Back in the day, if you wanted a loan to pay off your car or credit cards, you’d go to a bank or a credit union, sit down with a loan officer, and wait for them to tell you yes or no as they “crunched the numbers.”
But now peer-to-peer (P2P) lending has come onto the market, offering loans to borrowers directly from individuals — and usually carrying more favorable terms for those without a great credit profile. Borrowers can access up to $50,000 (or more) from lenders, with fixed term repayment scheduled and reasonable interest rates. Investors can also become lenders on P2P platforms, earning interest collected on loans as a passive form of investment income.
Let’s break down some of the best peer-to-peer lending sites for both borrowers and investors, so you can determine which option is best for you.
What’s Ahead:
Overview of the best peer-to-peer lending sites
Best for those with high credit scores: Prosper
Best for crypto-backed loans: BlockFi
Best for young people: Upstart
Best for a payday loan alternative: SoLo Funds
Best for small businesses: FundingCircle
Best for first-time borrowers: Kiva
Prosper: Best for those with high credit scores
APR: 6.99% to 35.99%
Term: 2 to 5 years
Prosper is the OG peer-to-peer lender in the market. It was founded in 2005 as the very first peer-to-peer lending marketplace in the U.S. According to their website, they’ve coordinated over $22 billion in loans.
Borrowing with Prosper
If you’re a borrower, you can get personal loans up to $50,000 with a fixed rate and a fixed term from two to five years in length. Your monthly payment is fixed for the duration of the loan. There are no prepayment penalties, either, so if you can pay it off early, you won’t be penalized.
You can get an instant look at what your rate would be and, once approved, the money gets deposited directly into your bank account.
Investing with Prosper
As an investor, you have many options on loans to choose from. There are seven different “risk” categories that you can select from, each with their own estimated return and level of risk. Here’s a look at the risk levels and the estimated potential loss, according to Prosper:
AA – 0.00 – 1.99%
A – 2.00 – 3.99%
B – 4.00 – 5.99%
C – 6.00 – 8.99%
D – 9.00 – 11.99%
E – 12.00 – 14.99%
HR (High Risk) – ≥ 15.00%
As you can see, the lower the letter, the greater the risk of default, hence a higher estimated potential loss. With just a $25 minimum investment, you can spread your risk out across all seven categories to provide your portfolio some balance.
The borrowers that you’re lending to are also above U.S. averages regarding their FICO score and average annual income.
Learn more about Prosper or read our full review.
BlockFi: Best for crypto-backed loans
APR: 4.5% – 9.75%
Term: 12 months
BlockFi is a popular crypto lending platform that offers crypto-backed loans to borrowers and pays out interest to lenders. BlockFi offers instant loans and requires no credit checks for borrowers. All loans are collateralized, meaning borrowers will need to lock in their crypto to borrow against it.
Borrowing with BlockFi
If you’re a borrower, you can get a crypto loan for up to 50% of the value of your crypto, with rates ranging from 4.5% to 9.75% APR, depending on the amount of collateral. Payments are made monthly and are fixed for the duration of the loan.
Interest rates are determined by the amount of collateral deposited and the loan-to-value (LTV) of the overall loan. There is a 2% origination fee on all loans.
Loan rate – 9.75% (50% LTV)
Loan rate – 7.9% (35% LTV)
Loan rate – 4.5% (20% LTV)
Bitcoin (BTC), Ether (ETH), Paxos Gold (PAXG), or Litecoin (LTC) can be used as collateral for the loan, and can be liquidated if the LTV goes above the original LTV of the loan.
Investing with BlockFi
BlockFi offers interest accounts for users who deposit crypto. The funds are used for crypto lending, and interest is paid out in the native crypto deposited. Interest rates vary by cryptocurrency, and range from 0.10% APY up to 7.50% APY. Stablecoins (such as USDC) pay out the highest rates.
Crypto interest accounts are not available to U.S. investors, as BlockFi was sued by the SEC for violating securities laws.
Read our full review.
BlockFi Bankruptcy Notice -On November 10, 2022, BlockFi announced that it had to suspend withdrawals from its platform due to the FTX liquidity crisis. As a result, consumers should not be using the BlockFi platform. As of November 28, 2022, BlockFi officially declared bankruptcy.
Upstart: Best for young people
APR: 5.6% – 35.99%
Term: 3 or 5 years
Upstart is an innovative peer-to-peer lending company that was founded by three ex-Google employees. In addition to being a P2P lending platform, they’ve also created intuitive software for banks and financial institutions.
What’s unique about Upstart is the way they determine risk. Where most creditors will look at a lender’s FICO score, Upstart has created a system that uses AI/ML (artificial intelligence/machine learning) to assess the risk of a borrower. This has led to significantly lower loss rates than some of its peer companies. Combine that with an excellent TrustPilot rating, and this company is certainly making waves in the P2P marketplace.
Borrowing with Upstart
Borrowers can get loans from $1,000 up to $50,000 with rates as low as 5.6%. Terms are either three or five years, but there’s no prepayment penalty.
Using their AI/ML technology, Upstart looks at not only your FICO score and years of credit history, but also factors in your education, area of study, and job history before determining your creditworthiness. Their site claims that their borrowers save an estimated 43% compared to other credit card rates.
Investing with Upstart
Investing with Upstart is also pretty intuitive. Unlike other P2P platforms, you can set up a self-directed IRA using the investments from peer-to-peer lending. This is a unique feature that many investors should be attracted to.
Like other platforms, you can set up automated investing by choosing a specific strategy and automatically depositing funds.
Upstart claims to have tripled their growth in the last three years due heavily to their proprietary underwriting model, so it might be worth a shot to consider this option.
Learn more about Upstart or read our Upstart review.
SoLo Funds: Best for a payday loan alternative
APR: 0% (tipping optional)
Term: Up to 35 days
SoLo Funds is a peer-to-peer platform that functions as a short-term lender, similar to payday loans. With term lengths only lasting for up to 35 days, loans must be paid back in a narrow timeframe. But instead of charging fees, borrowers can leave an optional tip instead.
SoLo Funds is an affordable option for clients who are in a pinch and need an advance on payday, but there are hefty fees if loans are not paid back within 35 days. Users will need to pay a 10% penalty plus a third-party transaction fee if late.
Borrowing with SoLo Funds
Borrowers can take out loans up to $575 for a maximum of 35 days. Loans do not charge fees, but allow borrowers to select an optional tip amount to lenders.
Loan applications only take a few minutes, and while most loans post within a few days, some may be instantly approved, offering same-day funding with money transferred to borrowers within a few hours.
Loans must be paid back in full within 35 days, or there is a 10% penalty plus other transaction fees. There is no option to roll the loan over.
Investing with SoLo Funds
Lending is fairly straightforward, with a simple sign-up process and no pre-qualifications needed. Since the loans are smaller amounts (up to $575), there are no minimums required for lending.
SoLo Funds has a marketplace of loan requests from borrowers, with details specified on each. Each loan request shows the amount needed plus the tip given by the borrower for the loan. Each borrower also has a SoLo Score, on a scale from 40 to 99, with higher scores showing more “worthiness” for paying back a loan. Loans can go into default, and if needed, to collections through a third party. There is a risk of total loss with SoLo Funds investing, though the platform does offer insurance against loss for a fee.
Learn more about SoLo Funds.
FundingCircle: Best for small businesses
APR: 11.29% to 30.12%
Term: 6 months to 7 years
FundingCircle is a small business peer-to-peer platform. The company was founded with the goal of helping small business owners reach their dreams by providing them the funds necessary to grow.
So far, they’ve helped 130,000 small businesses across the world through investment funds by 71,000 investors across the globe. FundingCircle is different in that it focuses on more substantial dollar amounts for companies that are ready for massive growth. They also have an excellent TrustPilot rating.
Borrowing with FundingCircle
As a borrower, the minimum loan is $25,000 and can go all the way up to $500,000. Rates come as low as 5.99%, and terms can be anywhere from six months to seven years. There are no prepayment penalties, and you can use the funds however you deem necessary — as long as they are for your business.
You will pay an origination fee, but unlike other small business loans, funding is much quicker (you can be fully funded as quickly as 1 business day).
Investing with FundingCircle
As an investor, you’ll need to shell out a minimum of $25,000. If that didn’t knock you out of the race, then read on.
According to FundingCircle, you’ll “Invest in American small businesses (not start-ups) that have established operating history, cash flow, and a strategic plan for growth.” While the risk is still there, you’re funding established businesses looking for extra growth.
You can manage your investments and pick individual loans or set up an automated strategy, similar to Betterment, where you’ll set your investment criteria and get a portfolio designed for you.
Learn more about FundingCircle.
Kiva: Best for first-time borrowers
APR: 0%
Term: Up to 3 years
If you want to do some good in the world, you’ll find an entirely different experience in P2P with Kiva. Kiva is a San Francisco-based non-profit that helps people across the world fund their businesses at no interest. They were founded in 2005 with a “mission to connect people through lending to alleviate poverty.”
