Credit Card Network vs Issuer: What Is the Difference?

While credit card networks and card issuers both play a role when you use your credit card to make a purchase, they do different things. Credit card networks facilitate transactions between merchants and credit card issuers. Meanwhile, credit card issuers are the ones that provide credit cards to consumers and pay for transactions on the cardholder’s behalf when they use their card.

Where it can get confusing is that some credit card networks are also card issuers. To get a better understanding, keep reading for a closer look at the differences between a credit card network vs. issuer.

What Is a Credit Card Network?

Credit card networks are the party that creates a digital infrastructure that makes it possible for merchants to facilitate transactions between merchants and the credit card issuers — meaning they’re key to how credit cards work. In order to facilitate these transactions, the credit card networks charge the merchants an interchange fee, also known as a swipe fee.

Here’s an example of how this works: Let’s say someone walks into a clothing store and uses their credit card to buy a pair of pants. They swipe or tap their credit card to make the purchase. At this point, the store’s payment system will send the details of this transaction to the cardholder’s credit card network, which then relays the information to the credit card issuer. The credit card issuer decides whether or not to approve the transaction. Finally, the clothing store is alerted as to whether or not the transition was approved.

Essentially, credit card networks make it possible for businesses to accept credit cards as a form of payment, making them integral to what a credit card is. Credit card networks are also responsible for determining where certain credit cards are accepted, as not every merchant may accept all networks.

The Four Major Card Networks

The four major credit card networks that consumers are most likely to come across are:

•   American Express

•   Discover

•   Mastercard

•   Visa

All of these credit card networks have created their own digital infrastructure to facilitate transactions between credit card issuers and merchants. These four credit card networks are so commonly used that generally anywhere in the U.S. it’s possible to find a business that accepts one or more of the payment methods supported by these merchants. When traveling abroad, it’s more common to come across Visa and Mastercard networks.

Two of these popular payment networks — American Express and Discover — are also credit card issuers. However, their offerings as a credit card network are separate from their credit card offerings as an issuer.

Does It Matter Which Card Network You Use?

Which credit card network someone can use depends on the type of credit card they have and whether the credit card network that supports that card is available through the merchant where they want to make a purchase. Most merchants in the U.S. work with all of the major networks who support the most popular credit cards, so it shouldn’t matter too much which credit card network you have when shopping domestically. When traveling abroad, however, it’s important to have cash on hand in case the credit card network options are more limited.

Merchants are the ones who are more likely to be affected by the credit card networks that they use. This is due to the fact that credit card networks determine how much the merchant will pay in fees in order to use their processing system.

Recommended: Charge Cards Advantages and Disadvantages

What Are Credit Card Issuers?

Credit card issuers are the financial institutions that create and manage credit cards. They’re responsible for approving applicants, determining cardholder rewards and fees, and setting credit limits and the APR on a credit card.

Essentially, credit card issuers manage the entire experience of using a credit card. Cardholders work with their credit card issuer when they need to get a new card after losing one, when they have to make their credit card minimum payment, or when they want to check their current card balance.

Credit card issuers can be banks, credit unions, fintech companies, or other types of financial institutions. Some of the biggest credit card issuers in the U.S. are:

•   American Express

•   Bank of America

•   Barclays

•   Capital One

•   Chase

•   Citi

•   Discover

•   Synchrony Bank

•   U.S. Bank

•   Wells Fargo

Credit Card Network vs Issuer: What Is the Difference?

Credit card issuers and credit card payment networks are easy to confuse. The main difference is that credit card networks facilitate payments between merchants and credit card issuers whereas credit card issuers create and manage credit cards for consumers. If you have an issue with your credit card — like in the instance you want to dispute a credit card charge or request a credit card chargeback — it’s the issuer you’d go to.

These are the main differences to be aware of when it comes to credit card networks vs. issuers:

Credit Card Issuer Credit Card Payment Network

•   Creates credit cards

•   Manages credit cards

•   Accepts or declines applicants

•   Sets credit card fees

•   Determines interest rates and credit limits

•   Creates rewards offerings

•   Approves and declines transactions

•   Processes transactions between credit card companies and merchants

•   Creates the digital infrastructure that facilitates these transactions

•   Charges an interchange fee to merchants

•   Determines which credit cards can be used at which merchants

How Credit Card Networks and Issuers Work Together

Credit card networks and issuers need each other to function. Without a credit card network, consumers wouldn’t be able to use their card to shop with any merchants, and the credit card issuer’s product would go unused. Credit card networks create the infrastructure that allows merchants to accept credit cards as payment.

