savvy consumer.

APR can be calculated with this formula:

APR = (((Interest + Fees ÷ Loan amount) ÷ Number of days in loan term) x 365) x 100.

Lenders will tell you the APR of a loan and you won’t need to perform any complicated calculations.

How Simple and Compound Interest Differ

With simple interest, no compounding is involved. If you were to deposit $10,000 in an account earning 4.00% simple interest, at the end of three years, your money would earn $1,200 for a total of $11,200.

If, however, the interest were compounded daily, you would earn around $408 the first year. The second year, interest would accrue on the principal and the interest earned in the first year, and you would earn roughly $425 the next year and then $442 the year after that, for a total of around $11,275.

While the difference in dollar amount may not seem earth-shattering in this example of a few years, when you are talking about your decades-long financial life, it can really add up. Your money will grow faster with compound interest, helping you reach your financial goals.

Types of High-Interest Accounts for Savings

If you’re looking to earn a competitive rate on your savings, you’ll want to compare accounts by looking at APYs, as well as account fees and balance minimums. Generally, you can find competitive rates by looking at high-yield savings accounts, money market accounts, and CDs.

•   High-yield savings accounts, typically offered by credit unions and online banks, are accounts that typically pay a substantially higher APY than the national average of traditional savings accounts. They generally also have low or no fees.

•   Money market accounts are savings accounts that offer some of the features of a checking account, such as checks or a debit card. They often come with a higher APY than a traditional savings account, but typically require a higher balance, such as $2,500 or more.

•   Certificates of deposits (CDs) also tend to pay a higher APY than a regular savings account but require you to leave your money untouched for a certain period of time, called a term. If you take money out before then, you’ll likely pay an early withdrawal penalty. CD terms typically range from three months to five years. Generally, the longer the term, the higher the APY (however, this isn’t always the case).

Recommended: How Does a High-Yield Savings Account Work?

High-Interest Checking Accounts

Checking accounts work well for everyday spending but typically offer no interest or very little. A high-yield checking account is a special type of account offered by some financial institutions (such as traditional and online banks, and credit unions) that offers a higher-than-average APY. These are accounts designed to give you the flexibility of a traditional checking account (with checks and/or a debit card) but with higher-interest returns.

A few points to note:

•   Some high-interest checking accounts will offer different APY tiers, with higher account balances earning a higher APY than lower account balances.

•   Often, to qualify for the highest rate the checking account has to offer, you need to meet certain criteria. This might be making a certain number of debit card transactions in a month, having at least one direct deposit or automated clearing house (ACH) payment each month, or choosing to receive paperless statements.

The Takeaway

When it comes to choosing a savings account, it’s essential to understand the difference between APY (annual percentage yield) and interest rate. While both relate to how your money grows, they aren’t the same.

The interest rate is the basic rate the bank pays you for keeping your money in the account and doesn’t account for compounding, while APY includes the effects of compounding.

When comparing accounts, it’s a good idea to look at the APY, since it shows the real return on your money and can help you select an account that maximizes your earnings.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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Refinancing a personal loan can be a worthwhile process in some situations. It holds the potential to lower your monthly payments and/or the interest paid over the life of the loan.

Personal loans can be used for many purposes, which is part of their appeal. Consolidating credit card debt is a common use of personal loans. And it makes sense, given that personal loans typically have lower interest rates than credit cards (which currently average 24.35%).

Even if you’ve already taken out a personal loan, it can be wise to look at your refinance options for getting terms that better suit your needs.

Why Refinance a Personal Loan?

While there may be a variety of reasons to refinance a personal loan, it mainly comes down to two.

1.    To lower the overall interest rate and total interest paid.

2.    To lower the monthly payment.

These two might seem like the same thing, but they’re not.

When you refinance any type of loan, you are essentially replacing your old loan with a new loan that has a different rate and/or repayment term. If the new loan has a lower annual percentage rate (APR), you can save money on interest. If the APR is the same but the repayment term is longer, you can lower your monthly payments, making them easier to manage, but won’t save any money. (In fact, a longer repayment term generally means paying more in interest over the life of the loan.)

Another reason why you might consider refinancing a personal loan is to consolidate your debts (so you just have one payment) or to add or remove a cosigner.

Possible Advantages of Refinancing a Personal Loan

Here’s a look at some of the benefits of refinancing a personal loan.

Pay Less in Interest

If you are able to qualify for a personal loan with a lower APR, it may be possible to save a significant amount of money over time, provided you don’t extend your loan term. You can also save on interest by shortening your existing loan term, since this allows you to pay off the loan sooner.

Lower Your Monthly Payment

Refinancing to a lower APR and/or extending the length of the loan can lower your monthly payment. A lower monthly bill could help you get back on track, especially if you’ve been struggling to make your monthly payments.