Borrowing with Kiva
If you’d like to borrow money to grow your business, you can get up to $15,000 with no interest. That’s right, no interest. After making an application and getting pre-qualified, you’ll have the option to invite friends and family to lend to you.
During that same time, you can take your loan public by making your loan visible to over 1.6 million people across the world. Like Kickstarter, you’ll tell a story about yourself and your business, and why you need the money. People can then contribute to your cause until your loan is 100% funded. After that, you can use the funds for business purposes and work on repaying your loan with terms up to three years.
Investing with Kiva
As a lender, you can choose to lend money to people in a variety of categories, including loans for single parents, people in conflict zones, or businesses that focus on food or health. Kiva has various filters set up so you can narrow down exactly the type of person and business you want to lend your money to. You can lend as little as $25, and remember, you won’t get anything but satisfaction in return — there’s no interest.
You can pick from a variety of loans and add them to your “basket,” then check out with one simple process. You’ll then receive payments over time, based on the repayment schedule chosen by the borrower and their ability to repay. The money will go right back into your Kiva account so you can use it again or withdraw it. There are risks to lending, of course, but Kiva claims to have a 96% repayment rate for their loans. Just remember, you’re not doing this as an investment, you’re doing it to help out another person.
Learn more about Kiva.
What is peer-to-peer lending?
As the name suggests, peer-to-peer lending involves private individuals making loans to other individuals. The system runs contrary to the traditional model of banks and credit unions providing financial services because it cuts out the middleman.
While peer-to-peer lending had a surge in users over the past decade, in the past few years, some P2P lending companies have shuttered their services, including StreetShares, Peerform, and LendingClub.
How does peer-to-peer lending work?
Peer-to-peer lending shares many similarities with traditional lending:
You fill out an application with your financial and personal information, including the loan’s size, tax returns, and government-issued identification.
The lender will review your application before posting it on the site for investors.
Investors get to play the part of a loan officer, reviewing a list of applications and deciding where they might want to contribute.
The platform will indicate how risky the loan is and the potential return on investment.
Funding takes anywhere from one day up to two weeks.
Is peer-to-peer lending safe?
No one would say that peer-to-peer lending is 100% safe. No form of investing is. Many of the best peer-to-peer lending sites vet borrowers and investors to mitigate risk. The review process helps eliminate untrustworthy candidates, so borrowers can receive their loan and investors can earn interest.
Read more: Should you invest in peer-to-peer loans?
Pros & cons of P2P lending for investors
Pros
An attractive alternative to more traditional investments — You can round out your portfolio that might exclusively include stocks, bonds, and mutual funds. Some platforms merge private and public equities, so you can make all your investments in one place.
Most lending platforms let you select multiple loans at once — The variation enables you to reduce your risk exposure while potentially earning higher yields than a CD or savings account.
Feel good about your contribution — With sites like Kiva, you know that your money is going toward a humanitarian purpose.
Cons
Risk of default — When you lend money to individuals, you risk them defaulting. Peer-to-peer lending sites don’t come with FDIC insurance like a CD or savings account.
P2P loans lack the liquidity of stocks or bonds — Most loans are for three to five years, so you would have to wait until then to withdraw money.
Inequality — Some platforms, such as Funding Circle, only give access to accredited investors, so not everyone has equal access to lending opportunities.
Pros & cons of P2P lending for borrowers
Pros
You can circumvent the traditional bureaucracy of brick-and-mortar banks — Instead of waiting in line and negotiating with a loan officer, you have access to a fast, online experience. Because online platforms don’t have to worry about physical overhead, many can give borrowers competitive interest rates.
P2P loans typically aren’t as strict as banks or credit unions — The lax approach makes it easier to secure a loan if you have fair or poor credit history.
Often no prepayment penalties — You don’t have to worry about prepayment penalties in many cases.
Cons
Borrowers face more hurdles if they have a low credit score — Interest rates can go as high as 36% for those with lower scores, while some platforms don’t offer financial services to anyone with a credit score below 630.
Possibly high fees — Some sites have origination fees of 6%.
Impersonal — If you want the old-fashioned face-to-face borrowing experience, peer-to-peer lending isn’t for you. You don’t have a chance to sit down with your lender and hash out terms.
Loan caps around $50,000 — If you need more money, you’ll likely have to go to a bank or credit union.
Summary
Peer-to-peer lending is a great option for borrowers with less-than-stellar credit who want access to capital with reasonable terms and rates. P2P lending is ideal for small businesses and individuals who are looking for a personal loan that does not require mountains of paperwork, and that is funded quickly (usually within a few days).
But not all P2P lending platforms operate the same, and some can charge high origination fees and interest rates. Others require high minimum loan amounts to borrow as well, making them less accessible to some borrowers.
Investors can earn decent returns with P2P lending, but there is also the risk of default and the mess of going through collections agencies occasionally. Finding a solid platform with detailed risk mitigation strategies (such as borrower scores), and insurance against default can help alleviate these concerns, but it may eat into your profits.
While peer-to-peer lending is not seeing the massive growth of a few years ago, it is still a solid option for borrowers and investors alike.
Credit matters when looking to buy a house, car or any other pricey asset. Unless a consumer is flush with cash, the path to home and vehicle ownership may go through a mortgage or a loan. Good credit can provide you with terms and privileges not available to a person with poor credit, including lower interest rates and increased borrowing capacity.
We delve into what constitutes a good credit score and the reasons why it is important to have a good credit score.
Recommended: What Credit Score Is Needed to Buy a Car
What’s Considered Good Credit?
Consumers with standard credit scores of 661 or greater are considered to have good credit, because they rank as prime or super prime in terms of their risk assessment. A bad credit score falls on the lower end of the range and a good credit score falls on the higher end of the range.
Many credit scoring models, including the standard FICO® Scores and VantageScore 4.0, measure an individual’s credit risk on a three-digit scale ranging from 300 to 850. The highest risk group are consumers with deep subprime credit scores from 300 to 500, and the lowest risk group are consumers with super prime credit scores from 781 to 850, according to Experian.
Consumers may build and attain good credit by paying their bills on time, maintaining a mix of accounts and keeping their revolving balances under 30% of credit limits.
Recommended: What Is the Difference Between TransUnion and Equifax?
Check your score with SoFi Insights
Track your credit score for free. Sign up and get $10.*
8 Benefits of Good Credit
Here are the eight core benefits of good credit, which highlight why it is important to have a good credit score:
Benefit #1: Easier Access to Credit
Good credit may provide you with easier access to additional credit. When a consumer applies for a credit card or personal loan, lenders may analyze the consumer’s credit report and credit score to make an informed decision on whether to approve or deny the application. A person with good credit is considered low-risk and therefore has an easier time getting approved for a personal loan compared to high-risk borrowers.
Benefit #2: Lower Interest Rates
Consumers with good credit may qualify for lower interest rates when borrowing money. For example, available financing data for new vehicle purchases in the first quarter of 2022 show consumers in the deep subprime category of bad credit have obtained auto loans with 14.76% interest on average. Meanwhile, consumers in the super prime category of excellent credit secured 2.40% interest rates on average. That amounts to an over 12 percentage point difference in interest rates.
Benefit #3: Lower Car Insurance Premiums
Many auto insurance companies use credit-based insurance scores to help categorize consumers by risk and determine what premiums they may pay. Under this practice, higher-risk consumers may pay higher auto insurance premiums than lower-risk consumers. In some states, having good credit or improving your credit score may lead to lower auto insurance premiums over time.
Benefit #4: Increased Borrowing Capacity
Consumers with good credit may obtain larger credit limits than those with poor credit. This could translate to greater spending power on a credit card and the ability to make larger purchases on credit. Having good credit also puts you in a better position to apply for and obtain new credit.
A bolstered borrowing capacity is not limited to credit cards either — credit unions and banks may offer personal loans to consumers with good credit. Such loans can help you consolidate debt, finance large purchases or obtain fast cash to weather an unforeseen emergency. Personal loans also may command lower interest rates than credit cards.
Recommended: Does Net Worth Include Home Equity?
Benefit #5: Easier to Buy a Home or Car
Good credit can help you buy a house with a good mortgage rate or a car with affordable financing. Borrowing money to own a home or vehicle comes at a price that includes principal and interest. Consumers with good credit may qualify for 0% annual percentage rate loans for a car, where no APR means no interest or finance charges. Establishing good credit may also improve your likelihood of obtaining a low-APR mortgage, which translates to lower debt repayment obligations.
Automotive consumers had an average credit score of 738 for new vehicle purchases and 678 for used vehicle purchases in the fourth quarter of 2022, according to Experian’s quarterly report. This shows the average automotive consumer boasted good credit within the prime category of low risk.
Recommended: Should I Sell My House Now or Wait?
Benefit #6: More Apartment Lease Options
Signing a lease to an apartment may require good credit. Landlords who conduct credit checks might deny lease applications if a prospective tenant has bad credit. Or, those with poor credit may have to provide a higher security deposit for rental housing compared with a prospective tenant who boasts good credit. Tenants with good credit also may have more leverage to negotiate for lower rent.