However, it’s up to the credit card issuers to approve or decline the transaction. The credit card issuer is also the one responsible for getting credit cards into consumers’ hands when they’re eligible and old enough to get a credit card, thus creating a need for the credit card networks’ services.

Recommended: When Are Credit Card Payments Due

Get a New SoFi Credit Card Online and Earn 2% Cash Back

Credit cards can be a useful financial tool, but it’s important to understand their ins and outs before swiping — including the difference between a credit card network vs. card issuer. Both are critical to credit card transactions, with the credit card network facilitating the transaction between the issuer and the merchant, and the credit card network approving or denying the transaction.

While the major credit card networks are available at most merchants in the U.S., this may not be the case abroad, which is why it’s important to be aware of when choosing a credit card. This among many other considerations, of course, such as searching for a good APR for a credit card and assessing the fees involved.

If you’re on the search for a new card, consider applying for a credit card with SoFi. SoFi cardholders earn 2% unlimited cash back when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back when redeemed for a statement credit.1

Learn more about the SoFi credit card today!

FAQ

What is a credit card network?

A credit card network is the party that creates the necessary infrastructure to process transactions between a credit card issuer and a merchant. Whenever someone makes a purchase with a credit card, it is processed by a credit card network. In return for processing the transaction, the merchant pays the credit card network an interchange fee, which is how the credit card networks make money.

How do I know my credit card issuer?

To find out a credit card’s issuer, simply look at your credit card. There will be a string of numbers on the credit card, and the first six to eight digits represent the Bank Identification Number (BIN) or the Issuer Identification Number (IIN). The Issuer identification number identifies who the credit card issuer is.

Who is the largest credit card issuer?

The four largest credit card networks are American Express, Discover, Mastercard, and Visa. Most merchants in the U.S. work with all four credit card networks. When traveling abroad, it’s more common to come across Visa and Mastercard networks.


1See Rewards Details at SoFi.com/card/rewards.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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Guide to Cross-Collateralized Loans

One type of loan that isn’t often discussed is cross-collateralized, also known as cross-collateral loans, which is a type of secured loan. If someone is looking to take out multiple loans through the same financial institution, it’s important that they understand what cross-collateralization is and when it can happen.

So, what is a cross-collateralized loan? Keep reading to find out.

What Is Cross-Collateralization?

Cross-collateralization involves a borrower using an asset they already used as collateral on a loan as collateral again for a second loan. Collateral is an asset that acts as a loan guarantee. If the borrower fails to make their loan payments, the lender has the option to seize the collateral or to force the sale of the collateral to recoup its losses.

In short, cross-collateralization involves using the same collateral for one loan to serve as collateral for another loan at the same time.

Recommended: Using Collateral on a Personal Loan

How Does Cross-Collateralization Work?

The way that cross-collateralization works is that the same form of collateral is used to back more than one loan. The collateral used needs to guarantee the loan value. For example, if someone takes out an auto loan, the car (which equates to the value of the loan) is used as collateral. For cross-collateralization to work, that car also needs to be worth the same or more than the value of the second loan.

A common example of cross-collateralization is a second mortgage. If someone takes out a second mortgage on their home, the home is going to be used as collateral for both the primary mortgage used to purchase the home and the new second mortgage.

While cross-collateralization can involve using the same type of asset against one another, it doesn’t have to happen this way. For example, a lender can use a borrower’s car as collateral for a new loan that isn’t an auto loan, even though the car is already being used as collateral for the auto loan.

When Is Cross-Collateralization Used?

It’s more common to come across cross-collateralization in practice at credit unions and auto lenders. Unlike banks, credit unions are owned by the members of the credit union. To help protect this group against various losses, credit unions often use cross-collateralization to gain some extra security. Credit unions tend to have more favorable loan terms than larger financial institutions and banks, and members may secure those better terms by agreeing to cross-collateralization.