Consolidate Multiple Debts

If you have a personal loan as well as other debts (such as credit card debt), you can use a new debt consolidation loan to combine those debts into one loan and a single monthly payment. If your new loan has a lower APR than the average of your combined debts, you may also be able to save money.

Recommended: Personal Loan Calculator

Possible Disadvantages of Refinancing a Personal Loan

Refinancing a personal loan might not be the right move for everybody. Here are some disadvantages to consider.

You May Pay More in Interest

If you refinance a personal loan using a loan that has a longer repayment term, you could end up paying much more in interest over the life of the loan.

You May Have to Pay an Origination Fee

Many personal loan lenders charge origination fees to cover the cost of processing and closing the loan. This is a one-time fee charged at the time the loan closes and, in some cases, can be as high as 6% of the loan. Since the fee is deducted before the loan is disbursed to you, it reduces the amount of money you actually get.

You Might Get Hit With a Prepayment Penalty

Some lenders charge a fee if you pay off the loan before the agreed-upon term, which is known as a prepayment penalty. If your original lender charges you a prepayment penalty, it could cut into your potential refinancing savings.

Refinancing a Personal Loan

If you are thinking about refinancing a personal loan, here are some steps you’ll want to take.

Check Your Credit Report and Score

To benefit from personal loan refinancing, you typically need to have stronger credit than you had when you got your original personal loan. With a more favorable credit profile, you might qualify for a lower APR on the new personal loan.

You can access your credit report for free from each of the three major credit bureaus — Equifax®, TransUnion®, and Experian® — through Annualcreditreport.com. It’s a good idea to scan your reports for any errors and, if you find one, report it to the appropriate bureau.

You can typically access your credit score for free through your credit card company (it may be listed on your monthly statement or found by logging into your online account).

Shop Around for Loans

Every bank has different parameters for determining who they’ll offer loans to and at what rate, so it’s always worth it to shop around. This could mean looking at traditional banks, credit unions, and online-only lenders.

Many lenders will give you a free quote through a prequalification process. This typically takes only a few minutes and does not result in a hard inquiry, which means it won’t impact your credit score. Prequalifying for a personal loan refinance can help compare rates and terms from different lenders and find the best deal.

Applying for a Loan

Once you’ve decided on a lender who can help you refinance to a new loan, it’s time to formally apply for a personal loan. You’ll likely need to submit several documents, including pay stubs, recent tax returns, and a loan payoff statement from your original lender (which will show how much is still owed).

Paying Off the Old Loan

Once you have your new loan funds, you can pay off your original loan. You’ll want to contact your original lender to find out what the process is and follow their instructions. It’s also a good idea to ask your original lender for documentation showing the loan has been paid off.

Making Payments on the New Loan

Be sure to confirm your first payment due date and minimum payment amount with your new lender and make your first payment on time. You may want to enroll in autopay to ensure you never miss a payment. Some lenders even offer a discount on your rate if you sign up for autopay.

The Takeaway

You can refinance a personal loan, and doing so may allow you to get a more favorable rate and/or more affordable payments. However, you’ll want to factor in any fees (such as origination fee on the new loan and/or a prepayment penalty on the old loan) to make sure the refinance will save you money. Also keep in mind that extending the term of your loan can increase the cost of the loan over time.

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

FAQ

Can you refinance a personal loan?

Yes, it is possible to refinance a personal loan. Refinancing involves taking out a new loan to pay off the existing personal loan, ideally with more favorable rates and terms. However, whether you can refinance your personal loan will depend on factors such as your creditworthiness, the terms of the original loan, and the policies of the new lender.

Does refinancing a loan hurt your credit?

Refinancing a loan can have both positive and negative impacts on your credit. Initially, the process of refinancing may result in a hard inquiry on your credit report, which can cause a small, temporary decrease in your credit score. However, if you use the refinanced loan to pay off the existing loan and make timely payments on that loan, it can positively impact your credit over time.

Can I refinance a personal loan with another bank?

Yes, it is possible to refinance a personal loan with another bank. Many banks, credit unions, and online lenders offer loan refinancing options. This allows you to transfer your personal loan balance to a new loan with a new lender. However, eligibility criteria, terms, and interest rates will vary by lender. It’s a good idea to shop around, compare offers, and consider factors such as interest rates, fees, and repayment terms before deciding to refinance with another bank.

What are the pros and cons of refinancing a personal loan?

The pros of refinancing a personal loan include the potential to secure a lower interest rate, reduce monthly payments, consolidate multiple debts into a single loan, and switch to a more favorable lender. Potential downsides can include paying an origination fee for the new loan, owing a prepayment fee from your original lender, and extending your loan term, which can increase the total cost of the loan

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