Writing a check to yourself is one way to withdraw money from your bank account or transfer funds from one account to another. While there are other, more high-tech methods for making these transactions, writing a check to yourself is an easy option.
But it’s not the best choice for every situation. Sometimes, it’s more efficient to move funds electronically or visit an ATM to make a withdrawal. Here’s when writing a check to yourself makes sense, and how to do it.
Table of Contents
Key Points
• Writing a check to yourself is a way to transfer money between your own accounts.
• Start by writing your name as the payee and the amount you want to transfer.
• Sign the check on the signature line as the payer and write “For Deposit Only” on the back.
• Deposit the check into your other account through a mobile banking app or at a bank branch.
• Keep a record of the transaction for your own records and to reconcile your accounts.
How to Write a Check
If you don’t often use your checkbook, you may be wondering how to write a check. First, be sure to use a pen (that way, the information can’t be erased) and choose blue or black ink. Then, for every check you write, fill in each of the following details:
• The date
• Pay to the order of (the person or company the check is for)
• The amount the check is for in numbers
• The amount written out
• Memo (this is optional—you can use it to note what the check is for—or leave it blank)
• Your signature
Check your score with SoFi
Track your credit score for free. Sign up and get $10.*
Recommended: Ordering Checks – A Complete Guide
How to Write a Check to Yourself
The only difference when you write a check to yourself, versus a check to someone else, is that you put your own name on the “Pay to the order of” line. Then, just like you do for every other check you write, you’ll add the date, the dollar amount written in numbers, the dollar amount written in words, an optional memo, and finally, your signature.
Be sure to record the amount the check is for in the check register that comes with your checks when you order them (you should keep this in your checkbook along with the checks themselves). In the register, write down the date, the check number, the name of the person the check is for and/or what it’s for, and the amount. This will help you balance your checkbook so you know how much money is in your account.
Why Would You Write a Check to Yourself?
Writing a check to yourself is the low-tech way of transferring money from one bank account to another, or withdrawing money from your bank account. Here is when it can make sense to write a check to yourself.
• Making a transfer. If you’re closing one bank account and opening another, you can move funds by writing a check to yourself. You can also write yourself a check to deposit funds from one account into another at the same bank. Or, if you have accounts at different banks, you can transfer money by writing yourself a check from one bank and depositing it in the other.
• Getting cash from your bank account. If you want to withdraw money from the bank, you can simply write yourself a check, take it to the teller at the bank, and cash it. Just be sure to endorse the check by signing it on the back.
Examples of When You Would Write a Check to Yourself
If you have money in different bank accounts and need to consolidate your funds in order to make a large purchase, you could write a check to yourself. For example, if you’re remodeling and need to transfer $20,000 from your home equity line of credit (in one institution) to your bank account (in a different institution), you can write a check to yourself to transfer the money.
Recommended: Does Net Worth Include Home Equity
When Writing a Check to Yourself Doesn’t Make Sense
Writing a check to yourself isn’t always the best, most efficient option for transferring funds or obtaining cash. Online banking, electronic transfers, and ATMs are typically faster and easier ways to get transactions done.
Transferring Money Within the Same Bank
If you have two accounts at the same bank and you want to move money from one account to the other, it’s much quicker and more convenient to transfer your money through online banking. Writing yourself a check to do this is a hassle.
Recommended: How Many Bank Accounts Should I Have?
Getting cash out of your account
If you need to withdraw cash from your account, using an ATM can be faster and easier. If you write a check to yourself, you will need to visit the bank and go through a teller in order to cash the check and get your money. Just make sure to use an ATM within your bank’s network to help avoid ATM fees.
Risks and Concerns of Writing a Check to Yourself
When writing a check to yourself, never make the check out to “Cash.” Instead, always put your own name on the “Pay to the order of” line. This helps protect you. Otherwise, if a check is made out to “Cash,” and the check is lost or stolen, anyone can cash it.
Recommended: What Is the Difference Between Transunion and Equifax
Other Ways to Move Your Money
There are several other ways to move money that are more convenient than writing a check to yourself. This includes wire transfers, ACH transfers, electronic funds transfers, and electronic banking.
Wire Transfer
Often, when people use the term “wire transfer,” they’re referring to any electronic transfer of funds, but the technical definition involves an electronic transfer from one bank or credit union to another. To make a wire transfer, you’ll pay a fee, usually between $5 and $50, and need to provide the recipient’s bank account information.
Recommended: What Credit Score is Needed to Buy a Car
ACH or Electronic Fund Transfer
An ACH is an electronic funds transfer across banks and credit unions. If you have direct deposit for your paychecks, for instance, that money is transferred to your bank account through ACH (which stands for Automated Clearing House). You can use ACH to transfer money from an account at one bank to an account at another. The transaction is often free, but check with your bank to make sure.
Electronic Banking
Online banking will allow you to move your money from one account to another within the same bank. All you need to do is log into your online account and use the “transfer” feature.
The Takeaway
Writing a check to yourself is one way to transfer money or obtain cash, but there are many methods for doing these things that are often more convenient, such as online banking or electronic transfers. Exploring all the options can help you decide what makes the most sense for you.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
Can you legally write a check to yourself?
Yes, it is legal to write a check to yourself, as long as you’re not writing the check for more money than you have in the bank. It would be illegal to write a check for more funds than you have and then try to cash it.
Can I write a large check to myself?
Yes, you can write a large check to yourself if you have enough funds in your account to cover the amount. Never write checks for more money than you have in your bank account.
Can you write your own check and cash it?
Yes, you can write your own check and cash it at your bank or at any other location that offers this service.
Photo credit: iStock/GOCMEN
SoFi Relay offers users the ability to connect both SoFi 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. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. 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 is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. 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 towards active SoFi accounts, such as your SoFi Checking or Savings account, 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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
PayPal is an online payment system that’s been a major part of online transactions since 1998, and you may have seen that they offer a credit card. Before applying for a PayPal credit card, it’s helpful to ask, “How much does a PayPal credit card affect my credit score?” Every credit card has pros and cons, and they can also have an impact on your credit score.
A good credit score helps you get lower interest rates on credit cards and can improve your financial well-being.
Read on to learn more about what a PayPal credit card is, how it affects your credit score and what score you need to improve your chances of getting approved.
How a PayPal credit card affects your credit score
Having a PayPal credit card can positively and negatively affect your credit score, depending on how you use it. Your credit score indicates how financially responsible you are to lenders and other businesses that check your score. Before learning how a PayPal credit card can affect your score, knowing how your credit score is weighted is beneficial.
One of the most popular scoring models is the FICO® scoring model, and it’s based on five factors:
Payment history (35 percent)
Credit utilization (30 percent)
Length of credit history (15 percent)
Credit mix (10 percent)
New credit applications (10 percent)
As you can see, your payment history is the most important aspect, so paying your credit card on time is crucial to having a good score. PayPal reports to the credit bureaus, so your activity will show up on your credit reports, which determines your score.
Should you miss payments on your PayPal credit card, it can negatively affect your score. Next is credit utilization, which is the percentage you owe based on your max credit limit. Making your payments on time and keeping your utilization percentage low are the best ways to have this credit card work in your favor.
How does PayPal Credit work?
A PayPal credit card works similarly to a regular credit card, but you don’t need the physical card when making online payments that have a PayPal option.
If the website accepts PayPal, the checkout option will show you the various accounts you have attached, like your bank accounts and your PayPal balance. If you have a PayPal credit card, it will show you the credit option as well.
You’ll also receive a physical version of the credit card, which you can use in person.
Similar to a regular credit card, you will receive a statement each month with all of your transactions and the minimum payment due. You can also pay the statement balance or current balance if you’d like to pay more than the minimum. To pay, you’ll use your PayPal balance or a linked bank account.
Does PayPal do a hard pull for a credit application?
Applying for a PayPal credit card triggers a hard inquiry on your credit report. New credit is worth 10 percent of your credit score and reflects how often you apply for new lines of credit. Multiple credit card applications in a short period indicate to lenders that you may have money problems and could struggle to make payments.
Although a PayPal credit card application will trigger a hard inquiry and reduce your score, it’s only temporary. Regular, on-time payments and low utilization will eventually balance out the negative impact of the hard inquiry. The inquiry will show as SYNCB/PPC on your report as well as on your credit card statements when you make purchases.
What credit score is needed for a PayPal credit card?
PayPal doesn’t list a specific credit score you need to get approved for their credit card, but in an article, they do say a score of 670 can help your approval odds for good credit cards. Now that you know that hard inquiries can lower your credit score, it’s helpful to get a free credit assessment. This includes your credit score and other helpful information about your credit health.