Jobseekers can benefit from good credit, as some employers may consider a person’s credit score when making hiring decisions. The U.S. Department of Housing and Urban Development says that a low credit score or credit invisibility is a burden that can “limit housing choice and employment opportunity,” whereas “a good credit score is part of the pathway to self-sufficiency and economic opportunity.” The term “credit invisible” refers to consumers who lack a credit score or credit history.
Benefit #8: Ability to Obtain Security Clearances
Law enforcement officers with good credit could gain privileged access to classified national security information and FBI facilities. Any state or local law enforcement officer seeking a security clearance has to first satisfy a comprehensive background check that includes a review of credit history. The FBI shares secret or top secret information with local law enforcement officers who have obtained security clearances.
Poor credit history would not necessarily disqualify an officer from obtaining a security clearance, but significant credit history issues “may prevent a clearance from being approved,” according to information posted on the FBI’s website.
The Takeaway
Good credit is important for anyone who wishes to borrow money to help finance key purchases. Many consumers rely upon mortgages and loans to buy houses and cars, while many cash-strapped individuals turn to credit cards to buy essential goods and services ranging from food and electricity to water and rent for housing.
The eight benefits of good credit highlighted above showcase why it is critical to pay your bills on time and practice good budgeting. SoFi Insights is a money tracker app that allows you to monitor and keep track of your credit score, among other perks that could assist with financial planning and managing your net worth.
Check out the features SoFi Insights offers to help bolster your financial success.
Photo credit: iStock/AndreyPopov
*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data. 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. Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website . SORL0523023
Applying for a mortgage can be stressful, what with all the money that’s on the line.
Oh, and the possibility that you could be denied entirely, perhaps while starting a family or attempting to relocate to a new state.
Making matters worse is the fact that all types of new words are thrown your way, which aside from being confusing, can make it difficult to negotiate a great rate on your home loan.
If you don’t know what the salesperson is talking about, how are you going to make your case for a better rate or lower fees?
My central message here at TTAM has always been empowerment through knowledge, with the reward being a better mortgage, whether it’s a lower interest rate, fewer closing costs, or simply the right product.
If you’re new to the game, you’ve probably got a lot of mortgage questions, and even if it’s not your first time, it never hurts to brush up on the basics.
Let’s discuss some of the more common mortgage lingo you might hear as you navigate the mortgage market, what the words mean, and how knowing them could save you some dough!
1. FICO
Let’s start with what’s arguably the most important mortgage-related term out there; your FICO score.
I say that because it can greatly impact what mortgage rate you ultimately receive, which can affect your wallet in a major way each and every month for many years to come.
If you’re applying for a mortgage, you’ve probably already heard of a FICO score because you have a credit card and/or a bank account, but you might not know just how much weight it carries.
Simply put, it can mean the difference between a rate of say 3% and 5% on a mortgage, depending on all the attributes of the loan.
So it’s nothing to take lightly, and something you should be well-versed on before you begin the process.
I’ve already written about mortgage credit score requirements extensively, but one key takeaway is that a credit score of 740 or higher will generally give you access to the lowest interest rates and most financing options.
2. LTV
Similarly crucial is your loan-to-value ratio, also known as LTV in industry terms. It too is a huge driver in determining your mortgage rate, with lower LTVs typically resulting in lower interest rates.
You can calculate your LTV by dividing the loan amount by the sales price or value of the property.
So if you put $60,000 down on a $300,000 home, the LTV would be 80%. It happens to be a key threshold to avoid mortgage insurance and secure lower rates.
In short, the lower your LTV, the lower your mortgage rate in most cases, as it means you’ve got more invested and the lender is less exposed.
3. DTI
When a lender qualifies you for a mortgage, they’ll do some calculations to determine affordability.
The major one is your debt-to-income ratio, or DTI, which is calculated by dividing your monthly liabilities (that show up on your credit report) by your monthly gross income.
If you spend $4,000 a month on housing and other costs like an auto loan/lease and credit cards, and make $10,000, your DTI would be 40%.
Generally, you want it below 43% to qualify for most mortgages, though there are exceptions. But again, lower is better here.
4. Appraisal
Mortgage lenders will often use require a home appraisal to determine the value of your property as it’s the collateral for the loan.
While appraisal waivers are becoming more and more possible these days, you’ll likely be on the hook for the cost of the appraisal when applying for a home loan.
Cost aside, it’s very important that the property comes back “at value” to ensure your loan can close without delay, or worse, require an increased down payment to make it work.
Additionally, you’ll probably just want to know what a third-party appraiser values your property at to determine its worth.
5. FHA
It stands for Federal Housing Administration, which bills itself as the largest mortgage insurer in the world, with a portfolio that exceeds $1.3 trillion at last glance.
They insure the many FHA loans borrowers take out to finance their home purchases. Their signature loan is the 3.5% down payment mortgage.
It is a government-backed loan, as opposed to the conventional loans backed by entities like Fannie Mae or Freddie Mac.
6. VA
The U.S. Department of Veteran Affairs provides a similar guarantee to lenders that issue mortgage loans to veterans and active service members.
This allows them to offer more favorable terms to those who protect our country.
The signature loan option is a zero down payment mortgage that also comes with a low interest rate, limited closing costs, and no mortgage insurance requirement.
7. USDA
While they’re perhaps better known for juicy steaks, the USDA also runs a pretty significant home loan program that provides 100% financing to home buyers.
The caveat is that the property must be located in a rural area in order to be eligible for financing – but many areas throughout the United States hold this distinction, even if not too far from major metropolitan areas.
8. GSE (Fannie and Freddie)
If the loan is a conventional one, meaning non-government, it’s probably backed by either Fannie Mae or Freddie Mac, which are the two government-sponsored enterprises (GSEs).
These two private, yet government-controlled companies (since the latest housing crisis), back or purchase the majority of home loans originated by lenders today.
They allow down payments as low as 3% with credit scores down to 620.
While the down payment requirement is slightly below that of the FHA, their credit score requirement is quite a bit higher.
9. PMI
It stands for private mortgage insurance, and applies to most conventional home loans with an LTV above 80%. It protects the lender, not you, from default, and can be quite costly.
Yet another reason to come in with a 20% down payment when obtaining a mortgage.
If you can avoid PMI, you might be able to significantly lower your monthly housing payment. Mortgage rates also happen to be lower at/below 80% LTV.
10. MIP
The mortgage insurance equivalent for FHA loans is known as MIP, and includes both an upfront premium (typically financed into the loan amount) and an annual premium, paid monthly for the life of the loan in most cases.
Sadly, it applies no matter what the LTV, hitting FHA borrowers twice regardless of down payment. This is one of the major downsides of an FHA loan.
11. PITI
Your monthly mortgage payment can be summed up by one neat acronym: PITI. Ironic pronunciation aside, it stands for principal, interest, taxes, and insurance.
It’s a more accurate representation of your housing payment, which is often advertised as just principal and interest (making it look at lot cheaper!).
In short, don’t forget to account for the property taxes and homeowners insurance, which can significantly increase your monthly outlay.
12. ARM
One of the more popular, yet highly-scrutinized loan types available, the adjustable-rate mortgage typically offers a lower interest rate to homeowners versus a fixed mortgage.
The downside is that it can adjust much higher once any initial fixed period comes to an end, though you often get a full five or seven years before that happens.
At the moment, ARMs aren’t offering much of a discount versus fixed-rate mortgages, so they’re best to be avoided for most folks.
13. FRM
The most popular home loan choice is a fixed-rate mortgage, also known as a FRM.
Two common examples include the 30-year fixed and 15-year fixed.
The interest rate does not change during the entire loan term, making it a safe choice for borrowers.
The negative here is that you pay for that peace of mind via a higher mortgage rate, all else being equal.
14. HELOC
Once you’ve already got a mortgage, you might want to tap into your home equity via a home equity line of credit, known as a HELOC.
It differs from a traditional second mortgage in that you get a line of credit that you can borrow from multiple times, similar to a credit card.
You can borrow as little or as much of that line as you want, pay it back, then borrow again, or just leave it open for a rainy day.
And perhaps more importantly, you can keep your low first mortgage rate untouched.
15. LO
Your LO, or loan officer, is your guide through the mortgage application process.
This is the person you’ll first make contact with, who will help you choose a loan type, negotiate pricing, and contact whenever anything comes up.
They are your eyes and your ears, and also your liaison to the mortgage underwriter, who decisions the loan, and the loan processor, who keeps everything moving behind the scenes (the unsung heroes).
16. Mortgage Broker
Similar to an independent insurance agent, mortgage brokers work with lenders and borrowers simultaneously to find you the lowest rate and/or best loan for your unique situation.
They aren’t tied to one specific company so they can shop on your behalf and ideally show you a range of what’s available with little legwork on your part.
It’s an easy way to comparison shop without having to speak to more than one company or individual.
17. APR
The annual percentage rate (APR) is the cost of your loan, factoring in the lender’s closing costs. You can’t simply compare loan options by looking at their interest rates.