An example of this would be if a credit union member wants to finance their car through their credit union. Fast forward six months, and they want to take out an unsecured loan with a low-interest rate. The reason the credit union can offer an unsecured loan to the member at such a great rate is because they are actually securing the loan with the existing collateral from the member’s car loan.

The lender is legally obligated to disclose cross-collateralization, and the borrower must consent. It’s important to ask about cross-collateralization practices when taking out a new loan, however. A lender could include a clause in the loan agreement allowing it to cross-collateralize any collateral you used on any loan with that lender, and the wording in such a clause can vary by lender.

Once a form of collateral is being used to secure multiple loans, the borrower can’t sell that collateral. This means that a borrower who thinks their vehicle is securing only their auto loan may be unable to sell the vehicle if it is acting as collateral for another loan, whether or not the lender informed them verbally that cross-collateralization was happening.

How Can You Get Out of Cross-Collateral Loans?

Getting out of a cross-collateralized loan without paying it off in full can be very difficult. And it may not be as simple as transferring the loan to another lender. It’s usually quite challenging and expensive to move a cross-collateral loan to another lender, which can leave a borrower stuck with whatever rates and terms were offered to them when they took out the loan. That’s why it’s a really good idea to read the fine print of any loan agreements before signing and confirming whether a bank or credit union plans to start a cross-collateral loan.

Pros and Cons of Cross-Collateral Loan

Pros Cons
Typically easy to qualify for Larger risk of losing collateral
Potentially low cost Tied to just one lender
Allows borrowers to leverage existing assets Unfavorable terms may unchangeable without a change in lender

There are some major advantages and disadvantages associated with cross-collateral loans that are worth taking into consideration before signing any loan documents.

Benefits

Some of the benefits of a cross-collateral loan include:

•   Ease of qualification. Because cross-collateral loans are secured, they can be easier to qualify for than unsecured loans, for which the lender takes on more risk. Applicants with low credit scores may find it easier to qualify for this type of loan than some others.

•   Lower cost. General cross-collateral loans tend to be less expensive than unsecured loans. This type of loan tends to come with lower interest rates, which could equal savings over the life of the loan, and longer repayment terms, which could lower monthly payments but increase total interest cost.

•   Allows borrowers to leverage existing assets. Cross-collateral loans use an asset that is already trapped in an existing loan, and allows the borrower to get more value out of it by using it to ensure more loans.

Drawbacks

There are some serious downsides associated with cross-collateral loans that are worth thinking carefully about.

•   Larger risk. If the borrower isn’t able to repay their debts, the lender can seize the asset acting as collateral.

•   Tied to just one lender. With a cross-collateral loan, multiple of the borrower’s assets are being financed through one lender which can make it hard and expensive to ever switch to a lender offering more favorable terms.

•   Unfavorable terms. Collateralized loans, especially cross-collateral loans, can have stricter terms to meet in order to protect the lenders on subsequent loans.

Cross-Collateralization and Bankruptcy

Cross-collateralization can become particularly complex during bankruptcy. For example, a borrower of a cross-collateral loan (using their car as collateral) who files for Chapter 7 bankruptcy will be required to either reaffirm the debt or surrender their car. If they choose to reaffirm the debt and that loan is with a financial institution that has secured other sources of debt to the car, then they will need to pay off all of those debts in order to keep their car. Don’t forget, that borrower may not even be aware that some of their loans were cross-collateralized.

How cross-collateralization affects bankruptcy depends on the type of bankruptcy filed. Anyone dealing with cross-collateralization complications during bankruptcy may find that consulting a bankruptcy attorney will help them determine what their next steps should be.

Recommended: Getting Approved for a Personal Loan After Bankruptcy

Applying for SoFi’s Personal Loans

For someone looking for an alternative to a cross-collateralized loan with their existing bank or credit union, taking out an unsecured personal loan through a different financial institution may be one option to consider. Personal loans can be used to finance a variety of purchases, with the exception of higher education expenses and home purchases, typically.

SoFi Personal Loans offer fixed rates, no fees, and a variety of repayment terms.

Check your rate on a personal loan from SoFi

FAQ

Is cross-collateralization legal?

Yes, cross-collateralization is legal. Many banks and credit unions practice cross-collateralization.

Who can and can’t cross-collateralize?