PayPal may approve you for a credit card with a score lower than 670, but a lower score often means that you pay higher interest fees when you make your purchases. Whether you’re applying for a PayPal credit card or other credit cards, it’s often helpful to use tools like a secured credit card to boost your score so you can get better interest rates.
Improving your credit score can help your PayPal credit card approval odds
PayPal has multiple credit cards to choose from, and one of them may be right for you. Before applying for a PayPal credit card, check your credit score. A hard inquiry into your credit report lowers your score, which you should avoid if you may be denied.
Fortunately, Lexington Law Firm offers a free credit assessment so you can check your credit score and other aspects of your credit health. We also offer credit repair services for those who may have errors on their credit report. Sign up to get your free credit assessment today.
At both federal and state levels, financial institutions are governed by laws that protect consumers against unfair and unscrupulous treatment in the banking and finance sectors. In addition, guidelines are in place to combat fraud and monopolistic behavior, helping to ensure the smooth running of the free-market economy.
Granted, catastrophic historic events — such as the 2008 global financial crisis — occur despite the oversight of robust financial regulatory agencies. Because of this, laws and regulations are constantly being examined and updated to finesse the banking and finance legal framework.
Read on to understand more about finance watchdogs, their roles, and how regulations work to protect the public and the economy from fraud and illicit practices.
What Is Financial Regulation?
Financial regulation is a set of laws, rules, and policies set by governing institutions. These are designed to keep your money safer. Specifically, they aim to maintain confidence and stability in the financial system by eliminating fraud and monopolistic behavior.
In the United States, governing bodies try to balance the need for oversight with a free-market economy, which can be a challenging endeavor.
Why Financial Regulations Are Important
Without regulations, consumers have no protections. They might be subject to fraud, sold bad mortgages, and charged high interest rates and fees on credit cards. Large companies could create monopolies or duopolies, which allow them to control prices.
Laws and policies prevent companies from gaining too much market control and stifling competition, which threatens the free market economy. Regulations also prevent financial institutions from taking risks that put consumer funds in jeopardy.
Here’s a brief history lesson that shows how lack of regulation can negatively impact daily life: The 2008 financial crisis was precipitated by deregulation and the repeal of the Glass-Steagall Act of 1933. This allowed financial institutions to engage in risky hedge fund trading. To fund their investments, the banks created interest-only loans for subprime borrowers, which contributed to more home purchases (including to buyers who would not have otherwise qualified) and quickly rising prices. This created a housing bubble, and millions of people were left bankrupt and couldn’t sell their homes when home prices then plummeted.
But too much regulation can also be a threat to an economy. In a free-market economy, prices are largely determined by supply and demand. Competition among suppliers tends to keep prices at bay as they each try to grab market share.
If regulations become too onerous and costly, companies may use up capital to comply with federal rules. That means they aren’t using those funds to create innovative products. In some cases, specific industries or groups manage to influence regulators and persuade them to introduce or eliminate laws that benefit them and not their competitors.
Types of Financial Regulations
Different agencies focus on the safety and soundness of products and services, transparency and disclosure, standards, competition, and rates and prices for different entities. Here’s a closer look at some of the most important regulations to be aware of:
• Stock Exchange Regulations Laws and rules for stock exchanges ensure that the pricing, execution, and settlement of trades is fair and efficient.
• Listed Company Regulations Listed companies (public companies) are required to prepare quarterly financial statements and submit them to the Securities and Exchange Commission (SEC) and to their shareholders. Investors use this information to inform their trades.
• Asset Management Regulation Financial advisors and asset managers must follow strict rules set by financial services regulatory bodies so that clients are treated fairly and not defrauded. Any company that provides investment advice is considered an investment advisor, and the SEC oversees investment advisors with more $110 million in assets under management (AUM).
• Financial Services Regulation Banking and financial institutions must follow specific guidelines to ensure a functioning banking system. These rules are enforced by The Federal Reserve Board (the Fed), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Federal Deposit Insurance Corporation (FDIC).
Recommended: What Is a Fiduciary Financial Advisor?
Types of Financial Institutions
There are a wide variety of financial institutions in America, some of which you may be familiar with. Here’s the rundown:
• Central banks, like the U.S. Federal Reserve, watch over the country’s monetary policy.
• Retail banks are probably what most people are familiar with. These are banks where the general public can have checking accounts and savings accounts, loans, and other financial services.
• Commercial banks are similar to retail banks (above) but they serve the business community. Large banks may act as both commercial and retail banks.
• Credit unions are similar to banks but they are nonprofits, and members are part owners of them. They offer the same kind of services as banks but may tailor themselves to specific communities.
• Community development financial institutions (CDFIs) are financial institutions that work to build financial knowledge, services, and wealth in communities that are less advantaged.
• Savings and loan associations are organizations that use savings to create housing loans.
• Brokerages manage securities trading (say, stocks and exchange-traded funds, or ETFs), which are regulated though not insured.
• Insurance companies help both businesses and individuals protect themselves from property loss and may provide services such as loans.
• Investment companies function by issuing securities to both businesses and individuals who seek to raise capital.
• Mortgage companies offer home loans and may also manage commercial real estate.
What Is a Financial Regulator?
A financial regulator is an organized governmental or formal body that has the jurisdiction to oversee other entities, such as stock markets, banks, and asset managers. Their mandate is to ensure fairness, protect the public and institutions from fraud, and to facilitate a well-functioning financial sector.
Examples of financial regulators are the Fed, the Securities and Exchange Commission (the SEC), and the Financial Industry Regulatory Authority (FINRA).
How Are Financial Institutions Regulated?
Banks and financial institutions are regulated by the Fed, the OCC, the CFPB, and the FDIC, while asset management companies and stock exchanges answer to the SEC and FINRA. (Also worth noting: Individual stock brokers, investment bankers, and other professionals likely need FINRA securities licenses.) State agencies may enforce regulations on financial institutions, notably insurance providers.
Each of these organizations requires documentation from financial institutions and companies that show compliance with laws. For example, listed companies have to submit quarterly financial statements to the SEC. If they fail to do so, they may be charged with “Failing to Comply” and may lose the ability to trade their shares on the stock market and be forced to pay penalties.
Recommended: FINRA vs. SEC: How are they Different?
The Most Common Financial Regulatory Bodies
The following is a list of the more recognized regulatory agencies and a brief description of what each one does.
The Federal Reserve Board (FRB)
The Fed is the central bank of the United States. As such, it ensures the U.S. economy functions effectively. The Fed is in charge of monetary policy and has the power to increase or decrease interest rates or to instruct banks on the quantity of reserves they must maintain. The Fed also monitors financial systems and their impacts, facilitates efficient settlement of U.S dollar transactions, and upholds laws that protect consumers.
The Federal Deposit Insurance Corporation (FDIC)
The FDIC was created by Congress to support the U.S. financial system. The FDIC insures deposits and monitors financial institutions and their compliance with consumer protection laws. The FDIC also manages bank failures, though they occur very rarely.
The Consumer Financial Protection Bureau (CFPB)
The is a relatively new agency that implements and enforces Federal consumer financial law. CFPB regulations protect consumers by making sure financial products and services are “fair, transparent, and competitive.”
The National Credit Union Association (NCUA)
The NCUA was created by Congress in 1970. The association insures consumer accounts with credit unions with up to $250,000 of share insurance. Enforcement tools of the association include letters of understanding and agreement, administrative orders, and consent orders.
The Securities Exchange Commission (SEC)
. The SEC strives to maintain the public’s trust in the capital markets by insisting on fair practices. Various acts have been passed over time including the Securities Act of 1933, the Sarbanes-Oxley Act of 2002, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The Commodity Futures Trading Commission (CFTC)
The CFTC was created in 1974 to oversee commodity trading in the agricultural sector. Commodity trading has been subject to government regulation since the 1920s. The CFTC supervises and monitors commodity traders and market activity. The commission investigates and prosecutes wrongdoers and educates customers about their rights and how to avoid fraud.
Recommended: What Are the Difference Between FDIC and NCUA Insurance?
How Financial Regulators Help Banking in the Way We Know Today
The banking and financial systems operate well under current regulation, but what about digital banking? Digital banking is a recent innovation, and existing banking laws and regulations generally apply to digital start-ups and fintechs. However, there are some regulatory frameworks specifically for digital banking.
