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Couponing can help you save money, whether when buying a favorite brand or trying a new product. However, you must also take into account the amount of time you spend on couponing as part of this equation. In addition, couponing might lead you to buy more than you intended because it feels as if you can snag a discount.

Here, you’ll learn the ropes of smart couponing, plus its pros and cons.

What Is Couponing?

Couponing means redeeming discounts on goods and services, which can seem like an easy way to save money. Coupons are created by businesses and retailers as a customer acquisition tool (that is, they encourage people to try a product for the first time) or a customer loyalty device (a way of rewarding steady consumers with a discount).

Coupons take several forms, including:

•   The old-fashioned way, with paper coupons clipped from newspapers, store ads, and mailers

•   The instant way, via apps for discount codes on everything from dinner out to Target finds (20% off dresses, anyone?)

Coupons tug at a person’s budget-wise motivation to save money. But read on to learn if coupons are worth your time and energy.

How Does Couponing Work?

Merchants want you to shop for their brands, so they dangle discounts. When these arrive in the mail or email, on a cash register receipt, or in a print publication, you will likely need to clip them out and bring them with you to a retail location or enter the pertinent information when purchasing online.

In terms of digital coupons, you’ll often have to create an account with your email address and a password to get coupons or discount codes. This is an important trade. You’ll get, say, a 10% off welcome code and in exchange, the merchant gets your contact information to potentially reel you in with more deals.

Both paper and virtual coupons typically have expiration dates. More and more often, online merchants do flash sales and short-term offers with a tight time window to get you to click and spend your money without much pause. This can lead to impulse purchases.

Keep in mind that the business goal behind coupons is to get you to spend money, not put it into your bank account.

Recommended: How to Coupon for Beginners

Are Coupons Used Today?

Coupons are still quite popular today. According to a recent report, over 90% of U.S. households used at least one coupon in the last 12 months. Many people prefer digital coupons to paper ones. Downloading coupons on your phone is quicker than using scissors to cut along the dotted lines. The average percentage saved with an online coupon was found to be 19%.

How Many People Use Coupons?

As noted above, over 90% of American households say they used a coupon in the most recent year. This figure isn’t necessarily related to income. One study found that 86% of households earning $200,000 or more per year used coupons in a given year.

Another sign of coupons’ popularity: A full 80% of shoppers said they only sign up for store or brand emails to get the coupons offered.

Types of Coupons

Merchants are getting more inventive with the kinds of coupons and discounts they offer shoppers. Here are some of the popular ways you can likely access deals:

•   Set up a user account with an email and password on favorite shopping sites. By joining the rewards club, if there is one, you can also unlock digital codes and get merch rebates.

•   Download your grocery chain’s app and link weekly digital coupons to your account.

•   Follow brands on Instagram and Facebook to watch for discounts and free shipping codes on social media.

•   Use couponing and discount services that add an extension to your browser and then let you know about coupon codes available when you shop online. Check reviews and ratings of these before downloading, however. Honey and Ibotta are popular for couponing, but many have mixed reviews.

•   Look for the physical coupon with purchase. Yes, some companies still do coupons the old-fashioned way. Boxes of powdered laundry detergent may come with coupons inside, or frozen pizzas may have stickers on the pack that you peel off to get a discount.

Why Do People Coupon?

Consumers coupon to save money or get things free. A discount or freebie can inspire a person to try a new product or a brand other than the one they usually buy. In this way, the company issuing the coupon may build their customer base and their sales. Coupons can also reward loyalty. For instance, you might get a coupon for 10% off your next purchase from a particular brand or retailer.

A bit of history: The first coupon reportedly came out in 1888, when Coca-Cola offered them, good for a free sample.

Benefits of Couponing

Couponing has its pros, for sure. These include:

•   Trimming your expenses and using the money saved to reach other financial goals.

•   Having fun. Couponing has some aspects of a game, which can make it feel like a fun way to save money.

•   Sharing the wealth with your family and finding better deals, thanks to coupons, on such expenses as school supplies and uniforms, sneakers, electronics, and home furnishings.

•   Scoring discounts on lodging, car rental, and other travel expenses.

Recommended: Why Saving Money Is Important

Drawbacks of Couponing

The chase for discounts can, however, have downsides, such as:

•   If you scoop up items you would not have otherwise bought just so you use a coupon, you could wind up buying things you don’t need or even really want. Do you need tropical fabric softener, or are you just eager to use the coupon?

•   Coupons can encourage over-buying. For example, if you need to purchase four boxes of cereal to reap a discount, you may have food sitting unused. (That said, buying in bulk to save money can be an effective tactic if done properly.)

•   Consumers may feel under pressure to use coupons before they expire in order to be a good shopper. It’s a misconception that not using a coupon is losing free money. You’re still spending your dough to get the discount.

•   Coupons can be inconvenient. Remembering to carry and use paper coupons requires financial discipline. Plus, it’s too easy to forget to redeem coupons attached to products in-store. Customers and cashiers may not detach the manufacturer coupon and scan it.

•   Ironically, you might be tempted to overspend on other things after saving with a coupon. For instance, a 50% discount code on a clothing site may prompt you to buy other items you didn’t plan to purchase or really need.