Borrowers who already have a secured loan at a financial institution may qualify for cross-collateralization. Lenders don’t always inform borrowers verbally that they are participating in cross-collateralization, so it’s worth confirming whether or not this is happening before taking on a second loan through the same lender.

Can you get out of cross-collateralization?

A major downside of cross-collateralized loans is that once a borrower has multiple sources of debt through the same lender that are cross-collateral loans, it can be difficult to move them to another lender. Paying off the loan is usually the best option for getting out of this type of loan.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Can I Pay off a Personal Loan Early?

Perhaps you’ve gotten a raise or a bonus, and you want to pay off the remaining balance on a personal loan. Is that possible? The short answer is “yes” and, in many cases, it can be a wise decision.

But if there’s a prepayment penalty, then this loan payoff may be more costly than you’d expect. Learning how a prepayment penalty might affect your payoff amount can be helpful in making the decision whether or not to pay off a personal loan early. And if you’re gathering information about a personal loan early payoff without incurring a prepayment penalty, you do have some options.

Is It Possible to Pay Off a Personal Loan Early?

It’s unlikely that a lender would refuse an early loan payoff, so yes, you can pay off a personal loan early. What you have to calculate, though, is whether it’s financially advantageous to do so. If a personal loan early payoff triggers a prepayment penalty, it might not make financial sense to do so.

Overview of Prepayment Penalties

It may sound strange that a lender would include this kind of penalty in a loan agreement in the first place.

Some lenders may, though, to ensure you’ll pay a certain amount of interest before the loan is paid off. It is an extra fee that, when charged, helps lenders recoup more money from borrowers.

You can find out if you’d be charged with a prepayment penalty by looking at the loan agreement you signed with the lender.

If you have one, the penalty could be in effect for the entire loan term or for a portion of it, depending upon how it’s defined in the loan agreement.

Does Paying off a Personal Loan Early Affect Your Credit Score?

Personal loans are a type of installment debt. In the calculation of your credit score, your payment history on installment debt is taken into account. If you’ve made regular, on-time payments, your credit score will likely be positively affected while you’re making payments during the loan’s term.

However, once an installment loan is paid off, it’s marked as closed on your credit report — “in good standing” if you made the payments on time — and will eventually be removed from your credit report after about 10 years. Paying off the personal loan early might cause it to drop off of your credit report a few earlier than it would have and no longer help your credit score.

If I Pay Off a Personal Loan Early, Does My Interest Rate Decrease?

Since a personal loan is an installment loan with a fixed end date, if you pay off a personal loan early, you won’t pay less interest. You won’t owe any interest anymore because the loan will be paid in full.

Recommended: What are the average personal loan rates?

Advantages of Paying off a Personal Loan Early

There are definitely some advantages to personal loan early payoff. One obvious benefit is that you could save on interest over the life of the loan. A $10,000 loan at 8% for 5 years (60 monthly payments) would accrue $2,166.50 in total interest. If you could pay an extra $50 each month, you could pay the loan off 14 months early and save $518.42 in interest.

Not owing that debt anymore can be a psychological comfort, potentially lowering bill-paying stress. If you’re able to make that money available for something else each month — maybe creating an emergency fund or adding to your retirement account — it might even turn into a financial gain.

If you no longer owe the personal loan debt, you’ll essentially be lowering your debt-to-income ratio, which could positively affect your credit score.

Disadvantages of Paying off a Personal Loan Early

If your personal loan agreement includes a prepayment penalty, paying off your personal loan early might not be financially advantageous. Some prepayment penalty clauses are for specific time frames in the loan’s term, e.g., during the first year. If you pay off the loan during the penalty time frame, it could cost you just as much money as it might if you had just paid regular principal and interest payments over the life of the loan.

You might be thinking of a personal loan early payoff so you can put your money to work somewhere else. But if the interest rate on the personal loan is relatively low, it might make financial sense to put your extra money toward higher-interest debt, or to contribute enough to an employer-sponsored retirement plan so you can get the employer match, if one is offered. If you don’t have an emergency fund yet, you might also consider starting one with a bit of extra money each month until it’s at a comfortable level.

Another thing to consider is whether paying off your personal loan early will hurt your credit. As mentioned above, making regular, on-time payments to an installment loan like a personal loan can have a positive effect on your credit score. But when the loan is paid off, and marked as such on your credit report, it’s not as much help.