An example of protection for digital banking consumers is Electronic Know Your Customer (e-KYC), which is used for digital onboarding and checks that a customer is who they say they are to avoid fraud and money laundering. E-signature is a way for customers to validate transactions remotely.
Another instance is the Electronic Fund Transfer Act (Regulation E) which aims to make applicable electronic transactions compliant with regulations as well as have “readily understandable” consumer disclosures.
Recommended: Online Banking vs Traditional Banking: What’s Your Best Option?
The Takeaway
Financial services regulatory bodies like the Fed, the FDIC, and the SEC oversee the banking and finance sectors in the United States. State agencies also play a role. Though many consumers are not aware of the details, these regulatory bodies have jurisdiction over stock markets, commercial and retail banks, investment banks, and asset managers. Their mandate is to ensure fairness for consumers, ensure entities comply with fraud protection rules, and to protect the financial sector and free-market economy.
Which is all good, of course. But if you are looking for a great bank for your personal accounts, see what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
Who regulates financial institutions in the United States?
In the United States, financial institutions are regulated by the Fed, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the SEC, FINRA, the CFPB, the NCUA, and the CFTC. State agencies also enforce regulations on financial institutions, especially insurance providers.
What are regulators in finance?
Finance and banking regulators are state- and government-appointed bodies that protect the safety and fair treatment of consumers. They also ensure smooth operations of the finance and banking sectors, the backbone of the economy.
Who regulates investment banks?
U.S investment banks are regulated by the SEC. For regulatory purposes, investment banks were declared separate for commercial banks following the passing of the Glass Steagall Act of 1933.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., 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.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This just in: Houses are expensive. But some houses are really expensive. If you have your heart set on a luxurious oceanside mansion (or just a modest home in an ultra-high-cost city like New York or San Francisco), you may need to seek out a jumbo mortgage: one whose dollar amount surpasses the conforming loan limits set by the Federal Housing Finance Administration (FHFA) each year. In 2024, that limit is $766,550 in most cases, though in some high-cost areas the limit can range up to $1,149,825. Any mortgage that exceeds those amounts is considered a jumbo loan.
What Are Jumbo Loans?
Jumbo loans are those in which the mortgage total surpasses the conforming loan limits set by the FHFA. The conforming loan limits change annually. As noted above, in 2024, a jumbo loan is one whose total is $766,550 or more in most areas, though in select high-cost areas, the limit goes up to $1,149,825.
Your mortgage total is the amount of money you borrow in order to purchase a house — an amount that can be calculated by subtracting your down payment from the agreed home purchase price. (Keep in mind, though, that this figure isn’t the same as how much you’ll pay in full over the lifetime of the loan, since you’ll also owe interest to the bank that provides the loan. Still have questions? Check out our mortgage payment calculator with interest.)
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Jumbo vs Conventional Loan
Conventional loans are offered privately through banks, credit unions, and other financial institutions, unlike other loans which are supported by a government agency such as the Federal Housing Administration (FHA) or USDA (U.S. Department of Agriculture). Conventional loans are easily the most common type of home loan.
Jumbo loans are a type of conventional loan. But whereas most conventional loans are also conforming loans and are available with a minimum down payment as low as 3% for first-time homebuyers, jumbo loans are considered nonconforming and typically require a larger down payment — usually at least 10%. You’ll also likely need a very high credit score in order to be eligible to take out a jumbo loan.
Determining Jumbo Loan Limits
As we’ve seen above, the specific jumbo loan limits where you live (or where you’re planning to buy a home) will vary depending on the area’s cost of living. The FHFA offers a convenient conforming loan map that allows you to see what the conforming loan limits (otherwise known as jumbo loan limits) are in your area, broken down by county.
How Loan Limits Are Calculated
The jumbo loan limit is determined each year by the FHFA using current housing price data. That way, the limits are tied to real information in the world about how much it actually costs to buy a home in a given area. Conforming loan limits — also known as the jumbo loan limits — change each year; new limits for the coming year are typically announced in late November.
Current Jumbo Loan Limits
As mentioned above, in 2024, the jumbo loan limit for the vast majority of the U.S. is $766,550, and the highest conforming loan limit, in the most expensive places to live, is $1,149,825. To see exactly what the jumbo loan limits are in your area, visit the FHFA’s map.
Qualifying for a Jumbo Loan
Jumbo loans are, well, big — which means the qualification metrics for getting a home loan are pretty strict. (After all, that’s a whole lot of money the lender stands to lose if you default.) While every lender has its own specific algorithm for qualifying potential borrowers, here are some rules of thumb when it comes to qualifying for a jumbo loan:
Credit Score Requirements
While there’s no specific credit score that guarantees you’ll qualify for a jumbo loan, most lenders will likely require a high one — after all, it’s a fairly risky prospect to lend that much money to someone. Credit scores range from 300 to 850. Scores of 670 to 739 are considered good; scores of 740 to 799 are considered very good, and scores of 800 and above are considered exceptional.
Down Payment Requirements
We touched on this briefly, but jumbo loan lenders often require their borrowers to provide a more substantial down payment than conventional loan lenders do. While a minimum of 10% is a good rule of thumb, some lenders may ratchet up the minimum to 25% or 30%.
Considering how large jumbo loans are already, that means you’ll probably need a significant amount of cash lying around in order to successfully apply for one — 10% of $800,000, a relatively small jumbo loan, is already $80,000.
Debt-to-Income Ratio Requirements
Your debt-to-income ratio, or DTI, is a measurement of your existing debt burden expressed as a percentage. It’s calculated by totalling all your monthly debt payments and dividing that figure by your gross monthly income.
Conventional loans usually required a DTI of 50% or lower — and that’s the absolute max. (Many lenders cut off qualification at lower percentages.) Again, while there’s no one advertised maximum DTI for a jumbo loan, you’ll likely want to have as little debt as possible in order to qualify — not to mention in order to have the money on hand each month to make that massive mortgage payment.
Income and Asset Documentation
Jumbo loan lenders are, of course, primarily concerned with your ability to repay the loan. That means that, along with the above-mentioned factors, they’ll also want proof that you earn a reliable and high income — and in some cases that you’ve already stockpiled enough wealth that you’ll be able to make your payments for several months even if you lose your job. For this reason, qualifying for a jumbo loan can be especially challenging for a self-employed worker.
Advantages and Disadvantages of Jumbo Loans
So, now that you understand them better, is a jumbo loan right for you? Like any financial decision, taking out a jumbo loan has both benefits and drawbacks to carefully consider. Here are some of the pros and cons of jumbo loans.
Advantages of Jumbo Loans
Jumbo loans offer those who qualify the opportunity to purchase a costly home that they might otherwise not have access to. They may also be available at similar interest rates to lower conforming loans, and both fixed and adjustable rates are available in 15- and 30-year terms.
Disadvantages of Jumbo Loans
On the other hand, jumbo loans are, well, jumbo-sized — which means the total amount you’ll pay over time is, too. Even a low interest rate can add up to a lot on a large principal balance, and jumbo loans also have more stringent qualification and down payment requirements than their conforming counterparts. Associated closing costs and fees can be higher, too.
Alternatives to Jumbo Loans
If you find yourself having trouble qualifying for a jumbo loan, you could look into other nonqualifying mortgages, such as bank statement loans — or potentially borrow a significant amount of money from family or friends. However, if the home you’re vying for is that much of a stretch, it may make more financial sense to find something a bit more modest and apply for a conforming loan instead.
The Takeaway
Jumbo loans are large mortgages that don’t conform to the limits set by the FHFA — and therefore come with stricter qualification requirements. While jumbo loans can help those who qualify to access a high-value house, they can also be hard to keep up with unless your income is correspondingly high.
When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.
SoFi Mortgage Loans: We make the home loan process smart and simple.
FAQ
What does a jumbo loan mean?
Jumbo loans are those whose totals exceed the conforming loan limits set each year by the FHFA. For 2024, that limit is $766,550 in the vast majority of the U.S.; in some areas with a high cost of living, the conforming loan limit can be as high as $1,149,825.
What are the disadvantages of a jumbo loan?
Along with their extra-large monthly mortgage payments, jumbo loans also come with stricter eligibility requirements and higher minimum down payments. In most cases, you’ll need to pony up at least 10%, and some lenders may require as much as 30% up front.
Why are jumbo loan limits necessary?
Most mortgage loans issued in the U.S. are guaranteed by Fannie Mae and Freddie Mac, which helps reduce risk for lenders and ensure that loans are affordable and available to homebuyers. But the guarantee has to stop somewhere, and conforming loan limits draw that line. This is why jumbo loans have more stringent borrower requirements than conforming loans — lenders who make jumbo loans don’t have Fannie Mae and Freddie Mac to fall back on if a jumbo borrower defaults.