Because closing costs can vary by thousands of dollars, they must be considered to determine which loan offer is the best deal.
However, APR still has its limitations because not all costs are included, and it assumes you’ll keep the loan for the full term, which many homeowners do not.
18. Points
A mortgage point is just another (unnecessarily fancy) way of saying 1% of the loan amount.
Unfortunately, these types of points will cost you because they are paid for by the borrower, assuming they apply to your specific loan.
They may take the form of discount points (to lower your interest rate) or represent the lender’s commission, known as a loan origination fee.
Your next question might be are mortgage points worth it?
19. Rate Lock
A quoted mortgage rate means basically nothing until it’s actually locked by the lender on your behalf.
Once it’s locked in, the rate won’t be subject to changes even if mortgage rates rise and fall as your loan application is processed and eventually funded.
Just be sure to close on time to avoid having to pay a lock extension fee, or worse, losing your lock!
20. Impounds
The mortgage payment isn’t the only thing you’ll have to worry about every month.
There’s also property taxes and homeowners insurance, which often must be paid monthly via an impound account unless you specifically waive them for a cost.
The lender collects a portion of these payments monthly, then releases the necessary funds once or twice a year on your behalf.
There’s nothing inherently wrong with impounds, they can even make budgeting easier, but some folks like having full control of their money.
21. Pre-Approval
If you’re shopping for a home to purchase, it’s pretty much a necessity to have a mortgage pre-approval in hand or the seller’s agent likely won’t even call your agent back.
Aside from being more or less mandatory, they’re also helpful to determine affordability and snuff out any potential fires early on.
A pre-approval is also a stronger version of a pre-qualification, which is often just a verbal starting point.
22. LE (Loan Estimate)
The loan estimate, or LE, replaced the long-utilized Good Faith Estimate, or GFE.
It is a summary of your proposed mortgage that includes the loan type, loan amount, interest rate, monthly payment, APR, and closing costs.
You can use it to compare offers from other lenders when shopping your rate. Take the time to read through the whole thing!
23. CD (Closing Disclosure)
The closing disclosure, or CD, replaced the HUD-1. It provides the final details of the loan, and must be delivered to the borrower at least 3 days before loan closing.
It can be compared to the LE to determine if anything changed from around the time of the application to loan closing. It’s a good time to review and ask questions if necessary.
If you want to know even more, check out my comprehensive mortgage glossary that includes just about every mortgage-related word you’d ever want to know.
Southwest Airlines is the nation’s largest domestic carrier, but it offers a remarkably simple frequent flier program called Rapid Rewards. You simply redeem your points for about 1.4 cents each toward any unsold seat.
The Southwest Rapid Rewards Priority card offers the most perks of any of their credit cards, but that comes at a cost.
What Is the Southwest Rapid Rewards Priority Credit Card?
The Southwest Rapid Rewards Priority Credit Card is a premium travel rewards credit card offered by Chase. With its $149 annual fee, it’s the most expensive of the three Rapid Rewards consumer credit cards offered.
As a new applicant, you can earn 60,000 Rapid Rewards points and a 30% off promo code after using your card to spend $3,000 within three months of account opening. You can use this code for a round-trip ticket with multiple passengers, and it’s valid with both cash and points bookings.
You also earn 2x points on Southwest airlines purchases and from purchases from Rapid Rewards® hotel and car rental partners. The 2x points offer is also valid for local transit and commuting purchases, including rideshare providers such as Uber and Lyft. You also earn 2x points on your internet, cable, and phone bills as well as for select streaming services.
You should expect plenty of valuable benefits from a premium travel rewards card, and this card largely delivers. For example, you receive a $75 credit toward Southwest purchases each year as well as a credit toward four upgraded boardings annually. These upgraded boardings currently sell for $30 to $80 each, depending on the flight.
This card can also help you earn elite status in the Rapid Rewards program. You earn 1,500 tier qualifying points (TQPs) toward A-List status for every $10,000 you spend, and there’s no limit on the number of TQPs you can earn.
Other perks include 25% back on in-flight purchases as well as cardholder benefits like lost and delayed baggage insurance, extended warranty coverage and a purchase protection policy.
There’s a $149 annual fee for this card, but thankfully there’s no foreign transaction fee imposed on purchases processed outside the United States. You also get a 7,500-point bonus on your account anniversary instead of flowers, which is worth about $105.
What Sets the Southwest Rapid Rewards Priority Credit Card Apart?
Nearly every airline offers several credit cards, but the Southwest Rapid Rewards Priority Credit Card is different for a few reasons. Mostly, it provides you with enough perks to help you justify its considerable annual fee. These perks include:
Big sign-up bonus. Earn 60,000 bonus points and a 30% off promo code after spending just $3,000 within three months. The promo code itself is a unique offer and can be very valuable.
Lots of bonus categories. Earn 3x points on Southwest ticket purchases plus 2x from transit, commuting, and rideshare purchases and 2x from internet, cable, and phone services and select streaming purchases. You also earn 2x when you book reservations with Southwest’s hotel and rental car partners.
Credit toward Southwest tickets. You get $75 back from your Southwest purchases each year. You also get a 7,500-point bonus on your account anniversary, which is worth about $105. For many travelers, these two features can justify this card’s annual fee.
Earn credit toward A-List status. This card lets you earn 1,500 tier qualifying points (TQPs) toward A-List status for every $10,000 you spend, and there is no limit on the number of TQPs you can earn. A-List status offers you perks such as a better boarding position and free same-day confirmed flight changes.
Four upgraded boardings per year when available. This gives you a boarding position of A1-15, which normally costs $30 to $80 per flight.
Key Features of the Southwest Rapid Rewards Priority Credit Card
The Southwest Rapid Rewards Priority Credit Card is not a very complicated credit card, but it does offer a lot of features that are worth knowing about before you apply.
Sign-Up Bonus
Earn 60,000 bonus points and a promo code for 30% off after spending just $3,000 within three months. The 30% off code has the potential to offer tremendous savings to large families who use it to book a round-trip ticket.
Earning Rewards
Earn 3x points on Southwest ticket purchases plus 2x from transit, commuting, and rideshare purchases and 2x from internet, cable and phone services, and select streaming purchases. You also earn 2x when you book reservations with Southwest’s hotel and rental car partners. You earn one point per dollar spent on all other purchases.
Redeeming Rewards
Rapid Rewards points are worth about 1.4 cents each toward airfare in any of their four fare classes. There are no restrictions on the number of seats available for redeeming rewards — you can use your points for any unsold seat.
Important Fees
This card has an $149 annual fee. No doubt, this will turn off a lot of potential applicants. However, it’s important to consider it in the context of the sign-up bonus as well as the $75 annual travel credit, 7,500-point anniversary bonus, and the four upgraded boardings each year. Fortunately, there’s no foreign transaction fee.
Credit Required
This card requires good or better credit to qualify. If your FICO score is much below 700, then you’ll likely have trouble being approved.
Advantages
This card has several key advantages that help justify its pricey annual fee.
Lots of benefits. This card offers numerous benefits, such as travel fee credits, upgraded boardings, in-flight purchase discounts and an anniversary bonus. You also get several purchase protection and travel insurance policies.
Bonus points. With all the 3x and 2x bonus categories, this card makes it easy to earn a free trip.
Big sign-up bonus. You can earn a bonus worth hundreds of dollars, and the minimum spending required is lower than many competing cards. The 30% off code can also be extremely valuable.
Easy rewards program. Other airline credit cards offer miles that can be difficult and confusing to redeem for the most value. But the Southwest Rapid Rewards program still keeps it simple.
Disadvantages
Before applying for this card, you have to consider some of its drawbacks and missing perks.
Expensive annual fee. There’s no way around the fact that you must pay $149 a year to use this card, so you have to use the rewards and benefits of this card to justify it.
No promotional financing offer. If you’re looking for a credit card with a 0% APR introductory financing offer, this isn’t it.
Forget first-class. You can’t redeem your Rapid Rewards points for a first-class seat because there are only economy seats on Southwest.
No overseas awards. Like first-class, Southwest fliers will find Europe, Asia, and much of the world out of their reach. However, Southwest does fly to Hawaii, Mexico, the Caribbean and even Central America.
How the Southwest Rapid Rewards Priority Credit Card Stacks Up
One of Southwest’s closest competitors is JetBlue, and it offers the JetBlue Plus card from Barclays. The JetBlue card has a slightly better sign-up bonus and substantially more points for airline ticket purchases. However, JetBlue points are worth about 1.2 cents each, which is significantly less than Southwest points.
Southwest Rapid Rewards Priority Credit Card
JetBlue Plus Card From Barclays
Annual Fee
$149
$99
Sign-Up Bonus
Yes
Yes
Rewards Rate
Up to 3x
Up to 6x
0% Intro APR
None
None
Foreign Transaction Fee
None
None
Credit Needed
Good or better
Good or better
Final Word
Fans of Southwest Airlines know that it’s a different type of carrier than the likes of American, Delta and United.
Instead of business-class tickets to Europe, Southwest fliers prize little perks like an upgraded boarding position and easy-to-use rewards. That’s where the Southwest Rapid Rewards Priority Card delivers.