Recommended: How Much Money Should I Save a Month?

Do Stores Lose Money by Couponing?

In general, stores do not lose money from offering or accepting coupons. In fact, they are more likely to profit. Coupons encourage people to shop by offering an incentive: free merchandise or lower-cost goods. These offers entice people to try new products (and hopefully become loyal customers) and buy items that they might not have otherwise considered.

In addition, for brick-and-mortar stores, coupons encourage foot traffic. They tempt shoppers to come inside, where they might find more than just the coupon item that catches their eye. In these ways, coupons actually build sales.

Does Couponing Ultimately Save You Money?

Couponing can save you money if you’re offered a discount on an item you were already planning to buy. Or perhaps offers you free shipping from an online retailer you love.

However, you could end up losing money in the long run if you’re not careful. If you spend two hours a week combing through coupon fliers just to save a dollar, it’s probably not worth it. Your time is valuable.

Lastly, coupons can lead to price creep. For instance, did you really save money if you budgeted, say, $50 for a skirt and got waylaid by a coupon for $25 off a purchase of $100? You went in planning to spend $50, not $75 (that is, $100 minus the $25 discount).

Recommended: Guide to Practicing Financial Self-Care

The Takeaway

Couponing and discount codes can be a smart, frugal move if you stick to buying products and services you would have purchased anyway and don’t get sucked into getting unnecessary items just to save a buck (or a few). But the coupon game takes time, patience, and organization.

If you want to track your spending and save money with minimal effort, here’s an option.

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.

Better banking is here with SoFi, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

Can you go to jail for couponing?

The typical act of redeeming a coupon is not illegal. However, illegally creating, copying, or using coupons can land you in jail. A Virginia couple went to prison in 2021 for a combined 19 years after the FBI uncovered one of the largest coupon fraud schemes in U.S. history. Retailers and manufacturers lost more than $31 million when the couple used social media sites such as Facebook to sell counterfeit coupons to groups of couponers.

Is extreme couponing possible?

Yes, extreme couponing, in which people save a huge percentage of their costs, is real. Everyday people have saved hundreds of dollars in grocery stores. But this is a serious endeavor demanding much time, energy, and planning, plus you might end up stuck with items you don’t want, need, or will ever use.

Is extreme couponing stealing?

No, extreme couponing is not stealing. But it’s not uncommon for stores to resent it if a shopper brings in a stack of coupons and spends very little money in the end.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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Closing a credit card can hurt your credit in some situations. If you already have good to excellent credit, closing one credit card generally won’t have a huge impact on your credit score. However, there are a few scenarios where closing a credit card can hurt your credit score, such as when doing so might shorten the length of your credit history or send your credit utilization rate soaring.

Learn more about the potential consequences of closing a credit card as well as alternatives to explore to avoid possible impacts on your credit score.

Ways Closing Your Credit Card Can Affect Your Credit Score

If you’re worried about whether it hurts your credit to close a credit card, you should know that there are two main ways that canceling a credit card can indeed affect your credit score.

Through Credit Card Utilization Ratio

The first way that canceling a credit card affects your credit score is by raising your credit card utilization ratio. Your utilization ratio (sometimes called your utilization percentage) is the total amount of available credit that you’re actually using. If you have a credit card with a $10,000 limit and you regularly spend $5,000 on that card each month, you’d have a utilization ratio of 50% ($5,000 is half of $10,000).

Having a low utilization ratio is generally considered a positive factor in determining your credit score. Lenders prefer when you’re not using all of your available credit, since doing so can be an indicator of financial distress. Typically, you should be using no more than 30% of your credit limit across all your lines of credit, and ideally no more than 10%.

When you cancel a credit card, you lower the total amount of your available credit line, which will generally raise your credit card utilization ratio.

Example: Say you have two credit cards.

•   On credit card A, you have a balance of $5,000 and a credit limit of $10,000.

•   On credit card B, you have no balance and a credit limit of $10,000, too.

•   So, on these two cards, your combined limit is $20,000. The fact that you have a $5,000 balance means your credit utilization is $5,000 out of $20,000, or 25%.

•   If you close credit card B, you now have a balance of $5,000 with a $10,000 limit. Your utilization ratio rises to 50%.

If you close credit card B, your credit utilization could rise, and your credit score could be lowered.

Recommended: What Is the Average Credit Card Limit?

Impact on the Length of Credit History

Another way that canceling a credit card can affect your credit score is by impacting the average length of your credit history. The average age of your credit accounts is another factor in determining your credit score, with an older average being better. You’ll especially see an impact on your score if you close a card that you’ve had for a very long time, and the impacts of a bad credit score are myriad. Credit can be harder to secure and more expensive.

When Canceling a Credit Card Might Make Sense

There are several scenarios when canceling a credit card might be the right financial move, such as when:

•   Your card has a steep annual fee that isn’t worth it. One of the most common reasons for when to cancel your credit card is if you have a card with an annual fee and you’re no longer getting enough benefits to justify paying that cost. It doesn’t make sense to pay an annual fee of $100 or more a year if you’re not getting much benefit from having the card, and there are plenty of credit cards that come with no annual fee.