Advantages of early personal loan payoff Disadvantages of early personal loan payoff
Interest savings over the life of the loan Possible prepayment penalty
Could alleviate debt-related stress Extra money could be better used in another financial tool
Lowering your debt-to-income ratio Removing a positive payment history on the loan early could negatively affect your credit
More cushion in your monthly budget Taking money from another budget category might leave an unintentional financial gap

Things To Ask Yourself Before Paying off a Personal Loan Early

Everyone’s financial situation is different. Priorities that are important to you might be less so to someone else. Considering how a personal loan early payoff might affect you can be a good way to start making the decision.

Will Paying off a Personal Loan Early Put Me at Risk?

There can be some drawbacks to paying off a personal loan early — some that might be considered risks.

If you’re thinking of putting extra money toward a personal loan balance, but you don’t have any money set aside in an emergency fund, that’s a financial risk. If you encounter an expensive, necessary financial need without the means to pay for it, you might be tempted to use high-interest debt like a credit card.

If you consider it risky to pay more than you need to for something, then paying a prepayment penalty could be considered a financial risk. If paying a loan early will cost you extra money, you might think about where that money could be better spent.

Will Paying off a Personal Loan Early Improve My Debt-To-Income Ratio?

Lowering your debt-to-income ratio can have a positive effect on your credit score, and paying off a loan will accomplish this. But you might weigh that positive against any potential negative effect that might come with paying off your personal loan early, such as not having a positive payment history included on your credit score after your loan is closed.

Does Paying off a Personal Loan Early Have Clear Benefits?

There are absolutely clear benefits to paying off a personal loan early. Saving money in interest charges over the life of the loan is at the top of the list, as long as any savings is not offset by a prepayment penalty.

Having more money in your monthly budget — since you wouldn’t have that loan payment due each month — might lower your financial stress.

Types of Prepayment Penalties

If and how a prepayment penalty is charged on a personal loan will be stipulated in the loan agreement. Reviewing this document carefully is a good way to find out if the penalty could be charged and how your lender would calculate it.

If you can’t find the information in the loan agreement, asking your lender for the specifics of a prepayment penalty and for them to point out where it is in the loan agreement is another way to be certain you have the right information to make a decision.

There are a few different ways a lender might calculate a prepayment penalty fee.

Interest costs

In this case, the lender would base the fee on the interest you would have paid if you had made regular payments over the total term. So, if you paid your loan off one year early, the penalty might be 12 months’ worth of interest.

Percentage of your remaining balance

This is a common way for prepayment penalties to work on mortgages, for example, and you’d be charged a percentage of what you still owe on your loan.

Flat fee

Under this scenario, you’d have to pay a predetermined flat fee for your penalty. So, whether you still owed $9,000 on your personal loan or $900, you’d have to pay the same penalty.

Avoiding Prepayment Penalties

Finding out whether a prospective lender charges a prepayment penalty — and not using that lender if it does — is at the top of the list of ways to avoid a prepayment penalty.

If you’ve already taken out a loan that includes a prepayment penalty, there are some options.

First, you could simply decide not to pay the loan off early. This means you’ll need to continue to make regular payments on the loan rather than paying off the balance sooner, but this will allow you to avoid the prepayment penalty fee.

You could also talk to the lender and ask if the prepayment penalty could be waived, but there is no guarantee that this strategy will succeed.

If your prepayment penalty is not applicable throughout the entire term of the loan, you could wait until it expires before paying off your remaining balance.

Another strategy is calculating the amount of remaining interest owed on your personal loan and comparing that to the prepayment penalty. You may find that paying the loan off early, even if you do have to pay the prepayment penalty, would save money over continuing to make regular payments.

Types of Personal Loans

In general, there are two types of personal loans — secured and unsecured. Secured loans are backed by collateral, which is an asset of value owned by the loan applicant, such as a vehicle, real estate, or an investment account. Unsecured personal loans, on the other hand, are backed only by the borrower’s creditworthiness, with no asset attached to the loan.

You might hear unsecured personal loans referred to as signature loans, good faith loans, or character loans. Typically, these are installment loans the borrower repays at a certain interest rate over a predetermined period of time.