But for those who aren’t fully onboard with the way Southwest works, the $149 annual fee can be hard to swallow. It’s also not a card for those whose home airport doesn’t offer much Southwest service. And for these more casual Southwest customers, it can be worth considering the Rapid Rewards Plus and Premier cards.
But if you find yourself regularly boarding Southwest and are looking for the best card to maximize your rewards and benefits, then there’s no substitute for the Southwest Rapid Rewards Priority Credit Card.
Disclaimer: The information related to the Chase Southwest Rapid Rewards Priority Card has been collected by Money Crashers and has not been reviewed or provided by the issuer of this card.
The Verdict
Our rating
Southwest Rapid Rewards Priority Credit Card
This is Southwest’s most feature-filled credit card for consumers. It includes lot’s of opportunities to earn bonus points, and it features strong benefits. If you’re a regular Southwest flier, you need to look into this card.
Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
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Jason has been writing about personal finance, travel, and other topics on blogs across the Internet. When he is not writing, he has a career in information technology and is also a commercially rated pilot. Jason lives in Colorado with his wife and young daughter where he enjoys parenting, cycling, and other extreme sports.
MARSHFIELD, WI (OnFocus) – Credit scores are numerical ratings that lenders use to evaluate a borrower’s creditworthiness. They are calculated based on a variety of factors, including payment history, credit utilization, length of credit history, and types of credit accounts. The most commonly used credit score model is the FICO score, which ranges from 300 to 850. The higher the score, the more creditworthy the borrower is considered to be.
“When it comes to home-buying, credit scores play a significant role in determining whether a borrower will qualify for a mortgage and at what interest rate,” said Josh Kilty, Mortgage Loan Officer with Fairway in Marshfield. “Our experienced mortgage advisers have a keen understanding of the loans that will be the best fit for your unique situation. And one of the biggest factors in finding the loan most suitable for you is your credit score. Based on your credit score, you will be a candidate for some types of loans but not others.”
Credit scores and mortgages have been in the news a lot lately, due to LLPA’s.
Loan-Level Price Adjustments are fees that are added to the interest rate of a mortgage loan, based on various risk factors associated with the borrower and the property being mortgaged. These adjustments are determined by the mortgage investor or servicer and are typically applied to loans that do not meet certain criteria, such as having a lower credit score or a higher loan-to-value ratio.
For example, if a borrower has a credit score below a certain threshold or if the property being mortgaged is considered to be in a high-risk area, such as a flood zone or an area with high foreclosure rates, the mortgage investor may apply an LLPAs to the loan, which will result in a higher interest rate.
Loan-Level Price Adjustments can vary depending on the lender and the type of mortgage being offered, and they can significantly impact the total cost of the loan over time. It’s important for borrowers to understand the LLPAs associated with their mortgage loan and to shop around for the best loan terms and interest rates.
Fairway Mortgage professionals can help home-buyers navigate the credit score requirements for obtaining a mortgage. They can provide guidance on improving credit scores, such as paying bills on time, paying down credit card balances, and avoiding new credit applications. Additionally, they can help borrowers understand the different types of mortgage loans available and the specific credit score requirements for each.
Conventional Loans
These are loans not created by a government entity. Also known as conforming conventional loans, they simply “conform” to the guidelines put in place by Fannie Mae and Freddie Mac. A conventional loan also involves borrowing no more than $548,250. Minimum credit score: 620.
USDA Loans
Insured by the federal government, USDA loans are limited to certain “rural” areas. However, these areas are often near more urban areas. Since this loan is one of the few that requires no down payment, it is known for its affordability. Therefore, it tends to be popular among first-time buyers. Minimum credit score: None officially, but most lenders will require 640 or greater.
FHA Loans
Also backed by the U.S. government, FHA loans offer flexible qualification guidelines that help buyers who may not qualify for a conventional mortgage. This flexibility enables lenders to provide home loans with down payments as low as 3.5% of the purchase price. Minimum credit score: 580 (with 3.5% down).
VA Loans
The U.S. Department of Veterans Affairs (VA) provides this affordable home financing option for service members, veterans and their surviving spouses. Fairway’s minimum credit score for VA-loan eligibility is just 580 — less than the 620 required by many other lenders.
Jumbo Loans
Available for home purchases over $726,200 and up to $2,000,000, jumbo loans require a higher credit score than pretty much any other loan you’ll ever find. Minimum credit score: 680.
Credit scores are a crucial factor in the home-buying process, and Fairway Mortgage professionals can help borrowers understand and improve their credit scores to increase their chances of qualifying for a mortgage and obtaining favorable loan terms. If you’re concerned about your credit score being too low, ask your Fairway mortgage adviser for assistance.
We welcome your stories! Contact us at [email protected]!
“The current mortgage rate environment has made it more challenging for some people, particularly would-be first-time-homebuyers, to purchase a home,” said Stephen Cannon, mortgage co-president at SouthState Bank. “Homeownership is a foundational component to building wealth and ultimately creating a prosperous financial existence, and the Opportunity Advantage Loan Fund could make a significant impact for … [Read more…]
A while back, I cautioned readers to avoid swiping the credit card before applying for a mortgage.
In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit.
This can result in lower credit scores since utilization is a big factor for FICO. And it can increase your debt-to-income ratio as well.
Simply put, if you’re seen as overextended due to maxed out credit cards, your credit scores will suffer.
So you can give your credit scores a boost by simply doing nothing, but there are some proactive measures you can take as well.
Increase the Credit Limits on Your Credit Cards
One quick and easy way to boost your credit scores is to increase your available credit
You can do this by raising the credit limits on the credit cards you have open
Simply ask your credit card issuers for credit line increases online or by phone
Once granted your utilization will go down and your credit scores should improve over time
One simple trick to improve your credit scores is via a credit limit increase.
This is something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.
If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.
Typically, all you need to do is enter enter your gross annual income and monthly housing/rent payment.
With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.
So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.
Once submitted, you’ll either get that new limit, something in between, or you’ll be denied.
But as long as your credit history and income is sufficient, you should get something. What’s awesome is it can take as little as a few seconds to get your new line of credit.
Note: Some card issuers may need to pull your credit report to do this, which could affect your credit scores temporarily due to the inquiry.
They’ll typically notify you first, but this is why you should request credit increases 3+ months in advance of your mortgage application to let the dust settle.
Lower Your Credit Utilization to Improve Your Scores
The underlying goal of a credit limit increase is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.
A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably by credit bureaus and mortgage lenders, respectively.
So imagine you have that American Express credit card with a $5,000 limit.
If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit scores.
You may actually want to keep your utilization rate below 25%. In this case, no more than $1,250 outstanding, even if you pay it off in full by the due date.
But what if you naturally charge a lot on your credit cards each month, despite paying them off in full every month? What can you do to keep utilization low?
Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.
If it were $15,000, it’s only around 17% utilization, which should certainly be viewed favorably.
In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit scores even higher.
Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.
Pay Off Your Existing Balances at the Same Time
Another trick that goes hand in hand with the first tip is to pay down your balances
Any existing loans and credit card balances that you can chip away at
This will also effectively free up available credit and should give your credit scores a boost
It will also lower your DTI because minimum payments will be reduced in the process
In conjunction with the first tip, you can also pay down any balances you may have, assuming you don’t pay your credit cards in full each month.
If implemented together, you can get higher limits and reduced balances, which will be a one-two punch in the credit utilization department.
So using our same example, if the individual with the $2,500 balance lets carries it from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.
They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.
These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.
Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment.
So you may actually be able to qualify for a larger mortgage and/or buy more house.
Give It Time to Work
The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report.
Because you’re requesting additional credit, some card issuers treat it as a quasi-application, meaning they’ll need to review your credit history.
This could ding your credit slightly, like any new line of credit. It’s temporary, but may offset some of the expected gains of a higher limit.
So either request the increased limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request.
If it’s the latter, it won’t harm your credit score. Regardless, inquiries typically don’t impact scores much, maybe 3-5 points and the damage is generally short-lived.
One final thing you can do is check out the Experian Boost, which increases credit scores by adding positive payment history to your credit file.
It can be helpful to those who lack traditional credit history, but pay other bills on time like a cell phone or utility.
In closing, you’ll want to approach mortgage lenders with the highest credit scores possible. This ensures you have the best chance of approval and also obtain the lowest interest rate available.
Read more: What credit score do I need to get a mortgage?
In spite of bank failures over the past three decades, most banks and credit unions in the U.S. remain secure places to store your money. One of the benefits credit unions and banks offer is easy access to your money.
Account holders can withdraw money quickly from a checking account at a bank branch or with a debit card, often with no fees. They can also find easy access and higher interest rates with a savings or money market account.
Keeping your money in a bank or credit union is considered safe because your money is insured up by the FDIC or NCUA, respectively.
In the event of a bank failure, which occurred more than 100 times during the financial crisis that spanned 2008 to 2012, some of your money is still protected by the federal government. Money in all U.S. banks, including the nation’s five biggest banks, is FDIC insured up to $250,000, per person, per account.