•   You have multiple credit cards and want to streamline your finances. Another scenario is if you have multiple credit cards and want to simplify your finances. With how credit cards work, missing a payment can have a big negative impact on your credit score. So, if you’re in a situation where you have too many credit cards and are having trouble keeping payments straight, it may be a good idea to simplify your life and cancel some of your credit cards.

•   You have a high interest rate on a card. Particularly if you need to carry a balance for whatever reason, ditching a card with a high interest rate might be in your best interest. That will save you from paying more than necessary in interest charges.

•   You want to replace a basic or secured credit card. Another reason you might consider canceling your card is if you have a very basic starter credit card. Or, perhaps you have a secured credit card and want to upgrade to an unsecured card. Especially if your credit score has changed for the better since you opened that card, you could secure better terms and potentially the opportunity to earn rewards as well.

Recommended: When Are Credit Card Payments Due?

When It Might Make Sense to Keep the Credit Card Account Open

On the other hand, there can be good reasons to keep your credit card accounts open as well. This includes if:

•   Your card doesn’t have an annual fee. If the card has no annual fee, you could always keep the card open and not use it, rather than closing the account. When you close an account, the next time the credit bureaus are updating your credit score, your score may decrease. Keeping your credit card open instead could prevent that.

•   You don’t have many accounts open. One of the factors that’s used to determine your credit score is your mix of accounts. If you don’t have many accounts open, closing one of your few accounts could ding you in this area, possibly dragging down your credit score. Plus, it could cause your available credit to take a big hit, which would increase your credit utilization.

•   Your only reason for canceling is not using your card very often. Given the potential impacts to your credit, if you don’t have much reason to cancel a credit card, you’re likely better off keeping it open due to the importance of good credit. That way, you won’t risk driving up your credit utilization or lowering the average age of your accounts, both of which can cause your score to drop. Plus, there aren’t any penalties for not using a credit card frequently.

Recommended: What Is a Charge Card?

Guide to Closing a Credit Card Safely

To close a credit card safely, there are a few things that you’ll want to keep in mind before canceling your card.

Automatic Payments

If you have any automatic payments being charged to the card, you’ll want to contact the vendors and change them to another card if you own multiple credit cards. Once you close your credit card account, if a vendor attempts to charge your account, the charge will likely be denied. This could lead to interruptions in other areas of your life, especially if it’s for something crucial, such as rent or utilities.

Paying Your Balances in Full

Simply closing your credit card account doesn’t eliminate your responsibility for any charges already on the account. You’re still just as responsible and liable for the total balance on your account, so you should pay off your balance in full. If you don’t pay the full balance when you close the account, your card issuer will still issue you monthly statements, and interest will continue to accrue.

Redeeming Your Rewards

If you have a credit card that allows you to earn cash back, travel, or other rewards, you’ll want to redeem those rewards before you close your account. Once you close your account, you may not be able to access them, and it’s possible that you will lose some of your hard-earned rewards. To avoid that possibility, you should redeem your rewards before canceling your credit card account.

Recommended: Tips for Using a Credit Card Responsibly

Alternatives to Canceling a Credit Card

If you’re worried about how closing a credit card can hurt your credit, there are alternatives to explore.

Downgrade to a No-Fee Card

If one of the reasons you’re considering canceling your credit card is to avoid paying an annual fee, you may be able to downgrade the card instead. Many credit card issuers offer a variety of different cards, and only some of them come with annual fees. Downgrading to a no-fee card will keep your account open without you having to pay the annual fee.

Negotiate With Your Credit Card Company

Another option is to negotiate with your credit card company. Most credit card issuers don’t want you to cancel your card, so you may be able to negotiate for better terms. This might include waiving the annual fee, lowering the interest rate, or getting additional rewards. It never hurts to call your credit card company to ask what they might be willing to do.

Put Your Card Away

If you’re considering canceling your credit card because you’re worried about overspending on the card, you also have the option to just take it out of your wallet. Depending on your situation, simply placing the card in your sock drawer, for instance, might prevent you from overspending without you having to actually close the account.

Recommended: How to Avoid Interest on a Credit Card

Check Your Credit Report Before Closing an Account

If you’ve decided to close your credit card account, it can be a wise move to check your credit report both before and after canceling your card. If you’re concerned about how checking your credit score affects your rating, remember that it won’t impact it.

Also, keep in mind that you have different credit scores, so take some time to check each one before and after closing your account. That way, you’ll have an accurate idea of how closing your credit card impacted your credit score.

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

The Takeaway

While closing a credit card likely won’t have a huge impact on your credit score, it can lower it, especially in certain situations. Unless you have a good reason for closing your account, you may want to consider keeping your credit card open. Instead, you could consider downgrading to a no-fee card, negotiating with your credit card company, or just taking your card out of your wallet.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Is closing a credit card bad?

Closing a credit card isn’t usually bad, but it may lower your credit score in some situations. Instead, consider alternatives to closing your credit card, such as downgrading your card or negotiating with your card issuer.

Is it better to cancel unused credit cards or keep them?

In many scenarios, it’s preferable to just keep your credit card accounts open, even if you don’t regularly use them. This allows the average age of your accounts to increase and also lowers your utilization ratio as you have access to a higher total of available credit. Both of these factors can help build credit.