Photo credit: iStock/Wirestock
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Are you looking for the best online jobs that pay daily? Online jobs that pay daily are great opportunities if you’re looking to earn money quickly and conveniently. These online jobs let you work from home or anywhere with an internet connection. There are many tasks that you can get paid to do, from taking…
Are you looking for the best online jobs that pay daily?
Online jobs that pay daily are great opportunities if you’re looking to earn money quickly and conveniently. These online jobs let you work from home or anywhere with an internet connection. There are many tasks that you can get paid to do, from taking surveys and playing games to writing and freelancing.
For me, I like work-from-home jobs that pay daily because of their flexibility and ease of starting, which is great if you want to get paid daily instead of waiting for a weekly or monthly paycheck.
Plus, some of the online jobs that pay daily below will allow you to earn a full-time income, or just some spare extra income – so you have flexibility to choose what will fit your schedule best.
Best Online Jobs That Pay Daily
Here’s a quick summary of my top online jobs that pay daily:
Below are the best online jobs that pay daily.
1. Blogging
Blogging is a great way to make money online and get paid daily. You don’t need to spend a lot to start, and all you need is a computer and an internet connection.
You can blog about any topic you like and I recommend to think about what interests you. Popular topics include travel, personal finance, lifestyle, and food.
To make money blogging, you can use ads, sponsored posts, and affiliate marketing. This means you earn money when readers see ads, companies pay you to write about their products, or you get a commission when people buy through your referral links.
Plus, because there are so many different ways to make money blogging, there is a good chance that you can earn several payouts throughout the month. I get money deposited into my bank account nearly every single day from my blog, which is nice!
I have a free training that you can take – How To Start A Blog FREE Course. Want to see how I built a $5,000,000 blog? In this free course, I show you how to create a blog, from the technical side to earning your first income and attracting readers.
2. Online surveys
Online surveys are a simple way to make extra money from home. You just need a computer or a cell phone with internet access. You can earn points (and redeem your points for cash and gift cards if you accrue enough) the same day as you answer surveys.
And, taking surveys doesn’t require any special skills. You just need to answer honestly, so it’s an easy and flexible way to bring in some extra cash.
Some paid survey sites where you can take surveys include:
Freecash
Prime Opinion
American Consumer Opinion
Survey Junkie
Swagbucks
InboxDollars
Five Surveys
Branded Surveys
I’ve answered many surveys over the years. I liked doing them during short breaks in my day, like before and after work, during lunch, or while riding in a car. They are easy and usually only take a few minutes.
9
Swagbucks is a site where you can earn points for surveys, shopping online, watching videos, using coupons, and more. You can use your points for gift cards and cash.
10
Once you complete five surveys, you’ve earned $5, which you can cash out using the payout options offered by the site (such as PayPal cash and free Amazon gift cards).
10
Prime Opinion is a survey website that helps people to earn extra money by sharing their opinions at home. It’s a simple survey site to use: you share your thoughts, and they pay you for them.
3. Proofreading
Proofreading is a great online job that pays daily. As a freelance proofreader, you can invoice your clients after you complete a project and get paid the same day.
Writers often make errors in their work, and proofreaders help catch those mistakes. This job involves checking for grammar, spelling, and punctuation errors in different kinds of writing.
For example, proofreaders proofread blog posts, student papers, articles, ads, and more. It’s a flexible job you can do from home or anywhere in the world.
The pay for proofreading jobs can vary. Beginners might make around $20 to $25 per hour. With more experience, you could earn up to $50 or more per hour. Specialized fields like medical or technical proofreading may pay higher rates.
The best part is, you can start even if you have no experience as this is something you can learn. You will need a good eye for detail and a strong grasp of language to succeed.
If you enjoy reading and spotting errors, proofreading could be a fun and profitable job for you. Plus, it’s an excellent way to make money every day while working on your own terms.
You can learn more at 20 Best Online Proofreading Jobs For Beginners (Earn $40,000+ A Year).
10
This free 76-minute workshop answers all of the most common questions about how to become a proofreader, and even talks about the 5 signs that proofreading could be a perfect fit for you.
4. Bookkeeping
Bookkeeping can be a great online job that pays daily. If you like working with numbers, this is a flexible option for you. You can work from home and you don’t need a degree or much experience to get started.
Bookkeepers handle tasks like recording financial transactions and organizing receipts. They also create financial reports and manage budgets. Many businesses need these types of tasks done so that they can stay organized.
Many online bookkeeping jobs pay well, around $40,000 or more each year. This can be very good if you’re looking for a stable income from home.
You can learn more at Online Bookkeeping Jobs: Learn How To Get Started Today.
10
This free training will show you how to start a profitable bookkeeping side-hustle in the next 30 days—even if you have no prior experience!
5. Play online games
Playing online games can be a fun way to earn money from home. There are many apps available that let you play games and collect real money or gift cards as rewards.
You can earn points (and redeem your points for cash and gift cards if you accrue enough) the same day as you play games.
Here’s a quick list of the top game platforms that pay real cash:
KashKick
Freecash
Swagbucks
InboxDollars
Game apps give real money rewards because they make money from ads and in-app purchases. They share some of this money with players like us to keep us playing their games.
Recommended reading: 23 Best Game Apps To Win Real Money
6. Sell stuff online
Selling things online is a great way to make money every day, and you can sell clothes, old phones, books, unused gift cards, kitchen items, and jewelry.
Many people have lots of items just lying around, so you could easily find things to sell without spending money on new stock.
You can quickly sell your items by listing them on sites like eBay, Craigslist, or Facebook Marketplace.
I have sold many items over the years and gotten paid the same exact day. It’s a great way to make money the same day with the things that you already have.
7. Transcriptionist
Transcription work is one of the top online jobs that pay daily with no experience needed to get started. Their job is to listen to audio or video files and type out everything that is being said. Transcriptionists need good listening and typing skills to do this job well.
One of the best things about transcription is you can work from home and have the flexibility to set your own schedule. This means you can work in the evenings, on weekends, or whenever you have free time.
There are different types of transcription jobs.
General transcription involves typing out things like interviews, podcasts, and videos.
Medical transcription requires you to type out doctors’ notes and medical records.
Legal transcription involves court hearings and legal documents.
Beginners can find work easily, especially in general transcription. You don’t need special training for most general transcription jobs. Sites like Rev, TranscribeMe, and Scribie are known for hiring beginners. They usually pay per audio hour, which means you get paid for each hour of audio you transcribe.
Beginners usually make $15 to $20 per hour, but your speed and accuracy can affect your earnings. The faster and more accurate you are, the more you can make.
As a freelance transcriber, you can invoice your clients after you complete a project and get paid the same day.
You can learn more at 18 Best Online Transcription Jobs For Beginners To Make $2,000 Monthly.
10
In this free training, you will learn what transcription is, why it’s a highly in-demand skill, who hires transcriptionists, how to become a transcriptionist, and more.
8. Freelance writing
Freelance writing is a great way to earn money daily from home and you just need a computer and good writing skills. Many websites pay you to write articles, blog posts, and other content.
Freelance writers typically start at around $50 to $100 per article and with experience can earn over $1,000 per article.
I have been a freelance writer for years, for many different types of clients and different niches – travel, personal finance, lifestyle, and more.
As a freelance writer, you can invoice your clients after you complete a project and get paid the same day.
You can learn more at 14 Places To Find Freelance Writing Jobs – (Start With No Experience!).
9. Virtual assistant
Virtual assistants help businesses with tasks like managing emails, scheduling meetings, social media posting, helping with SEO on a business website, and making travel arrangements. Many companies look for virtual assistants because it saves them time and money.
I have had a virtual assistant for many years now, and she helps my business run much more smoothly so that I can focus on other tasks – it is a much needed service!
One of the best things about being a virtual assistant is the flexibility. They can often set their own schedule and work from anywhere.
Virtual assistants can work for one company or several clients at once. This can keep the work interesting and help you build a wide range of skills. Plus, you can offer different services like social media management, customer service, and research.
Payment can vary and some virtual assistants are paid hourly, while others get a set fee for each job. Many platforms let you choose the payment method that works best for you. This can be helpful if you prefer getting paid daily or weekly.
You can learn more at Best Ways To Find Virtual Assistant Jobs.
10. Online tutoring
You can make money by tutoring students online, and this job lets you share your knowledge with kids or adults who need help with their studies.