Fortunately, bank failures are less common today. The FDIC reported that the last time an FDIC insured bank failure occurred was October 2020. The FDIC paid out an estimated $18.3 million to account holders.
Credit unions carry similar protection in the form of insurance through the National Credit Union Administration.
How to Choose a Safe Bank Account
You already know that if a bank fails, the federal government will protect a large portion of your funds through FDIC insurance. You can spread your money between multiple checking and savings accounts so that no account holds more than the maximum $250,000 that is FDIC insured.
When you’re looking for the safest bank to open a new bank account, you want to compare other factors, including the bank’s total assets, security measures, fraud liability policies, history, and more.
What We Mean By a Safe Bank
You can see from this list of safest banks in the U.S. that bank security doesn’t always depend on the bank’s size. You’ll find financial institutions ranging from smaller banks to the largest banks on this list.
Bank safety means that the bank uses state-of-the-art security measures to protect your money, including:
Data encryption for their own systems and for online banking
Secure online bill pay
Two-factor authentication
Alerts for unauthorized transactions
Guarantee against unauthorized access
Card locking by app or phone
Direct deposit
We’ll look at these and other safety measures. Then, we’ll explore what makes some of the biggest banks in the U.S. some of the most secure banks and which other banks are keeping pace. Read on to find out: What is the safest bank in the U.S.?
Safety Measures Banks Use
Banks use a combination of training and state-of-the-art technology to keep account holder’s money secure. This includes training bank employees in security best practices and how to respond promptly to fraud alerts. It also includes bank policies, such as $0 fraud liability.
Finally, technology that includes SSL encryption and two-factor authentication can also help to keep your bank account safe during online banking.
12 Safest Banks in the U.S.
The Global Finance “World’s Safest Banks” list highlighted 50 safe banks. Of those, only a handful were based in the U.S. Here are 12 of the safest banks for U.S. customers, based on the Global Finance list.
1. JPMorgan Chase
With a market capitalization of $413.7 billion and a balance sheet total of $3.31 trillion, JPMorgan Chase is the largest bank in the U.S. based on assets, according to InsiderIntelligence.com.
During the financial crisis of 2008, Chase was one of the banks deemed “too big to fail.” Certainly, an account holder can feel secure that their most is protected even if the bank faces financial hardship.
But is Chase also ahead of the curve when it comes to security? Chase uses multiple authentication checks when you try to sign in to your online account.
The bank monitors for unusual activity and may send a text message or email for you to authorize a transaction outside your home state or for an exceptionally high amount.
The bank’s website uses 128-bit data encryption to secure your personal information. Finally, bank employees are trained in fraud prevention, fraud detection, and ethics.
Everyday security features
128-bit encryption
Multifactor authentication
Guarantee against unauthorized access
EMV chip cards
Card locking through the app or automated phone system
24/7 fraud protection by phone
2. U.S. Bank
With assets totaling nearly $675 billion, U.S. Bancorp, parent company of U.S. Bank, is the fifth-largest bank in the U.S. The bank website and mobile app offer SSL encryption, one-time card numbers for online purchases, and enhanced security features for commercial banking customers.
The Bank Smartly checking account for consumers allow you to set up account alerts and reminders through the mobile app. You can make contactless payments through the app, which gives you added protection against point-of-sale fraud and debit card skimmers, which can steal your account information if you pay using the magnetic stripe on your card.
U.S. Bank also offers a “Safe Debit Card,” designed for consumers ages 14+ who want the convenience of a checking account and debit card without the ability to write checks. The Safe Debit Card provides free access to the user’s VantageScore 3.0 credit score through TransUnion, a credit score simulator, online bill pay, mobile banking, and no overdraft fees.
Everyday security features
$0 liability fraud protection
Multifactor authentication
Virtual card numbers
SSL encryption
EMV chip cards
3. TD Bank
TD Bank, or Toronto-Dominion, is not just one of the largest banks in the U.S. with a worldwide presence, it is also one of the safest. Its branches are known for personalized customer service. But the bank is also known for its online presence. TD Bank recently partnered with Amount, a fintech provider, to enhance security with a suite of state-of-the-art fraud detection and account verification services.
The bank has 24/7 fraud monitoring and text alerts for activity. Plus, if you lose your debit card, you can replace it immediately at a nearby branch. TD Bank also offers features that enhance your security, including Bill Pay and Mobile Deposit, which reduces the handling of paper checks that create a risk of theft and fraud.
Everyday security
Card locking
24/7 fraud monitoring
Personalized service
Mobile deposits
Enhanced security and fraud detection
4. Citibank
Citigroup, which owns Citibank and other Citi properties, is the third-largest bank in the U.S. right now behind Chase and Bank of America. Like Chase, Citi is considered one of the financial institutions deemed “too big to fail.” The bank’s market cap is $97.06 billion.
Citi is considered one of the safest banks due to its enhanced security features for its bank accounts and credit cards.
Citi was one of the first banks to offer a virtual credit card number. This one-time use card number allows cardholders to shop safely online without having to give out your bank account information or card number.
You can sign on to the Citi mobile using a QR code and Face ID®, Touch ID®, Biometrics or 6-Digit PIN, which is more secure than using a username and password. As with Chase, you will receive text alerts for suspicious or unusual activity.
Do not confuse Citi with CIT Bank. In spite of the similarity in their names, CIT is a division of First Citizens Bank and not affiliated in any way with Citigroup.
Everyday security features
EMV chip cards
$0 liability fraud protection
Biometric security
256-bit SSL encryption
Multifactor authentication
Remote debit card locking by phone or through the app
5. Charles Schwab Bank
Charles Schwab Bank is known primarily for its investment divisions. But the bank achieved the highest ratings for customer satisfaction with checking accounts by J.D. Power. Most of the world’s safe banks offer a high level of customer service, which can put a customer’s mind at ease.
Schwab Bank has many of the features high earners look for in a bank, including the ability to easily transfer money from your Schwab One brokerage account to your fee-free checking account.
Schwab’s Mobile app and banking systems use the highest levels of data encryption, as you might expect. Set notifications regarding transactions and fraud alerts through the mobile app. Lock and unlock your debit card at will. You can also set travel notices so that you don’t get a fraud alert in error if you’re making large purchases off your usual beaten path. The bank’s personalized service stands out, with 24/7 service via phone or chat, and branches nationwide.
Everyday security
Card locking through the app
Travel notices
Contactless payments
EMV chip card
Data encryption
6. M&T Bank Corporation
With assets totaling more than $200 billion, M&T Bank may not be as large as Citi or Chase, but its high level of customer service and security puts it on the list of safest banks. M&T Bank has earned multiple awards for small business excellence, along with the highest ratings issued by the Federal Reserve Bank of NY for Community Reinvestment Act performance.
M&T’s mobile app allows you to receive instant alerts about purchases via email, text, or in the app. This way, you can keep track of fraud along with your own spending habits. The app offers fingerprint or facial recognition on supported devices for enhanced security. You can easily report a lost or stolen card in the app or lock your card if you’ve misplaced it.
M&T delivers the same security larger banks offer, with the personalized service of a community bank. With 700 branches across 15 states nationwide plus a network of 1,800 ATMs, M&T Bank might be a convenient and safe choice for your money.
Everyday security features
SSL encryption
Debit card locking
Multifactor authentication
Identity protection services available
24/7 fraud protection
7. Wells Fargo
With $1.71 trillion in assets, Wells Fargo is currently the fourth-largest bank in the U.S. It offers savings and checking accounts, credit cards, loans, and more to personal and business customers.
The bank has more than 4,700 locations plus 12,000 ATMs in its network, making it convenient for customers across the U.S. The Wells Fargo mobile app makes online banking easy and secure, with access to your FICO score, fraud alerts, and multifactor authentication.
The website and app operate with SSL encryption. You can log in via face or fingerprint ID if you prefer. You can set alerts any time someone signs onto your account or whenever a purchase is made.
Furthermore, you can also connect a digital wallet to your account, which may be safer than using debit cards. If you think you lost your card, you can turn it off and turn it on again through the app if you find it.
Wells Fargo makes it easy to report fraud, unauthorized activity, or suspicious activity quickly and easily through the bank’s helpline, even if you are traveling outside the U.S.
Everyday security features
$0 fraud liability
·Guarantee against unauthorized activity
SSL encryption
Low balance alerts
Card locking
8. PNC Bank
PNC Financial Services, owner of PNC Bank, has assets of $557 billion as of December 2022, making it one of the largest banks in the U.S. Like the other big banks, PNC is on the cutting edge of security and fraud protection for its customers.
The bank offers a Virtual Wallet that provides three accounts for checking and savings, along with direct deposit capabilities, overdraft protection, and a “Low Cash Mode,” that alerts you when your balance drops below a specific amount.
PNC also offers traditional banking solutions at its 2,629 branches worldwide. Through the bank’s growing number of Solution Centers, as well as mobile branches in underserved communities, PNC combines the security and convenience of an online bank with a traditional bank.