Does closing a credit card with a zero balance affect your credit score?

When you close a credit card, even if you have a $0 balance, your credit score might drop. This is because closing your card could lower the average age of your accounts and/or increase your credit utilization ratio. Instead of canceling your credit card, consider negotiating with your card issuer for a lower interest rate or lower fees.

How much does your credit score drop if you close a credit card?

If you already have good or excellent credit, closing a credit card generally won’t have a huge impact. If you have a low credit score, however, it’s possible that closing a credit card can hurt your score even more. This is especially true if the card you close is one you’ve had for a long time or one with a high credit limit.

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Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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. Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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It’s certainly a frustrating experience to be denied a checking account. The problem could be with your past banking history, an error on your bank reports, or a mistake you made filling out your application, among other reasons. Once you find out what the issue is, you can take steps to remedy the situation and hopefully get approved for a bank account.

A checking account serves as a hub for many people’s financial lives. It’s where your paycheck is likely deposited and how you pay your bills. Here’s the information you need to move forward when you can’t open a bank account.

Reasons Why You Can’t Open a Bank Account

There are a few common reasons why you may be unable to open a bank account.

Negative Information on ChexSystems

Typically, banks don’t pull your credit score when you apply for an account. They do, however, tend to look into your prior checking account activity via ChexSystems, the most popular banking reporting agency. ChexSystems provides a score that reflects how well you’ve been handling your banking life. The banks use this information to decide whether to qualify you for a checking account.

Negative items on your ChexSystems report may result in you being denied a checking account. They can cause banks to consider you a high-risk customer for financial services. Negative information can include:

•   Forced account closures

•   Bounced checks or overdrafts

•   Suspected fraud or identity theft

•   Unpaid fees or negative bank balances from a current or closed account

•   Too many account applications submitted over a short period

These negative marks on your record can last up to five years.

Errors on Your ChexSystems Report

Just as you may have credit report errors, so too can your ChexSystems report have mistakes. This could trigger your bank account application to be rejected, even if your past checking account management was good.

You can obtain a copy of your ChexSystems report once a year or whenever your application for a bank account is denied based on the report. Keep in mind that applying for a bank account too many times counts as a black mark against you. If you get rejected, it’s probably a good idea to investigate your banking report vs. just submitting more applications. You’ll find details below on how to access your report.

Bankruptcy

If you have filed for bankruptcy, the bank may find out if it reviews your credit report as part of the application process. However, not all banks review credit reports when you open a checking account, and approval criteria can vary by institution.

Your Identity Can’t Be Verified

An application for a bank account may be rejected because there are mistakes on it and/or the information entered does not match the documents you submitted. For example, if you’ve recently moved, the verification source may not recognize your new address, or you might have answered security questions incorrectly when prompted by the verification system.

Here are other reasons your identity might not be verified:

•   Your submission had an error or typo (perhaps in your Social Security number).

•   Your credit profile may be affected by inaccurate information in your credit reports.

•   Your credit report could be frozen if there is suspicion of fraud or identity theft.

•   Your documents may have expired.

•   Your documents may be illegible.

•   You may have submitted a phone number that is not associated with your address.

•   Your proof of identity, such as a copy of your driver’s license or passport, and the information typed into the application don’t match.

What to Do After You’ve Been Denied Opening a Bank Account

If you’ve been denied a checking account, you may well want to apply elsewhere immediately. But a word of warning: Doing so could cause your application to be rejected because you are requesting too many new accounts too often. To maximize your chances of success, take the following steps before you reapply.

1. Find Out Why Your Application Was Denied and Ask the Bank to Reconsider

If your application is denied based on information in a consumer report, the bank is required by law to provide you with an adverse action notice explaining the decision. However, banks make their own approval decisions based on their internal criteria. It may be worth contacting the bank to ask for more details and request a review. You can also ask whether a typo in your application or an outdated overdraft affected the decision.

2. Check Your Banking Report

You can obtain a copy of your ChexSystems report once a year and whenever you are denied a bank account, if the report is the cause of your rejection. Visit the ChexSystems website or call 800-428-9623.

3. Look for Errors and Fraudulent Activity

Read the report from ChexSystems carefully, looking for fraudulent activity or mistakes in information such as your name, address, phone number, or Social Security number. For any errors, contact the agency, and be ready to provide supporting information to ensure the issue gets corrected.

4. Clean Up Your Report

Look at the negative actions in your report and fix them. You can file a dispute for anything inaccurate by going to the ChexSystems website. Pay off any debts and unsettled fees. Ask to have the negative activity removed. Otherwise, it can stay on your report for up to five years.

Consider Alternative Solutions

If you’ve been denied a bank account and can’t quickly resolve the issue, here are a couple of workarounds to consider.

Second-Chance Checking Account

Some banking institutions offer a second-chance account to those denied a traditional checking account. These accounts typically provide services that are limited, such as caps on debit card usage, no paper checks, and no overdraft protection. Also worth noting: These accounts often come with higher-than-usual fees. Nevertheless, this kind of account can help improve your financial life if managed responsibly.

Over time, you may be able to upgrade a second-chance account to a regular checking account by maintaining a positive balance and avoiding issues. These accounts can help you build a stronger banking history.