All you need is a computer, a good internet connection, and a quiet place to work. Many tutoring jobs pay well, around $30 per hour on average and up to $50 or $60 per hour for advanced subjects like SAT Prep or calculus (and other higher level math subjects). Some subjects even pay well over $100 per hour.
You don’t always need to be an expert to start. Some jobs only require you to be good at what you teach and be able to explain it well. This makes online tutoring a great job for college students and part-time workers too.
Some sites to find online tutoring jobs include Pear Deck Tutor (formerly TutorMe), Wyzant, and Course Hero.
As an online tutor, you can invoice your clients after you complete a tutoring session and get paid the same day. Typically, with these types of same-day pay jobs, your client will pay right away.
11. Data entry jobs
Data entry jobs involve entering or updating information in a computer system or database, such as by typing info from documents into a digital format.
One perk of data entry is the chance to work from home as many companies hire for remote jobs that pay daily, letting you balance work with other activities.
You can find data entry jobs on websites like Indeed, Upwork, and Remote.co. Many of these online jobs pay daily after you complete a project, which makes it easy to get quick cash.
You’ll need good typing skills for this work because your typing speed and accuracy are important since you’ll be working with lots of data.
These jobs can pay well, too. Pay rates can range from $20 to $35 per hour. The rate can depend on your skills and the company’s budget.
You can learn more at 15 Places To Find Data Entry Jobs From Home.
12. Freecash
Freecash is a fun way to make extra money online. You can get paid for trying out apps, playing games, and answering surveys. The tasks are simple and only take a few minutes.
When you sign up, you’ll find many different offers. Each offer can earn you coins, which you can convert into cash or gift cards. The rewards can be used for PayPal, bank transfers, free gift cards, or even crypto.
One great thing about Freecash is that you can start earning almost right away. On average, it takes about 17 minutes to earn enough coins for your first cashout. This makes it one of the quicker ways to earn online.
I have personally redeemed over $400 in free gift cards from Freecash, so I know this site is real.
Click here to sign up for Freecash.
13. Sell printables on Etsy
Selling printables on Etsy is a great idea because you only need to create one digital file per product, which you can sell unlimited times.
Printables are digital products that customers can download and print at home, such as grocery shopping checklists, gift tags, candy bar wrappers, printable quotes for wall art, and patterns.
You can sell printables all day long, which means that you can get paid each day.
You can learn more at How I Make Money Selling Printables On Etsy.
Do you want to make money selling printables online? This free training will give you great ideas on what you can sell, how to get started, the costs, and how to make sales.
14. Website testing
Website testing is a great way to earn money online and get paid right away. Many companies will pay you to test their websites and apps, and all you need is a computer or mobile device and you can start making money.
You don’t need any special skills to get started either – most website testing platforms just want your honest feedback on how easy their site is to use.
Common tasks as a website tester include checking links, testing navigation, and reporting any issues. You might also be asked to complete certain actions, like making a purchase or signing up for a newsletter.
The pay you can make for website testing varies. Some tests pay as little as $5, while others can pay up to $90 for more detailed work. Generally, you can expect to earn around $10 to $30 per hour depending on the platform and the complexity of the test.
Platforms like UserTesting and IntelliZoom are popular choices. They have frequent testing opportunities and pay through PayPal, which makes it easy to get your money quickly.
In a typical week, you might get 1 to 3 testing opportunities. This makes it a good side hustle, especially if you need extra cash quickly. Plus, it’s a flexible job you can do from home or anywhere with an internet connection.
For me, I have personally hired a website tester to test my website, Making Sense of Cents. They sent over a video of their screen and them talking, where they talked about what they liked and didn’t like about my website. I found it very helpful to see what someone thought of my website from an unbiased view.
15. Dropshipping
Dropshipping is a great way to start an online business without much upfront cost. Dropshippers sell products directly to customers without having to keep the items in stock.
They choose a product, list it on their online store, and when someone buys it, they order it from a supplier (typically, this is done automatically). The supplier then ships it straight to the customer. And, you get paid the same day as the sale.
It’s important to pick the right products and reliable suppliers. Good suppliers help to make sure that customers get their orders quickly and in good condition.
You also need to market your store, of course. Use social media and online ads to attract buyers.
16. Microtask websites
Microtask websites give you the chance to earn money by completing small tasks. These tasks can be simple and quick, like answering surveys or testing apps.
One popular site is Amazon Mechanical Turk (MTurk). It’s known for its diverse range of tasks, such as transcription, writing, market research, moderating forums, labeling photographs, data collection, categorizing products, and more. You can pick what you want to do and get paid for each task you finish.
Fiverr is another option. You can list your skills, whether it’s writing, graphic design, voice-over work, or something else (there are literally thousands of different kinds of tasks that you can list). Clients hire you for gigs and you get paid once the job is done.
17. Translator
If you know more than one language, you can work as a translator. This job lets you use your language skills to help others understand different texts.
You will translate documents like medical, legal, or technical papers. You may even be translating articles or books. Many platforms allow you to sign up and start translating after passing a test.
Platforms, like Upwork, have many translation jobs. You set up a profile and showcase your skills, and you can choose the jobs that match your expertise and agree on a payment rate with the client.
Hourly rates for translators can vary. Some jobs might pay around $20 per hour, while more specialized or urgent work can pay up to $100 per hour. Your pay depends on the complexity of the job and your speed.
As a freelance translator, you can invoice your clients after you complete a project and get paid the same day.
Frequently Asked Questions
Below are answers to common questions about how to find online jobs that pay daily.
What app lets you work and get paid daily?
Apps like DoorDash, Postmates, and Instacart allow you to deliver food and get paid the same day. These are apps where you work in person and not strictly online.
How to make $25 dollars an hour online?
Freelance writing can help you earn $25 an hour if you’re a fast writer. Proofreaders can also make good money. For me, I am a full-time blogger and I make over $25 per hour online.
How to make money and get paid the same day?
To make money and get paid the same day, you can do things like freelance writing or proofreading, starting a blog, selling printables, taking online surveys, playing games online, data entry, and more.
What are free online jobs that pay daily without investment?
There are many online jobs that pay daily without investment that you can start, such as proofreading, bookkeeping, writing, and translating. There are also sites that you can sign up for and earn spare cash, such as by answering surveys, testing out cell phone apps, and playing games online.
What are remote jobs that pay daily?
There are many remote jobs that pay daily in areas like writing, proofreading, and bookkeeping. Website testing on platforms like UserTesting can pay quickly. Data entry jobs can also have frequent payout options. These jobs let you work from home and earn fast.
What are the best online jobs that pay daily for students?
There are many online jobs for college students that can pay daily, such as selling items on Amazon, answering paid online surveys, starting an online store, reselling items online, and more.
How To Find Online Jobs That Pay Daily
I hope you enjoyed this article on how to find the best online jobs that pay daily.
There are many online jobs that pay daily cash and even some where you can work online and get paid instantly.
These include blogging (my favorite way to earn income every day), answering online surveys, proofreading, bookkeeping, selling stuff online (I have done this many times and it’s easy!), transcribing files, writing, selling printables, website testing, dropshipping, and more.
These fast-paying jobs may pay via direct deposit, check, free gift cards, PayPal cash, and more. It all just depends on what you are looking for.
What do you think are the best online jobs that pay daily?
Ascent Developer Solutions, a private mortgage lending platform, announced its launch Friday in conjunction with an equity infusion from Elliott Investment Management.
Headquartered in Southern California, AscentDS will focus on providing customized financing solutions to single-family and multifamily housing developers and investors across the nation. Founder and CEO Robert Wasmund has a deep background in the residential construction and bridge lending industry.
“We are incredibly proud to launch AscentDS with Elliott’s partnership, allowing us to address the critical financing needs of leading developers during a time of higher interest rates, dislocated construction financing, and the retreat of regional banks,“ Wasmund said in a statement.
“In today’s challenging economic landscape, AscentDS is uniquely positioned to provide customized lending solutions that offer speed, reliability and added value to our borrowers.“
Wasmund is also the former CEO of Genesis Capital, which was sold by Goldman Sachs in 2021 to New Residential Investment Corp., now known as Rithm Capital. According to reporting from Bloomberg, AscentDS is seeking to originate $3 billion to $5 billion per year.
AscentDS product offerings will include short-term loans to acquire, renovate or build single-family and multifamily properties, as well as post-completion bridge financing. The company has an in-house construction servicing and valuation team “to ensure best-in-class customer experiences and comprehensive portfolio monitoring,“ according to its announcement.