Personal Loan Uses

Acceptable uses of personal loan funds cover a wide range, including, but not limited to:

•   Consolidation of high-interest debt.

•   Medical expenses not covered by health insurance.

•   Home renovation or repair projects.

•   Wedding expenses.

While there are benefits to borrowing a personal loan, it might not always be the right financial move for everyone. Personal loans offer a lot of flexibility, but they are still a form of debt, so it’s a good idea to weigh the pros and cons before signing a personal loan agreement.

Awarded Best Personal Loan of 2022 by NerdWallet.
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Personal Loans at SoFi

If you’re looking for an unsecured personal loan with no prepayment penalties, a personal loan from SoFi might fit your financial need. There are no application fees, no origination fees, and no hidden fees attached to unsecured personal loans with SoFi.

A SoFi Personal Loan can be used to consolidate credit card debt, make home improvements, pay for relocation costs, repair your vehicle, make a major personal purchase and more.

The Takeaway

If you’re in a secure enough financial position to be able to pay off your personal loan early, that’s terrific. But before you do, it’s a good idea to calculate whether it’s a good financial decision or not. A prepayment penalty could take a bite out of any savings you might see on interest costs.

Comparing interest rates for a personal loan, along with lenders’ fees and other charges, including prepayment penalties, is a good way to find the lender that meets your financial needs.

Ready to explore SoFi personal loans? Check your rate in just one minute.

FAQ

Is it good to repay a personal loan early?

Paying off a personal loan early can be a good financial decision, as long as any prepayment penalty charge doesn’t cost more than you might pay in interest.

If I pay off a personal loan early do I pay less interest?

Paying off a personal loan early doesn’t affect the interest rate you’ve been paying up until that point. It would mean, however, that the total amount of interest you’d pay over the life of the loan would be less than anticipated.

Does paying off a personal loan early hurt your credit?

Because making regular, on-time payments on an installment loan such as a personal loan is a positive record on your credit report, removing that history early can have a slight negative affect on your credit.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Guide to Refinancing Your Student Loans After Marriage

After getting married, you’ll start to merge your life, your home, and possibly your finances with your partner. As you plan for the future, it’s helpful to consider the implications of student loans and marriage—which can affect your credit, your ability to get a home mortgage, and even the repayment of your student debt.

Consolidating your federal loans or refinancing student loans after marriage may be options to consider as you begin handling finances in your marriage and working together to reach your financial goals

Student Loans and Marriage

There are currently over 45 million borrowers in the U.S. and the total amount of student loan debt is $1.7 trillion. So the odds are high that either you or your partner may have student loans. As you begin planning for your financial future together, it’s helpful to look at how marriage can affect student loan payments.

Recommended: What is the Average Student Loan Debt?

What Happens to Student Loans When You Get Married?

If you haven’t already had a conversation about student loans and marriage before tying the knot, you and your partner should sit down and discuss your individual student loan debt: how much you have, whether you have federal or private student loans, as well as what your balances, payment status, and monthly payments are. It’s important to share this information since getting married may change your debt repayment plans.

If someone has federal student loans and is on an income-based repayment (IBR) plan when they get married, for example, their monthly payments may increase post-marriage as income-based repayment plans are determined by household income and size. Depending on how a couple chooses to file their taxes, the government may take a new spouse’s salary into account when determining what the borrower’s monthly payments should be.

Because federal student loan borrowers on an income-based repayment plan have to recertify each year, the current year’s income is taken into account which may be higher after marriage if both spouses work. If the borrower’s new spouse doesn’t earn income then they may actually see their monthly payment requirements drop as their household size went up, but their household income remained the same.

Household income also affects how much student loan interest a borrower can deduct on their federal taxes. It’s worth consulting an accountant if a newly married couple needs help figuring out where they stand financially post-marriage.

It’s also important to be aware of how marriage affects your credit score as how someone manages their student loan debt is a factor. Since spouses don’t share credit reports, marrying someone with bad credit won’t hurt your credit score. That said, when it comes time to apply for a loan together, a bad credit score can make getting approved harder—which is another reason it’s key to get on the same page about repaying any debt on time.

Recommended: Types of Federal Student Loans

Refinancing Student Loans After Marriage

Refinancing student loans gives borrowers the chance to take out a new student loan with ideally better interest rates and terms than their original student loan or loans. Some borrowers may choose to consolidate multiple student loans into one newly refinanced loan to streamline their debt repayment process.