Prepaid Debit Cards

If you need a way to spend on daily expenses and pay bills without a bank account, prepaid debit cards could be a good solution. You load a dollar value onto these cards (they’re available at many retailers, such as gas stations and supermarkets), and you can then tap or swipe to use the funds.

Make sure you’re aware of any fees you might incur when using or reloading your card, and know that the usage of these cards isn’t reported. In other words, it won’t build your credit score or your banking history in any way. But it can be a valuable stopgap measure when you don’t have a bank account and need a convenient way to transfer funds.

Recommended: How Often Should You Monitor Your Checking Account?

The Takeaway

Having your application for a bank account denied is an upsetting experience that can definitely limit your financial life. The root of the problem may be that ChexSystems or another consumer reporting agency has reported that you are a high-risk customer. Or your application could have been rejected because mistakes were made, or your identity couldn’t be verified. By taking steps to remove errors and repair damage, you’ll be on the road to getting the account you need to keep your financial life humming along.

When you’re ready to apply for a checking account again, check out what SoFi has to offer.

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.

Better banking is here with SoFi, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

Why am I getting denied to open a bank account?

There are several reasons you could be denied a bank account, including mistakes on your application, negative activity on your checking account history, or errors on your ChexSystems or similar report. Banks may also deny applications based on their internal policies and screening criteria.

Can you get a bank account if you have committed fraud?

If you’ve committed fraud, you will likely have a negative history with ChexSystems, and you will likely have your bank account application declined. However, you might be able to get a second-chance checking account. If you maintain a positive balance and avoid any issues, you may be able to upgrade to a regular checking account.

Can a bank refuse to let you open an account?

Yes, banks can decide whether or not to offer an account to an applicant. They might deny an account if you have negative activity, such as unpaid overdraft fees and account closures on your ChexSystems report, or if there’s a mistake on your application. Banks aren’t always required to explain why your application was denied, but they must provide a notice if the decision was based on information in a consumer report.

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Photo credit: iStock/skynesher

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/. Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
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.
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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The cost of college continues to rise. The average full cost of attending college in 2025-26 was $30,990 for in-state students attending a public institution, $50,920 for out-of-state students at a public institution, and $65,470 at private colleges, according to the College Board While grants and scholarships can significantly reduce your out-of-pocket expenses, they typically don’t cover the full cost of your college education.

Student loans can help bridge that funding gap. Federal student loans are generally the best place to start because they offer fixed interest rates, flexible repayment options, and borrower protections that private loans typically don’t provide. However, federal loans also come with borrowing limits. If you still need additional funding after exhausting your federal aid options, private student loans may help cover the remaining costs.

This guide explains how private student loans work, their advantages and disadvantages, and what to consider before applying.

What Is a Private Student Loan?

A private student loan is an educational loan issued by a private lender, such as a bank, credit union, or online lender, rather than the federal government. Students often use private student loans when financial aid, savings, and federal student loans aren’t enough to cover the total cost of attendance.

Funds from a private school loan can typically be used for tuition, fees, housing, meal plans, transportation, books, and other education-related costs. Interest rates may be variable or fixed and are determined by the lender.

Borrowers typically must pass a credit check to qualify for private student loans. Since many students have limited credit histories, applying with a creditworthy cosigner is often necessary to qualify for competitive rates and terms.

How Do Private Student Loans Work?

Loan amounts, interest rates, repayment terms, and eligibility requirements vary by lender. If you’re considering a private student loan, it’s important to compare your multiple lenders to find the best fit for your financial situation.

To get a private student loan, you’ll submit an application directly with your chosen lender. The lender will review your credit profile, income, and other financial information to determine whether you qualify and what rates and terms you’ll receive.

LIke federal unsubsidized loans, private student loans generally begin accruing interest as soon as funds are disbursed. If you don’t make interest payments while you’re in school, the unpaid interest may capitalize, meaning it gets added to your principal balance. Future interest is then calculated on the higher balance.

Interest Rates: Fixed vs Variable

Many private student loan lenders offer both fixed-rate and variable-rate options:

•   Fixed rate loans maintain the same interest rate throughout the life of the loan, resulting in predictable monthly payments. This can make budgeting easier and protects borrowers from future rate increases.

•   Variable rates have interest rates that can change over time based on market conditions. While variable rates may start lower than fixed rates, they may increase or decrease during repayment, causing monthly payments to fluctuate.

Federal student loans, by comparison, only offer fixed interest rates.

Repayment Terms and Disbursement

If you’re approved for a private student loan, the lender typically sends the funds directly to your school. The school applies the money toward tuition, fees, room and board, and other charges. Any remaining funds are refunded to you for additional education-related costs, such as textbooks, transportation, or supplies. Repayment terms vary by lender and commonly range from five to 20 years. Many lenders also allow borrowers to choose among several repayment options while enrolled in school:

•   Interest-only repayment: You make payments toward accrued interest while in school. This can reduce the total amount repaid over the life of the loan.

•   Immediate repayment: You begin making full principal-and-interest payments right away. This option generally results in the lowest overall borrowing cost.

•   Deferred repayment: You postpone payments until after graduation, leaving school, or dropping below half-time enrollment. Because interest continues to accrue during the deferment period, this option usually results in the highest total borrowing cost.