“We believe AscentDS has many attributes that make the company an attractive addition to our mortgage and specialty finance investing strategy, including a high-caliber management team led by Robert Wasmund, as well as an analytical and disciplined approach to underwriting and portfolio management, strong and multi-faceted relationships with its customers, and a creative approach to meeting the needs of customers,“ Neil Barve, Elliott’s senior portfolio manager, said in a statement.
Gibson Dunn was the legal adviser for AscentDS and WilmerHale was the adviser for Elliott. Global financial services company Nomura also assisted AscentDS in the transaction.
Bank guarantees are often used in real estate contracts and infrastructure projects, while letters of credit are primarily used in global transactions. But a bank guarantee and a letter of credit are quite similar.
With both instruments, the issuing bank accepts a customer’s liability if the customer defaults on the money it owes, and they both, effectively, are a show of good faith from a lending institution that ensures the bank will step up if a debtor can’t cover a debt.
What Is a Bank Guarantee?
Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. With a guarantee, the seller’s claim goes first to the buyer, and if the buyer defaults, then the claim goes to the bank.
Bank guarantees serve a key purpose for businesses. The bank, through their due diligence of the applicant, provides credibility to them as a viable business partner in a particular business dealing. In essence, the bank puts its seal of approval on the applicant’s creditworthiness, co-signing on behalf of the applicant as it relates to the specific contract the two external parties are undertaking.
A bank guarantee is an assurance from a bank regarding a contract between a buyer and a seller. Essentially, the bank guarantee acts as a risk management tool. A bank guarantee provides support and assurance to the beneficiary of the payment, as the bank guarantee means that the bank is assuming liability for completion of the contract.
This means that if the buyer defaults on their debt or obligation, the bank makes sure the beneficiary receives their payment.
Any business may benefit from a bank guarantee, but especially small businesses that would be more affected if a payment from a business partner or customer falls through.
Bank guarantees only apply to a certain monetary amount and last for a set period of time. There will be a contract in place that dictates in which scenarios and at what point in time the guarantee is applicable.
Before taking on a bank guarantee, the bank does research on the applicant to make sure they are credible and will act as a reliable business partner. In a way, a bank guarantee serves as a seal of approval as the bank has good reason (they’re on the hook for the money) to only accept creditworthy applicants.
Types of Bank Guarantees
There are a few different types of bank agreements, here’s a closer look at the main ones.
Financial Bank Guarantee
With a financial bank guarantee the bank guarantees that the buyer repays all debts they owe to the seller and if they fail to pay those various types of debts, the bank has to assume responsibility for the money owed. The buyer will need to pay a small initial fee when the guarantee is issued.
Performance-Based Bank Guarantee
When it comes to a performance-based guarantee, the beneficiary has the right to seek reparations from the bank if contractual obligations aren’t met due to non-performance. If the counterparty doesn’t deliver on promised services, then the beneficiary will have the choice to claim resulting losses caused by the lack of performance.
Foreign Bank Guarantee
Foreign bank guarantees can apply to unique scenarios such as international export situations. In this case, there may be a fourth party involved — a correspondent bank operating where the beneficiary resides.
💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.
What Is a Letter of Credit?
A letter of credit (sometimes referred to as a credit letter) is a document provided by a financial institution such as a bank or credit union that guarantees a payment will be made during a business transaction. The bank acts as an impartial third party throughout the transaction.
When the bank issues a letter of credit, they are assuring that the purchaser will in fact pay for any goods or services on time and in full. If the buyer doesn’t make their payment on time and in full, the bank that issued the letter of credit will guarantee that they will make the payment instead. The bank will cover any remaining overdue balance as long as it doesn’t surpass the full purchase amount.
Letters of credit are commonly used in international trade (but can be used domestically as well) where, understandably, companies require more certainty when making deals across borders. A letter of credit can provide security and confidence to importers and exporters since they know the issuing bank guarantees the payment.
Applicants for letters of credit need to work with a lender in order to secure this backing. The applicant will need to provide a purchase contract, and a copy of the purchase order or export contract (among other documents) during the application process. Applicants will pay a fee to obtain the letter of credit and it usually equates to a percentage of the amount the letter of credit backs.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
Types of Letters of Credit
There are multiple types of letters of credit, with some being more common than others, and some applying to unique situations. Here’s a look at the main types.
Commercial Letter of Credit
This type of letter of credit applies to commercial transactions and is commonly used for international trade deals. In this case the bank makes a direct payment to the beneficiary.
Standby Letter of Credit
A standby letter of credit acts as a secondary payment method. The bank will pay the beneficiary if they are able to prove they didn’t receive the promised product or service from the seller.
Revolving Letter of Credit
A revolving letter of credit can help secure multiple transactions when two parties anticipate doing multiple deals.
Traveler’s Letter of Credit
With a traveler’s letter of credit, the issuing bank guarantees to honor letters of credit signed at certain foreign banks.
Confirmed Letter of Credit
This type of letter of credit specifies that the seller’s bank will be the party to ensure that the seller receives payment if the buyer and their issuing bank default on the agreement.
Special Considerations
Bank guarantees and letters of credit differ slightly, but both serve the same purpose: to give confidence and protection during transactions.
Because the financial institutions that back these guarantees confirm that the buyer is creditworthy in the case of a bank guarantee or a letter of credit, the seller can be confident that the transaction should go through as planned if they have one of these agreements in place. If it does not, they know they’ll still receive payment from the institution that backed the agreement.
Key Differences between a Bank Guarantee and Letter of Credit
These are the most important differences to know about a bank guarantee vs. a letter of credit.
Liability
With some letters of credit the bank pays the seller directly so they take on the primary liability.
With a bank guarantee they only pay if the buyer fails to do so, so they take on a secondary liability.
Risk
The bank takes on more risk with a letter of credit as they take on the primary liability, but that means the seller and customer take on more risk with a bank guarantee.
Number of Parties Involved
At least three parties are involved in letters of credit and bank guarantee transactions. To start there is the buyer, seller, and a bank or other type of financial institution. With a letter of credit, a lender also gets involved. Sometimes two banks (more common in foreign transactions) are involved in a letter of credit or bank guarantee.
Payment
With a bank guarantee, the bank only makes payment if the buyer fails to do so. With a letter of credit this is also usually the case, but the bank can be more involved in the transaction, so disputes tend to be resolved faster.
The Takeaway
When considering a letter of credit versus bank guarantee, both can help two parties involved in a transaction feel more confident that the seller will be paid and the buyer will receive the goods or services promised — or they will be reimbursed by the bank that issued the agreement. Each type of agreement may be especially helpful when conducting business across borders.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
How is a letter of credit different from a bank guarantee?
When it comes to a bank guarantee vs. a letter of credit, both letters of credit and bank guarantees function very similarly. The main difference is that with a letter of credit the bank takes on more risk than they do with a bank guarantee.
What is a bank guarantee and how does it work?
A bank guarantee is an assurance from a bank that a contract between a buyer and a seller will be executed or they will reimburse the wronged party accordingly.
What is the primary difference between a standby letter of credit and a bank guarantee?
The main difference between a letter of credit and a bank guarantee is risk level. With a bank guarantee the bank takes on less risk than they do with a letter of credit.
Photo credit: iStock/fizkes
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., 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.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
The 8th U.S. Circuit Court of Appeals has blocked the income-driven student loan repayment plan Saving on a Valuable Education (SAVE). As a result, SAVE borrowers won’t owe payments until the legal situation is resolved, which could take months.
Thursday’s ruling was the latest update for borrowers who have endured back-and-forth legal decisions about SAVE since June, resulting from two lawsuits filed by groups of Republican-led states. About 8 million borrowers are enrolled in SAVE, accounting for 1 in 5 student loan borrowers.
“Today’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect,” U.S. Education Secretary Miguel Cardona said in a Thursday evening statement. “It’s shameful that politically motivated lawsuits waged by Republican elected officials are once again standing in the way of lower payments for millions of borrowers.”
Thursday’s legal decision blocks the plan in its entirety, whereas decisions in recent weeks only blocked portions of the plan. However, the decision is also temporary — in place until the court rules on the plaintiffs’ request for a preliminary injunction.
If you’re enrolled in SAVE, here’s what you need to know.
Interest-free forbearance for SAVE borrowers
Of the 8 million federal student loan borrowers enrolled in SAVE, about 4.6 million owe $0 payments based on their income.
If you’re among the 3.4 million SAVE borrowers who do owe monthly payments, you’re off the hook for now. The Education Department is putting all SAVE borrowers into an administrative forbearance indefinitely. Payments won’t be due.