The result? One convenient monthly payment to make with the same interest rate and the same loan servicer instead of multiple ones.

As tempting as it may be to combine debt with a spouse and work toward paying it off together, married couples typically cannot refinance their loans together and each spouse would need to refinance their student loans separately. But even though a couple can’t refinance their student loan debt together, they’ll still want to be aware of what’s going on with their partner’s student loans.

Recommended: Top 5 Tips for Refinancing Student Loans in 2022

How to Refinance Student Loans After Marriage

Refinancing student loans after marriage looks the same as it does before marriage and is pretty straightforward. The student loan borrower will take out a new loan, which is used to repay the original student loan.

Ideally, this results in a better interest rate which will help borrowers save money on interest payments, but this isn’t a guarantee. Before refinancing, it’s important that borrowers shop around to find the best rates possible as factors like their credit score and income can qualify them for different rates.

Borrowers have the option of refinancing both federal and private student loans, but it’s worth noting that refinancing a federal student loan into a private one removes access to valuable federal benefits like income-driven repayment plans and loan forgiveness for public service employees.

Refinancing vs. Consolidating Student Loans After Marriage

Borrowers can choose to refinance or consolidate their student loans before or after marriage.

If a borrower has multiple federal student loans, then they can choose to consolidate their different loans into one Direct Consolidation Loan. This type of loan only applies to federal student loans and is offered through the U.S. Department of Education.

This type of loan takes a weighted average of all of the loans consolidated to determine the new interest rate, so generally this is an option designed to simplify debt repayment, not to save money. If a borrower chooses to consolidate through a private lender, they will be issued new rates and terms, which may be more financially beneficial.

Consolidating through a private lender is a form of refinancing that allows borrowers to take out one new loan that covers all of their different sources of student loan debt. While some private lenders will only refinance private student loans, there are plenty of private lenders that refinance both private and federal loans. As mentioned earlier, refinancing a federal loan means losing access to federal protections and benefits.

Refinancing can be advantageous if the borrower is in a better financial place than they were when they originally took out private student loans. If they’ve improved their credit score, paid down debt, and taken other steps to improve their financial picture, they may qualify for a better interest rate that can save them a lot of money over the life of their loan.

Another option in refinancing student loans after marriage is co-signing a partner’s loan. Doing so may mean that you can leverage greater earning power and possibly better credit, but it also means both partners are responsible for the loan, and can put one partner at risk in the event of death or divorce.

Student Loan Refinancing With SoFi

SoFi refinances both federal and private student loans, which can help borrowers save because of our flexible terms and low fixed or variable rates. Borrowers won’t ever have to worry about any fees and can apply quickly online today.

Learn more about refinancing student loans with SoFi.

FAQ

What happens when you marry someone with student loan debt?

If someone’s new spouse has student loan debt, this indirectly affects them. While the debt won’t be under their name or affect their credit score when it comes time to apply for credit products with their spouse (such as a mortgage loan) their credit score and current sources of debt will likely be taken into account.

Is one spouse responsible for the other’s student loans?

No one spouse is directly responsible for their spouse’s student loans, but it’s important to work together to pay off student loan debt. Again, once it comes time to apply for a joint loan, any student loan debt can have an effect on eligibility.

Does getting married affect student loan repayment?

Getting married can affect student loan repayment if a borrower is on an income-based repayment plan for their federal student loans. This type of repayment plan takes household size and income into account when determining what the borrower’s monthly payment should be. If their spouse brings in an income they may find their monthly payments are higher, but if their spouse doesn’t have an income their payments may become smaller.


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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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

How Rising Inflation Affects Mortgage Interest Rates

While the inflation rate doesn’t directly impact mortgage rates, the two tend to move in tandem. Rising inflation can shrink purchasing power as prices of goods and services increase. Higher prices can then influence the Federal Reserve’s interest rate policy, affecting the cost of borrowing for lending products like mortgages.

Homebuyers looking for a home loan and homeowners who want to refinance a mortgage need to know that mortgage rates may rise as inflation increases. Therefore, understanding the difference between the inflation rate, interest rates, and what affects mortgage rates matters for all home finance consumers.