The Pros and Cons of Private Student Loans

If federal financial aid isn’t enough to cover your educational expenses, private student loans can help fill the gap. However, it’s important to understand both the benefits and drawbacks before borrowing.

Pros of Private Student Loans	Cons of Private Student Loans
Apply any time of the year	May have higher interest rates
Higher borrowing limits	No access to federal forgiveness programs
Potentially lower rates for highly qualified borrowers	No federal interest subsidies
Fast application process	Risk of overborrowing
Options for international students	May require a cosigner

Benefits of Private Student Loans

Here’s a look at some of the advantages that come with private student loans.

Apply Any Time of the Year

Unlike federal student loans, which require students to submit the Free Application for Federal Student Aid (FAFSA^®) annually, private student loans can be applied for throughout the year. This flexibility can be helpful if you experience an unexpected funding gap or your educational expenses increase after the academic year begins.

Higher Loan Amounts

Federal student loans have annual and lifetime borrowing limits. For example, a first-year, dependent undergraduate can borrow up to $5,500 for that year. The aggregate max a dependent student can borrow for their undergraduate education is $31,000. Private student loan limits vary with each lender, but you can typically borrow up to the full cost of attendance each year, minus any financial aid received.

May Offer Lower Rates for Highly Qualified Borrowers

Federal student loans offer fixed rates set by Congress, currently ranging from 6.39% to 8.94% depending on your degree level and type of loan. Private student loan rates vary based on creditworthiness, with some starting just under 3.00% for exceptional credit. Federal student loans also charge an upfront fee (called an origination fee), while many private lenders do not. Keep in mind, however, that APRs on private loans vary widely and can reach 18% (or more) for borrowers with limited credit history.

Faster Application and Approval Process

Unlike federal student loans, private student loans don’t require completion of the FAFSA. Many lenders allow borrowers to apply online in just a few minutes.

Some lenders provide preliminary lending decisions within just a few minutes, though final approval and school certification may take several days. This can make private student loans a useful option when unexpected educational expenses arise.

Options for International Students

International students generally don’t qualify for federal student aid. Some private lenders offer student loans to eligible non-U.S. citizens who meet specific criteria, such as attending an approved school and applying with a qualified U.S.-based cosigner.

Disadvantages of Private Student Loans

Private student loans also have some downsides. Here are some to keep in mind.

Potentially Higher Interest Rates

Private lenders base interest rates on creditworthiness. Students with limited credit history may receive rates that are significantly higher than federal student loan rates. Federal loans provide the same interest rate to all eligible borrowers regardless of credit score.

Not Eligible for Federal Protections

Federal loans offer benefits such as income-driven repayment, loan forgiveness programs, and certain hardship protections. Private lenders generally do not provide the same level of borrower assistance.

No Federal Subsidy

Federal Direct Subsidized Loans, which are awarded to undergraduate students who demonstrate financial need, cover your interest while you are in school and for six months after you graduate. Private loans are unsubsidized, meaning that interest starts accruing immediately, which can significantly increase costs.

Risk of Overborrowing

Private lenders may allow students to borrow up to their full cost of attendance, minus financial aid. While this can be helpful, borrowing more than necessary increases both the total interest paid and the size of future monthly payments.

May Require a Cosigner

Because many students have limited income and credit history, a cosigner is often needed to qualify for a private student loan. A cosigner shares legal responsibility for repayment and may be affected if payments are missed.

Some lenders offer cosigner release programs that allow borrowers to remove the cosigner after meeting certain repayment requirements.

Recommended: Getting a Student Loan Without a Cosigner

Federal vs Private Student Loans

Here’s a closer look at some of the major differences between federal vs. private student loans.

Application Process

Federal student loans require students to complete the FAFSA each year. Eligibility is generally not based on credit history.

Private student loans require borrowers to apply directly through a lender. Typically, lenders perform a credit check and evaluate factors such as income and creditworthiness.

Recommended: Refinancing Student Loans With a Cosigner

Interest Rates

Federal student loan rates are fixed and set annually by federal law.

Private lenders establish their own rates, which may be fixed or variable. Rates depend on factors such as credit score income, loan amount, repayment term, and whether a cosigner (such as a parent) is included.

Repayment Plans

Borrowers who take out federal student loans on or after July 1, 2026 will have access to two repayment plans:

•   The Repayment Assistance Plan (RAP): This is an income-driven plan charging 1% to 10% of your adjusted gross income (AGI), spanning 30 years before forgiveness.

•   Tiered Standard Plan: This is a fixed-rate plan with terms spanning 10 to 25 years, determined by how much you borrowed.

Repayment plans for private loans are set by the individual lender. They can span from five to 20 years and typically don’t include an income-based option.

Deferment or Forbearance

Federal borrowers may qualify for forbearance during periods of financial hardship. Some private lenders also offer temporary hardship assistance, including deferment, forbearance, or reduced-payment programs. Availability varies by lender.

Loan Forgiveness

Borrowers with federal student loans may qualify for forgiveness programs such as Public Student Loan Forgiveness (PSLF), Teacher Loan Forgiveness, or after paying down their balances on an income-driven plan for a certain period of time.