“Borrowers enrolled in the SAVE Plan will be placed in an interest-free forbearance while our administration continues to vigorously defend the SAVE Plan in court. The department will be providing regular updates to borrowers affected by these rulings in the coming days,” Cardona said.
Check that your contact information is up to date in both your studentaid.gov and student loan servicer accounts. This will help you stay informed of key SAVE updates that may impact your repayment.
The Education Department has not yet confirmed if borrowers will get credit toward income-driven repayment (IDR) loan forgiveness or Public Service Loan Forgiveness during this SAVE payment pause, but it’s likely. Borrowers typically get this credit during an administrative forbearance, including a separate July forbearance that applied to some SAVE borrowers.
The department also has not clarified if borrowers can still apply for IDR plans, including SAVE. As of Friday morning, the online IDR application on studentaid.gov/idr was inaccessible. And in a court document filed Wednesday before the plan was struck down, U.S. Solicitor General Elizabeth B. Prelogar said the Education Department would suspend online IDR and loan consolidation applications for six weeks if SAVE was blocked.
How we got here and what could come next
SAVE is more generous than other income-driven repayment (IDR) plans, which the government introduced in the 1990s. For example, SAVE offers lower monthly payments and an interest subsidy that prevents ballooning balances. It also forgives debt in as little as 10 years for those with principal balances up to $12,000, compared to forgiveness in 20 or 25 years on other IDR plans.
Portions of SAVE debuted to borrowers in August 2023. The final benefits of the plan — like capping payments on undergraduate loans at 5% of discretionary income, rather than 10% — were slated to roll out July 1. The Education Department has already forgiven $5.5 billion in student debt for 414,000 SAVE borrowers.
In March, a group of 11 Republican states led by Kansas sued to stop the SAVE plan, alleging that Biden did not have the authority to cancel student debt without congressional approval. In April, a separate group of seven Republican states led by Missouri filed a similar lawsuit.
As a result, two federal judges temporarily blocked different portions of SAVE in late June, days before reduced payments were scheduled to go into effect for millions of borrowers.
One of these rulings was lifted a week later by the 10th U.S. Circuit Court of Appeals, allowing lower payments to proceed, but not the accelerated 10-year forgiveness. However, the latest decision by the 8th Circuit on Thursday entirely blocks SAVE until a final decision can be made.
In a post on X, Missouri Attorney General Andrew Bailey called the Thursday decision a “HUGE win for every American who still believes in paying their own way.”
However, removing SAVE could leave borrowers with “intense confusion” and “significant and irreparable harm,” Prelogar said in the Wednesday court filing.
“To revert to the pre-SAVE plan approach, the department and its servicers would have to reprogram their systems, retrain their staff and recalculate monthly payments,” Prelogar said. “It would have to devote considerable staff time and other resources to the reprogramming effort, which would detract from other critical priorities.”
If the 8th Circuit finds the plan illegal and the 10th Circuit does not, these differing opinions could land SAVE in the U.S. Supreme Court, according to the Student Borrower Protection Center. A Republican coalition has already asked the high court to intervene.
Student loans are a type of financial aid option that lets you borrow a lump sum of money upfront that you’ll repay over time later, with interest. Some students are unclear whether a student loan is a secured or unsecured debt.
Both federal and private student loans are considered unsecured debt. Keep reading to learn more on secured loans versus unsecured loans, pros and cons of each, and why student loans are considered an unsecured form of debt.
What Are Secured Loans?
A secured loan is a type of debt that requires borrowers to provide the lender with an asset of value to back the loan. This asset is called collateral. Collateral could be your home, your car, other property that has monetary value, a savings account, jewelry, and more. The type of collateral you put up is stated in the loan agreement.
If a borrower defaults on their loan and doesn’t pay it back, the lender can take actions to seize possession of the collateral. It then uses the proceeds from the sale of the collateral to recover the unpaid debt.
Common types of secured loans include:
• Mortgage loans
• Home equity loans
• Auto loans
• Some personal loans
Lenders typically view secured loans as less risky to their bottom line since the promised collateral offers them at least some financial protection. In turn, secured loans might offer lower interest rates compared to unsecured loans.
Certain secured loans are also designed as accessible financing for individuals whose credit doesn’t qualify for an unsecured loan.
What Are Unsecured Loans?
An unsecured loan is an installment loan that doesn’t require an asset or collateral upfront to secure the debt. Since this type of loan doesn’t offer an asset-based guarantee to the lender, the borrower must demonstrate a strong likelihood that they’ll repay the debt.
A positive and extensive credit history, consistent and sufficient income, and low credit utilization are some markers that lenders use to determine how risky a borrower is for an unsecured loan. Additionally, since lenders don’t have access to collateral to fall back on in the event of default, unsecured loans generally have higher interest rates.
Credit cards, some personal loans, and private student loans are considered unsecured loans.
Pros and Cons of Secured vs Unsecured Loans
Secured and unsecured loans have their own advantages and downsides. Furthermore, some benefits are only for certain types of secured or unsecured loans. Before signing a loan agreement, it’s important to understand the pros and cons of each option.
Secured Loans
Unsecured Loans
Pros
• More accessible for certain borrowers
• May offer lower interest rates
• Might qualify for larger loan amount
• Certain loans might qualify for tax deductions
• No risk of lost collateral
• Application process might be more straightforward
• Might offer convenient features or perks
• Student loans might qualify for tax benefits
Cons
• Collateral required upfront
• Risk losing collateral if you default
• More stringent borrowing criteria
• Interest rates may be higher
How Federal Loans Differ From Typical Debt
Students often wonder whether federal student loans are secured or unsecured debt. Both federal loans and private education loans are unsecured debt. However, federal loans have significant perks and protections that private student loans don’t offer.
Unlike private student loans that require a minimum credit score or cosigner, most federal student loans don’t require a credit check or a cosigner to qualify for a loan. The Direct PLUS Loan is the only federal loan that requires a credit check, but borrowers with adverse credit can still access a Direct PLUS Loan by completing a few additional steps.
Federal loan rates are fixed, meaning your monthly payment won’t change throughout your repayment term. With federal subsidized Direct Loans, the Department of Education pays for interest that accrues while your loan is in deferment (e.g., while you’re in school). Conversely, other unsecured loans aren’t subsidized and might have variable interest rates that change throughout your repayment period, making it hard to anticipate your budget every month.
You’ll also have access to a range of repayment options, including income-driven repayment (IDR) plans, which are exclusive to federal student loans. Some borrowers qualify for a required payment of $0 per month while enrolled in an IDR plan. Finally, federal student loans are eligible for federal student loan forgiveness programs that cancel a portion of your student debt after meeting minimum program requirements.
Managing Your Student Loan Debt
Getting a handle on your unsecured student loan debt can feel challenging as you balance other areas of your life. Below are a few strategies to help you manage your student loans:
• Make in-school interest-only payments. If you can afford to, consider paying off the monthly interest that accrues while your loan is on in-school deferment. This applies to both unsubsidized federal loans and private loans. Making these small but meaningful interest payments can help you avoid interest capitalization (i.e., paying interest on interest) later.
• Track when your loan payments are due. Be aware of your loan due dates and minimum payments each month. Late payments or missing a payment altogether can have a negative effect on your credit score, since loan repayment history is reported to the major credit bureaus.
• See if you qualify for loan forgiveness or loan repayment assistance. The Department of Education offers a few forgiveness and cancellation programs for eligible borrowers with qualifying loans, like the Public Service Loan Forgiveness program for government and nonprofit employees. Some states also offer loan repayment assistance programs to workers in certain professions, like health care, social work, and law.
• Reach out to your loan servicer or lender. If you’re struggling to make your student loan payment, your loan servicer or lender is your best resource. They can guide you through relief options that are accessible to you, whether that’s getting on a different repayment plan or temporary forbearance.
The Takeaway
A student loan is unsecured debt. Having to put forward collateral to get a student loan is a roadblock that you fortunately don’t have to worry about.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Are student loans considered secured or unsecured?
Student loans are considered unsecured debt, meaning they don’t require collateral from you as a condition of securing the loan. Since there’s no collateral tied to the loan, if you default on the debt, the lender might choose to take you to court in an attempt to collect some or all of the debt.
Is it possible to get a secured student loan?
No. Student loans are a form of unsecured debt. No collateral is required to get a student loan, whether you’re borrowing a federal or private student loan.
How are federal student loans different from private?