Inflation Rate vs Interest Rates

Inflation is a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index (CPI), to determine how to direct monetary policy. A target inflation rate of 2% is considered ideal for maintaining a stable economic environment over the long run.

When inflation is on the rise and the economy is in danger of overheating, the Federal Reserve may raise interest rates to cool things down.

Interest rates reflect the cost of using someone else’s money. Lenders charge interest to borrowers who take out loans and lines of credit as a premium for the right to use the lender’s money.

Higher rates can make borrowing more expensive while also providing more interest to savers. People borrowing less and saving more can have a cooling effect on the economy.

When the economy is slowing down too much, on the other hand, the Fed can lower interest rates to encourage borrowing and spending.

Recommended: Federal Reserve Interest Rates, Explained

What Affects Mortgage Rates?

Inflation rates don’t have a direct impact on mortgage rates. But there can be indirect effects because of how inflation influences the economy and the Federal Reserve’s monetary policy decisions. Again, this relationship between inflation and mortgage rates is related to how the Federal Reserve adjusts interest rates to cool off or jump-start the economy.

The Federal Reserve does not set mortgage rates, however. Instead, the central bank sets the federal funds rate target, the interest rate that banks lend money to one another overnight. As the Fed increases this short-term interest rate, it often pushes up long-term interest rates for U.S. Treasuries. Fixed-rate mortgages are tied to the 10-year U.S. Treasury Note yield, which are government-issued bonds that mature in a decade. When the 10-year Treasury yield increases, the 30-year mortgage rate tends to do the same.

Recommended: Understanding the Different Types of Mortgage Loans

So in terms of what affects mortgage rates, movement in the 10-year Treasury yield is the short answer. Higher yields can mean higher rates, while lower yields can lead to lower rates. But overall, inflation rates, interest rates, and the economic environment can work together to sway mortgage rates at any given time.

A simple way to see the relationship between inflation rates and mortgage rates is to look at how they’ve trended historically . If you track the average 30-year mortgage rate and the annual inflation rate since 1971, you’ll see that they often move in tandem.

They don’t always move perfectly in sync, but it’s typical to see rising mortgage rates paired with rising inflation rates.

Inflation Trends for 2022 and Beyond

In March 2022, the U.S. inflation rate hit 8.5%, as measured by the Consumer Price Index. This increase represents the largest 12-month increase since 1981 and moving well beyond the Federal Reserve’s 2% target inflation rate.

While prices for consumer goods and services were up across the board, the most significant increases were in the energy, shelter, and food categories.

Rising inflation rates in 2022 are thought to be driven by a combination of things, including:

•   Increased demand for goods and services

•   Shortages in the supply of goods and services

•   Higher commodity prices due to geopolitical conflicts

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. In addition to government stimulus, these savings created a pent-up demand for purchases once the economy got back on track. However, the supply chains have not been able to catch up to demand.

Supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in rapidly rising inflation to levels not seen in decades.

In March 2022, the Fed started to raise interest rates to tame inflation and will likely continue to raise interest rates throughout the year. Many analysts believe that inflation is peaking and will steadily decline throughout 2022. However, there is still a lot of uncertainty surrounding the economy that makes forecasting price trends difficult.

Recommended: 7 Factors that Cause Inflation

Is Now a Good Time for a Mortgage or Refi?

There’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

Rising inflation and higher interest rates have caused mortgage rates to spike at the fastest pace in decades, though mortgage rates are still near historic lows. As the Fed continues to pursue interest rate hikes, it could lead to even higher mortgage rates. It simply means that if you’re interested in buying a home, it could make sense to do so sooner rather than later.

Buying a home now could help you lock in a better deal on a loan and get a reasonable mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you can afford.

The same is true if you already own a home and are considering refinancing an existing mortgage. However, when refinancing a mortgage, the math gets a bit trickier. You might need to determine your break-even point — when the money you save on interest payments matches what you spend on closing costs for a refinanced mortgage (a refi).

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term mortgage, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage — Step-By-Step Guide

The Takeaway

Inflation appears to be here to stay, at least for the near term. Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan. From a savings perspective, it’s essential to understand what affects mortgage rates and the relationship between the inflation rate and interest rates.

SoFi offers fixed-rate mortgages and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Source: sofi.com