Everyday Security
Virtual wallet
Debit card blocking
SSL encryption
Fraud alerts
$0 fraud liability
9. Capital One
Capital One sits in the country’s list of top 10 banks and, thanks to enhanced security measures, is considered one of the safest banks in the U.S., too. Capital One holds assets worth $391.81 billion.
Capital One’s credit cards are consistently ranked on top list for rewards credit cards for travelers, and their security measures and easy to use app works for both credit and bank account customers.
You can set alerts by text or email each time you use your card. The app uses multifactor authentication and Capital One has $0 fraud liability for its accounts. You will not be held responsible for unauthorized activity. The bank issues EMV chip cards for added security at point-of-sale transactions.
Everyday Security
Card locking through the app or by phone
Account monitoring
SSL encryption
Multifactor authentication
Activity alerts
Credit monitoring
10. AgriBank
AgriBank made the Global Finance list of world’s safest banks, coming in at number 34. Part of the Farm Credit System, the bank has a net income of $576.1 million and $142.1 billion in total assets.
AgriBank has delivered reliable and consistent service to the agricultural industry for more than 100 years. As an agricultural credit bank, AgriBank is a wholesale only lender to farmers, ranchers, and rural businesses and homeowners. It pays dividends to its members.
It’s important to note that AgriBank services only agricultural customers in 15 states in the southern and Midwest U.S., from Arkansas to Minnesota. AgriBank is not FDIC insured. But, it is backed by the Farm Credit System Insurance Corporation to protect its members.
Everyday security features
Ethics hotline through EthicsPoint
SSL secured website
Two-factor authentication
Data encryption
Backed by the FCSIC
11. CoBank
CoBank is the second FCS member on our list of safest banks. Like AgriBank, it is protected by the FCSIC and offers wholesale loans to rural customers in the agricultural, power, water, and telecommunications industries.
Serving customers in all 50 states, it is one of the largest private providers of credit to the U.S. rural economy, according to its website. Dedicated to preventing fraud, the financial institution has a podcast, Fraud Wise, that provides tips to help its rural customer prevent and detect fraud.
Customers can report fraud easily through phone or email. Because of its size and personalized service, CoBank is rated by Global Finance as one of the safe banks in the U.S.
Everyday security features
Code of ethics
Fraud prevention
SSL data encryption
Guarantee for unauthorized transactions
12. AgFirst
AgFirst Farm Credit Bank is another member of the Farm Credit System that runs as a cooperative, where an account holder is considered a partner. AgFirst takes steps to maintain the safety and security of its members financial data and money. The organization operates in alignment with national cybersecurity standards and applies industry best practices to keep its systems and customers secure.
AgFirst offers loan servicing, loan origination, and many other services to the agricultural community. Headquartered in Columbia, SC, AgFirst has locations across the south and Midwest U.S.
Everyday security features
SSL encryption
Adheres to national cybersecurity standards
Personalized customer service
Backed by FCSIC
Bank vs. Credit Union
In your search for the best bank, you might also consider a credit union. They often offer lower fees, higher interest rates, and more personalized service. The ability to build relationships with employees at your local branch might make them feel like a safer choice.
See also: Best Credit Unions Anyone Can Join
What makes credit unions safe?
The money in a credit union is insured by the National Credit Union Administration. Just as with FDIC insured bank accounts, funds in credit unions are insured for up to $250,000 per person, per account if the credit union fails.
Credit unions often offer local, more personalized service than a national bank, which makes them a desirable financial institution for some people. You may find zero fee checking accounts more frequently at credit unions, higher interest rates, and better loan terms.
The same technology and customer service used in the safest banks also keeps your money safe in a credit union. Look for SSL encryption and two-factor authentication, easy ways to report fraud, and a guarantee against unauthorized access to your account.
What makes the safest banks in the U.S. secure?
A variety of security measures, along with FDIC insurance, keeps the money in your bank secure against fraud and bank failures. Some of the factors that can enhance a bank’s security include its online banking security, the availability of EMV chip cards, $0 fraud liability,
What happens if a bank fails?
Bank failures happened with alarming frequency during the recession of 2008. Experian reports that there were 561 bank failures between 2001 and 2022, when the U.S. faced more than one financial crisis.
Fortunately, these banks were FDIC insured. When a bank fails, the FDIC sells the remainder of the bank’s assets to a more stable bank. Sometimes, the FDIC will cover the bank deposits itself.
Are online banks safe?
Online banks today use the same security measures as a brick-and-mortar financial institution. Often, an online bank offers a fee-free checking account and higher interest rates for an online savings account. If you choose an online bank, make sure it is FDIC insured.
What appears to be an online bank may not be a national FDIC insured bank, but another type of financial institution. If that’s the case, make sure it is backed by an FDIC insured national bank.
It’s been some time since I’ve done mortgage Q&A, so without further delay, let’s explore the following question: “Do you need 20% down to buy a house?”
If you chat with anyone older than 50 (maybe 60), they’ll probably tell you that you need to (or should) put 20% down if you want to buy a house.
For them, it’s the normal, or should I say traditional, down payment needed to secure a mortgage.
And while it might be conventional wisdom when it comes to home buying, it’s not necessarily the reality anymore.
In fact, the median down payment is just 12%, per the National Association of Realtors (NAR) 2021 Home Buyer and Seller Generational Trends report. Despite this, a lot of people still seem to think you need 20% down to purchase a home.
You Don’t Need a 20% Down Payment…
A few years back, the NAR 2017 Aspiring Home Buyers Profile report found that 39% of non-owners believed they needed more than 20% for a mortgage down payment on a home purchase.
And 26% assumed they needed to put down 15-20%, while 22% said they needed a down payment of 10-14% in order to buy. None of those answers are true.
A 2020 study from NAR also had a whopping 35% of respondents going with the 16% to 20% down payment tier, easily the number one answer.
In reality, you may not even need a down payment if you take out a certain type of home loan, or receive gift funds for the down payment.
Even if a down payment is required, it’ll be a lot less than 20% in most cases, most likely less than 5%.
Last year, the typical down payment for first-time home buyers was just 7%, while it was 17% for repeat buyers, per NAR.
It’s common for repeat buyers to use the proceeds from their original home to buy a replacement, making it easier to come up with a larger down payment.
Conversely, first-timers often have a tough time coming up with funds because they can’t tap into home equity.
You’ll notice both figures have moved lower over the years, though average down payments have ticked higher recently, perhaps due to home buyer competition in this hot housing market.
20% Down Payments Used to Be the Norm
Your parents probably put down 20% or more when they bought a house
But back then home prices were a lot lower than they are today (and interest rates a lot higher)
You might only need to put down 3% or 3.5% when you purchase a property these days
But there are still key advantages to putting down at least 20% like no mortgage insurance and a lower interest rate
Back in the day, it was customary to come in with 20% down (or more) when purchasing a property.
But property values were significantly lower those days, and mortgage rates a lot higher.
Times have changed as home prices skyrocketed and mortgage lenders got more competitive (and less risk-averse).
Leading up to the housing crisis seen in the mid-2000s, a zero down mortgage was a common theme. In fact, there were lenders that named themselves after that lack of a down payment…
Of course, we all know what happened next – home prices tanked and low down payment options began to evaporate.
That led to increased FHA loan lending, which requires only 3.5% down if you have at least a 580 FICO score.
And over time, Fannie Mae and Freddie Mac introduced a competing product that allows for loan-to-value ratios (LTVs) as high as 97% (just 3% down).
So we’ve kind of come full circle, though we’re not quite at the zero-down stage just yet.
Though lenders have offered mortgages with just 1% down, such as Quicken, Guaranteed Rate, and United Wholesale Mortgage thanks to the use of grants.
Should You Put Less Than 20% Down on a Home?
You may not need to put 20% down on a home purchase in many cases
But it will cost you more money monthly if you don’t via a higher rate, PMI, and a larger loan amount
It may also make your offer less desirable to home sellers if they have competing bids with larger down payments
So it can beneficial to put down more, especially in a seller’s market
We’ve already answered the original question. You don’t need a 20% down payment to purchase a home.
In fact, you don’t need any down payment in some cases if you consider a home loan from the VA or USDA, both of which offer 100% financing.
You also don’t need to put down 10% or even 5% thanks to widely available programs from the FHA and Fannie and Freddie.
The median down payment is quite a bit lower, around 12% at last glance, and even lower (6%) for the 22 to 30 age cohort.
This age group also said saving for the down payment was one of the most difficult steps of the home buying process.
Now assuming you can muster a 20% down payment, should you come in with less?
This answer is a bit more elusive because it depends on a variety of factors, which include your household balance sheet and your financial goals.
Perhaps it’s better to frame the question the other way around.
Why You Should Put 20% Down on a House
In short, the less you put down on a home, the more you pay each month via your mortgage payment. This happens for three main reasons:
– Larger loan amount (less down means more financed) – Higher mortgage rate (rates tend to rise as down payments fall) – Mortgage insurance (added cost to account for risk)
If you put down less than 20%, you wind up with a bigger loan amount (obviously), a higher mortgage rate (usually) because of pricing adjustments, and you have to pay mortgage insurance to protect the lender.