Private student loans generally are not eligible for federal forgiveness programs. While some lenders may offer hardship assistance, permanent loan forgiveness is uncommon.

Should You Consider Private Student Loans?

Private student loans can be a useful tool when scholarships, grants, savings, and federal student aid aren’t enough to cover the cost of college. They may also be a practical option for international students.

However, students will generally want to consider federal student loans first because they offer valuable benefits, including income-driven repayment and potential forgiveness opportunities.

If you decide to borrow from a private lender, it’s wise to compare multiple lenders, review rates and repayment options carefully, and borrow only what you need to help ensure you can comfortably manage repayment.

You might also consider refinancing student loans in the future if doing so lowers your interest rate. Refinancing also allows you to combine federal and private student loans into a single loan with one monthly payment. Just keep in mind that refinancing federal loans with a private lender means giving up federal protections and benefits.

How to Get a Private Student Loan

Here’s a look at the steps involved in getting a private student loan.

1.    Shop around. Compare multiple lenders and evaluate factors such as interest rates, loan limits, repayment terms, fees, borrower protections, and hardship assistance tools.

2.    Check for prequalification. Some lenders allow borrowers to prequalify with a soft credit inquiry that won’t affect their credit score. This can provide an estimate of the rates and terms you may qualify for and let you know if you need to ask someone to cosign your loan.

3.    Gather required documents. You’ll typically need personal identification, proof of income, school enrollment details, and potentially financial information from a cosigner.

4.    Submit your application. Once your application is submitted, the lender reviews your information and verifies enrollment with your school. If approved, the lender coordinates disbursement with the institution.

Does Everyone Get Approved for Private Student Loans?

No. Approval depends on factors such as:

•   Credit history

•   Credit score

•   Income and employment status

•   Debt-to-income ratio

•   Cosigner qualifications

•   Enrollment at an eligible institution

If you don’t meet a lender’s requirements on your own, applying with a qualified cosigner may improve your chances of approval.

The Takeaway

Private student loans can help bridge funding gaps when scholarships, grants, savings, and federal student aid aren’t enough to cover the cost of college. While they often offer higher borrowing limits and may provide competitive rates for borrowers with strong credit, they lack many of the protections available through federal student loans.

Often the best approach is to exhaust grants, scholarships, and federal student loan options before considering private student loans. If a private loan is necessary, compare lenders carefully and borrow only what you need to keep future repayment manageable.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Why would someone get a private student loan?

Private student loans are commonly used when federal financial aid, scholarships, grants, and personal savings don’t fully cover educational expenses. They can also help students who need funding beyond federal borrowing limits or who don’t qualify for federal aid.

Will private student loans be forgiven?

Private student loans aren’t funded by the government, so they don’t offer the same forgiveness programs. In fact, private student loan forgiveness is rare.

If you experience financial hardship, however, many lenders will work with you to stay out of default. They may agree to temporarily lower your payments, waive a payment, or switch to interest-only payments. Or, you might qualify for deferment or forbearance, which temporarily postpones your payments (though interest typically continues to accrue).

Are private student loans paid to you or the school?

Private student loans are typically disbursed directly to the school. After tuition, fees, and other charges are paid, any remaining funds are then refunded to the student for qualified educational expenses.

What credit score do you need for a private student loan?

Private student loan qualification requirements vary widely, but many lenders require a minimum FICO^® score of 640 for approval. Because private loans are credit-based, a higher credit score typically yields a significantly lower interest rate. If you have poor credit or a thin credit history, you will likely need a creditworthy cosigner.

What is the difference between a private student loan and a federal student loan?

Federal student loans are funded directly by the government, while private student loans are issued by banks, credit unions, or online lenders. Federal options provide benefits like subsidies, income-driven repayment, and forgiveness programs that private lenders rarely match. However, federal loans have strict annual borrowing limits, while private loans often allow you to borrow up to your school’s total cost of attendance.

Experts generally recommend using private student loans only after all financial aid, including federal student loans, has been exhausted.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

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

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Thrift Savings Plans (TSPs) are retirement plans for federal employees and members of the uniformed services. They offer the same kinds of benefits and tax advantages that private employers can offer their employees through a 401(k).

Like 401(k)s, TSPs allow savers to take out loans from their own savings. Borrowing against your retirement can be risky business, so it’s important to understand the ins and outs of TSP loans before you make a decision.

What Are Thrift Savings Plan Loans?

A TSP loan allows federal workers and uniformed service members to borrow from their retirement savings. They must pay interest on the loan. However, that interest is paid back into their own retirement account. As of May 2026, the interest rate on new TSP loans is 4.50%, typically lower than the rate private employees pay on 401(k) loans.

Before you can borrow from your account, the following criteria must be met:

•   You have at least $1,000 of your own contributions and earnings invested in the account.

•   You must be currently employed as a federal civilian worker or member of the uniformed services.

•   You’re actively being paid, as loan repayments are deducted from your paycheck.

•   You haven’t repaid a TSP loan in full within the last 30 business days.

How Do Thrift Savings Plan Loans Work?

There are two types of TSP loans: general purpose and primary residence. General purpose loans may be used for any purpose, require no documentation, and have repayment terms of 12-60 months.