This means your monthly housing costs go up, but you keep more cash in-hand, or at least not in your house.
Let’s assume the home you want to purchase is selling for $350,000 and you plan to take out a 30-year fixed mortgage. This comparison chart shows us how things might look.
3% Down vs. 20% Down: The Math
$350,000 Home Purchase
3% Down Payment
20% Down Payment
Down payment
$10,500
$70,000
Loan amount
$339,500
$280,000
Mortgage rate
4.125%
3.875%
Monthly P&I payment
$1,645.39
$1,316.66
PMI
$125
n/a
Total monthly cost
$1,770.39
$1,316.66
Difference
+453.73
As you can see from the chart above, the 3% down mortgage payment is roughly $454 more expensive each month thanks to those three things I mentioned.
That higher payment equates to an additional $27,223.80 spent over the course of five years.
Additionally, because the loan balance and mortgage rate are higher, more of your payment goes toward interest every month.
After 60 months, the 3% down mortgage would have a balance of $307,684.69, whereas the 20% down mortgage would be whittled down to $252,738.50.
The tradeoff is basically more money in your pocket versus the home, and the ability to buy more house now in exchange for a higher monthly payment.
This assumes you lack the down payment funds, but can afford the higher payments, which can be a common scenario for young high-earning individuals without significant savings (HENRYs).
At the same time, I’ve argued that it’s possible to buy more house if you put more money down because less income is required.
This assumes income is the problem and not assets, which can result in debt-to-income issues, which are prevalent and often grounds for denial.
Of course, it’s entirely possible for a low-down payment to be voluntary, for a homeowner who wants to park their money elsewhere.
That decision really comes down to how you value your housing investment, and if you think you can do better putting the money in the stock market or some other place.
For those who don’t have that choice, take comfort in the fact that you don’t need a 20% down payment to buy a home, or anywhere close to it.
But you will pay extra for that convenience, and you might have more hurdles to clear, such as convincing a seller to take your offer when another prospective buyer offers to put down 20%.
Alternatively, you could get a gift for a portion of the down payment and get the best of both worlds.
Can You Put More Than 20% Down on a House?
You can put as much down as you’d like (or even buy all-cash to avoid the mortgage entirely)
There are advantages to putting down more than 20% on a home purchase
Such as a lower mortgage rate thanks to fewer pricing adjustments
And an even stronger offer if buying a home in a hot market
Also a lower monthly payment and much less interest paid
You sure can. It’s generally possible to put down as much as you’d like on your home purchase, though if you put down too much you could run into issues with minimum loan amounts from lenders.
Of course, this probably isn’t going to be an issue in most cases with property values so high these days.
I’ve heard of home buyers putting down 50% just because they are debt-averse, but again, most folks don’t have that type of cash lying around.
The obvious benefit of putting a large down payment on a house is that you’ll have a smaller mortgage balance and pay less interest as a result.
You’ll also enjoy lower monthly payments, which will free up cash for other expenses or investments.
Conversely, you’ll have that much more money locked up in your property, which you’ll only be able to access if you sell or take out another home loan.
When it comes to mortgage rate pricing, it’s possible to obtain a slightly lower interest rate when you put down more than 20%, though it likely won’t be much.
We’re talking .125% to .25% lower depending on the scenario in question, so there are diminishing returns, especially when interest rates are already low.
But if you have bad credit the pricing impact can be greater with a larger down payment, so in those cases it could make sense to put down more than 20%, assuming you’ve got the cash available.
However, once you’re at 65% LTV (35% down payment) the pricing incentives tend to stop, so there wouldn’t be a benefit mortgage rate-wise after that threshold.
In summary, consider how much money you want locked up in your home, what your money could be doing (earning) otherwise, and how much it’ll cost you to put less down.
Lastly, don’t forget home sellers favor those who come in with larger down payments!
Read more: 2021 home buying tips to get the deal done.
Pros of Putting Down 20% on a Home Purchase
– Smaller loan amount – No mortgage insurance required – Lower mortgage rate – Pay less interest over the life of the loan – Ability to tap equity or take out a HELOC – Lower closing costs – Better chance of getting your offer accepted in a hot market – More lender choice and loan options available
Cons of Putting Down 20% on a Home Purchase
– Requires a lot more money up front – May make you house poor (little leftover for repairs/maintenance) – Money tied up in the home that could lose value (and thus access to it) – Could invest that money elsewhere for a better return – Inflation makes dollars worth less over time – Difference in monthly payment may not be all that substantial
By Peter Anderson24 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 8, 2012.
I signed up for Lending Club a few months back on a whim to try and see how it would perform. I’d been hearing about it quite a bit on personal finance blogs, and the returns that people were claiming to receive seemed like they were almost unrealistically good. There had to be a catch, it piqued my interest.
I started my investor account out slow. I took the $25 bonus Lending Club gave me for signing up (which you can get too) and added about $75 to that for about $100 in loans. I went into my account and hand picked 4 $25 loans to send out.
Purchasing investments in Lending Club is pretty easy. First, you link your bank account to your Lending Club account, and transfer any funds you wish to invest to your Lending Club account. Next you click on the “invest” tab in LC. On the invest page you can get as involved as you want with choosing your loans, or you can let the system choose loans for you. If you choose to allow the system to pick for you, you can just choose what type of investor you are (conservative, moderate or aggressive), and it will then give you a mix of loans to fit your personality and level of risk you’re willing to take on. The higher the risk, the greater the rewards, but also the greater the risk of choosing a loan that will default.
My Lending Club Strategy
Personally I chose to hand pick the loans that I gave out to help minimize my risk. I went in, searched only for loans with an A or B rating (good to decent credit/employment), and only chose loans that were ones that I could agree with (for example, people who were consolidating debt to get out of debt or paying off high rate credit cards). I also chose loans for smaller dollar amounts, below $10,000 because in my opinion those loans are probably going to have a lower rate of default (because of the lower monthly payments). So again, my strategy for Lending Club was to purchase loans that were:
Less than $10,000: Lower loan amounts means a lower monthly payment and a lower risk of defaulting on their loan.
A & B credit rating: I’ve only invested in loans that have either an A or B credit rating (good credit). That means I’ll have a lower return on my investment than someone with lesser credit, but it’s trade off I’m willing to take. I may sprinkle in a few C class loans soon, but not more than a few.
Zero delinquencies: When you view borrower’s profiles you can see from their credit report if they’ve had any reported delinquencies on their account. If they have, I skip their loan. If they’ve been late in the past or missed a payment – they’re likely to do it again.
Debt to income ratio below 25%: I like to invest in loans where the borrowers have a lower DTI ratio. Because of that I know they’re better able to afford the loan.
Loans over 60% funded: When other people have invested in the loan, a lot of the times that means that they’re a better risk because others have done their due diligence and agreed to invest.
Borrower answers to investor questions: Sometimes you’re on the fence about lending to someone, it can make the difference how the person answers questions on their loan request page. As an investor you can ask the borrower questions about their employment, debts, delinquencies and so on. Their answers can help sway me one way or the other.
Because I’m a conservative investor, my rates of return aren’t as high as some people’s, but I also feel like I have a lower risk of default on my loans. So far I haven’t had a single default, and my rate of return is hovering around the 11% range – that’s much better than my old high yield savings account! Since I’ve been happy with my returns so far, I’ve increased my loan total to $500 over the months I’ve been investing. I plan to keep on increasing that slowly over time as long as my success continues.
Lending Club By The Numbers
I was interested in just what the numbers were for Lending club as a whole, as far as amounts invested, number of defaults, how many people are declined, etc. I found these numbers on the Lending Club site:
82.80% of investors have earned between 6% and 18% net annualized returns since inception
Funded Loans (10,097) $96,195,875
Average Interest Rate 12.70%
Declined Loan Requests (96,063) $961,010,942
Annualized Default Rate 2.39%
Interest Paid to Investors $6,645,705.02
Average Net Annualized Return 9.65%
To be completely honest I was surprised by how many loan requests are actually declined by Lending Club for various reasons. In fact, the minimum FICO score to get a loan is 660. That makes me think that they’re actually pretty serious about making sure that those with a high probability of defaulting on their loans are weeded out before they are even able to get a loan. The default rate was also lower than I thought it would be – again tribute to the fact that they’re cutting out undesirable borrowers before they even begin the process of getting a loan.
One of the most important numbers that I see above is that average net annualized return of 9.65%. That means you’re getting a return that’s a lot higher than you’d be getting at your local bank, in a CD or in most investments. Yes there’s always the risks that are involved with something like social lending, but I believe the risks are manageable. If you choose good borrowers to help out that have verified incomes and credit, and you diversify your loan holdings, in the long run you’ll come out ahead.
So why not give it a shot?
Ready to sign Up For Lending Club And Start Investing?
Have you had any experience with Lending Club? Tell us about how you’re doing with your account, and how you manage the risk of peer to peer lending in the comments!