Primary residence loans can only be used to buy or build a primary residence and only for costs still needed to close. They must be repaid in 61-180 months, and they require documentation to qualify. You cannot use primary residence loans to refinance or prepay an existing mortgage, add on to or renovate your existing home, buy another person’s share in your home, or buy land only.

Recommended: Common Uses for Personal Loans

Pros and Cons of a Thrift Savings Plan Loan

As you weigh whether or not it’s a good idea to borrow from your retirement savings, consider these pros and cons.

Pros of a TSP Loan

Chief among the advantages of borrowing from a TSP are the relatively low interest rates compared to most other loans.

What’s more, you can get access to funds pretty quickly, and repayment is simple, coming from payroll deductions. Also, you don’t need to submit to a credit check to qualify for the loan.

Cons of a TSP Loan

Despite the benefits, borrowing from a TSP is often considered a last resort due to certain disadvantages.

First and foremost, when you borrow from your retirement, you’re removing money from your account that would otherwise benefit from tax-advantaged compounding growth.

If you leave your job with an unpaid loan, you may continue making loan payments directly to the TSP. If you don’t repay the loan, the remaining balance may be declared a taxable distribution.

In addition, TSP loans aren’t reported to the credit reporting bureaus and don’t help you build credit because they’re not traditional third-party credit products.

Does a Thrift Savings Plan Loan Affect Your Credit?

TSP loans aren’t reported to the three major credit reporting bureaus — TransUnion, Equifax, and Experian — so they don’t affect your credit score.

Recommended: How Do I Check My Credit Score Without Paying?

How Long Does a Thrift Savings Plan Loan Take to Get?

Applying for a TSP is a relatively simple process. You can fill out an application online on the TSP website. There’s a $50 processing fee for general purpose loans and a $100 fee for primary residence loans. Borrowers who are married will generally need spousal consent before taking out a loan.

Once the application is approved, borrowers typically receive the loan amount via direct deposit or check within three business days.

How Much Can You Borrow From a Thrift Savings Plan?

The minimum you have to borrow with a TSP loan is $1,000. Rules for determining your maximum are rather complicated. You’ll be limited to the smallest among the following:

•   Your own contributions and their earnings in your TSP

•   $50,000 minus your highest outstanding loan balance during the last 12 months, if any

•   50% of your own contributions and their earnings, or $10,000, whichever is greater, minus your outstanding loan balances

According to these rules, $50,000 is the most you can borrow, and you may be limited to as little as $1,000.

Should You Take Out a Thrift Savings Plan Loan?

Because a TSP loan can have a lasting effect on your retirement savings, you’ll want to be sure to exhaust all other loan options before deciding to apply for one. If you’re experiencing financial hardship or poor credit has made it hard for you to qualify for another type of loan, a TSP may be worth exploring.

Thrift Savings Plan Loan Alternatives

Before choosing a TSP loan, take the time to research other alternatives.

Credit Card

Credit cards typically carry very high interest rates. The average interest rate as of April 2026 is about 19.16%. That said, if you use a credit card to make a purchase and pay off your debt on time and in full at the end of the billing cycle, you won’t have to pay interest on your debt.

Credit cards only become expensive when you carry a balance from month to month, in which case you’ll owe interest. What’s more, the amount of interest you owe will compound. In order to carry a balance, you must make minimum payments or risk late penalties or defaulting on your debt.

Recommended: Differences and Similarities Between Personal Lines of Credit and Credit Cards

Passbook Loan

Passbook loans allow you to borrow money at low interest rates, using the money you have saved in deposit accounts as collateral. That money must remain in your account over the life of the loan. And if you default on the loan, the bank can use your savings to recoup its losses.

Signature Loan

Unlike passbook loans, signature loans don’t require you to put up any items of value as collateral. Also known as “good faith loans,” signature loans only require that you provide your lender with your income, credit history, and your signature. Signature loans are considered to be a type of unsecured personal loan.

Personal Loan

A personal loan can be acquired from a bank, a credit union, or an online lender. They’re typically unsecured loans that don’t require collateral, though some banks offer secured personal loans that may come with lower interest rates.

Loan amounts can range from a few hundred dollars to $100,000. These amounts are repaid with interest in regular installments.

Personal loans place few restrictions on how loan funds can be spent. Common uses for personal loans range from consolidating debt to remodeling a kitchen.

The Takeaway

For borrowers in a financial pinch, TSP loans can provide a low-interest option to secure funding. However, they can also have a permanent negative impact on retirement savings, so it makes sense for borrowers to explore other options as well.

SoFi offers low fixed interest rates on personal loans of $5,000-$100,000 and no-fee options.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What does TSP loan stand for?

TSP stands for Thrift Savings Plan. It’s a retirement account that the federal government offers to its civilian employees and members of the uniformed services.

What is a TSP loan?

A TSP loan allows Thrift Savings Plan participants to borrow from their retirement account. Loans are repaid automatically through payroll deductions, and interest payments are made back to the account.

How long does it take to get a TSP loan?

Once processed, the proceeds of your Thrift Savings Plan (TSP) loan will generally be disbursed. This typically occurs within three business days.

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Photo credit: iStock/SDI Productions

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

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

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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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