Federal student loans are guaranteed and funded by the U.S. Department of Education. They offer exclusive fixed rates, established annual and aggregate loan limits, non-credit-based eligibility criteria, and access to income-based repayment plans and loan forgiveness.
Private student loans are provided by private financial institutions, like banks, credit unions, online lenders, and schools. Private lenders offer fixed or variable loan rates, which differ between lenders. Your eligibility for a private loan involves various factors, like your income and credit history, and repayment terms and plan options vary.
Photo credit: iStock/DNY59
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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 .
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.
Student loans are often the go-to choice for families who need help paying for a child’s college education. But as you put together your financing plan, you may find there are other options worth considering — including using a home equity line of credit, or HELOC, to cover some college costs.
Both types of borrowing have advantages and disadvantages that may influence your decision to use one or both to pay for school. Read on for a look at student loans vs. HELOCs, and how each can be used to help with your family’s educational and financial goals.
What Is a HELOC?
A home equity line of credit, or HELOC, is a revolving line of credit provided by a private lender and secured with the equity you have in your home.
HELOCs are sometimes confused with home equity loans, but they are not the same thing. Because a HELOC is a line of credit, you pay interest only on the amount of money you’ve actually borrowed. Payments can vary from month to month, and as you replenish the account by making payments, you can borrow from it again. With a lump-sum home equity loan, a borrower receives all the money upfront and pays interest on the entire loan amount from day one.
A HELOC can be used to pay for just about anything — including tuition, books and supplies, housing, transportation, and other college expenses. But because the line of credit is secured with your home, if you fall behind on your payments, you could risk foreclosure. And should you decide to sell your home, you may be required to repay what you currently owe.
Recommended: Different Types of Home Equity Loans
What Are Student Loans?
Student loans allow students and, in some cases, their parents, to borrow money to pay for a college education. Here’s how the two main types of student loans work:
Federal Student Loans
There are a few different types of federal student loans, and each has its own rules when it comes to how much you can borrow and how the money is repaid. But generally, they offer lower interest rates than many other types of loans and include more protections for borrowers, including temporary relief programs in case of financial hardship, and even the potential for loan forgiveness.
To apply for federal student aid, you must submit the Free Application for Federal Student Aid (FAFSA®) form. If you qualify for assistance and accept what’s offered, the school will apply your federal loan funds to your outstanding account charges (tuition, fees, etc.). Whatever is left after that will then be turned over to you to use for other educational costs.
Private Student Loans
Private student loans are issued by nongovernment lenders, such as banks, credit unions, and other financial service companies. Because they aren’t backed by the federal government, these loans do not offer the same repayment options or safety-net protections as federal loans. So, if your family (student and/or parents) qualifies for federal student loans, you’ll probably want to tap those first. However, if you’ve exhausted your federal financial aid and require additional funds, you may find you can get the help you need by borrowing through a private lender.
Key Differences Between a HELOC and Student Loans
While you may decide to use federal or private student loans, a HELOC, or all three types of financing to help pay for a college education, it’s important to be aware of some key differences in how they work.
Interest Rates
• Federal student loans are usually the way to go for borrowers who are looking for the lowest interest rates available. These loans come with a fixed interest rate that is set by the government, so once you sign on the dotted line, you can expect to pay the same rate for the life of the loan. But different types of federal student loans have different interest rates, and the way interest starts accruing on these loans also varies. If you have a subsidized loan, for example, you won’t accrue any interest while you’re in school, for six months after you leave school, or during any deferment. The U.S. Department of Education pays the interest during these periods. The interest on an unsubsidized loan starts accruing immediately, however, and it is the borrower’s responsibility.
• Private student loans are generally available with a choice of a fixed or variable interest rate, but these rates, which are set by the individual lenders, can vary quite a bit — so it can be a good idea to shop for the most competitive offer based on your creditworthiness and other qualifications.
• HELOCs have a variable interest rate, which means the rate can fluctuate over time. This could be good or bad, depending on which way interest rates are going. If rates drop, the borrower could benefit; but if they rise, it may make it harder to keep up with the payments. Still, because a HELOC is secured with your home, the interest rate may be lower than with other types of unsecured borrowing, such as personal loan or credit card. And because it’s a line of credit and not a lump-sum loan, you’ll only be charged interest on the amount you’ve actually borrowed.
Recommended: Student Loan Interest Rates Guide
Fees
• Federal student loan borrowers are often surprised to learn they’ll be expected to pay an origination fee on each loan they receive. Origination fees are currently 1.057% for federal subsidized and unsubsidized loans for undergraduate and graduate students, and 4.228% for federal PLUS loans for parents and graduate students. The lender who is servicing the loan also may charge a fee if a payment is more than 30 days late.
• Private student loan fees also can vary based on the lender you choose. Some may charge an origination fee or fees for late payments, while others, including SoFi, have zero fees on student loans.
• HELOC fees can vary depending on the lender, but they often include an application/origination fee, notary fee, title search, appraisal fee, credit report fee, document prep fee, and recording fee. There also may be an annual maintenance fee, and charges for early termination or account inactivity.
Repayment Terms
• Federal student loans offer the most repayment options for borrowers, including a fixed payment plan that ensures loans are paid off within 10 years and income-driven plans that base your monthly payment on your earnings and your family size. Some borrowers also may be able to have a portion of their loans forgiven. And those who have multiple federal student loans may choose to consolidate them into a single Direct Consolidation Loan. Another plus: Student and parent borrowers may be eligible for a deferment period if they become unemployed, experience an economic hardship, or serve in the military.
• Private student loans have different repayment terms depending on the lender, and can often be repaid over a period of 10 to 15 years or longer, usually starting six months after graduation. There is no loan forgiveness with a private student loan, but some lenders, including SoFi, may offer borrowers a student loan deferment period that’s similar to what some federal loans offer. However, you can expect your loan to continue accruing interest during this time.
• HELOC borrowers usually are required to make at least a minimum monthly payment during their account’s “draw” period. When the draw period ends — typically after 10 years — access to the line of credit ends and the lender sets up a repayment schedule based on the balance owed.
Credit Requirements
• Federal student loan borrowers who are undergraduates don’t have to worry about passing a credit check as part of their application process — and they don’t need a cosigner to get a loan. Though parents and graduate students do have to pass a credit check to get a federal loan, there’s no required minimum credit score.
• Private student loan lenders may have different credit requirements, but all borrowers (including undergraduates) should expect to go through a credit check. Lenders generally will be looking for a solid credit history, a good-to-excellent credit score, and other factors that show the borrower — alone or with the help of an eligible student loan cosigner — has the ability to repay the loan.
• HELOC credit requirements can vary, but typically lenders require that you have at least 15% to 20% equity in your home, a healthy debt-to-income ratio that shows you can afford to take on the added debt load, and a credit score that indicates you can reliably repay the money you owe.
Tax Deductibility
• Federal student loan interest payments can qualify for a tax deduction of up to $2,500, as long as you used the loan to pay eligible higher education expenses for yourself, your spouse, or a dependent. And you don’t have to itemize deductions on your return to get the tax break: The interest you pay is considered an income adjustment, so there’s no separate form to fill out.
• Private student loan interest payments qualify for the same tax deduction as federal student loans, with the same requirements.
• HELOC borrowers can only claim their interest payments as a deduction if they used the borrowed funds to “buy, build, or substantially improve your home.” Interest paid on money used for college doesn’t qualify for a tax break.
Borrowing Limits
• Federal student loans have different borrowing limits based on the loan type and your student status (undergraduate or graduate) or if you’re a parent.
• Private student loan limits can vary by lender; there is no set borrowing limit as with most federal loans. However, the maximum amount you can borrow may be based on your school’s estimated cost of attendance minus any other forms of financial aid you receive, your creditworthiness, and other factors.
• HELOC lenders typically will allow you to tap into your home equity for 85% or more of your home’s current appraised value minus the amount you currently owe, So, for example, if your home is valued at $350,000 and you owe $250,000, you might qualify for a HELOC that’s $47,500 ($350,000 x 85% = $297,500 – $250,000 = $47,500).
Alternative Options
Although a HELOC can be used to pay for college — especially if you find you need more money than you can get in student loans — there are other options that could help your family manage education costs.
Scholarships and Grants
A wide range of scholarships and grants are available to students who are willing to take the time to do some research and apply. And this type of financial aid, which can come from private organizations, colleges, and other sources, doesn’t have to be repaid.
Work Study or a Part-Time Job
A work-study program or part-time job can also help pay some college costs. A student can check with the financial aid office at his or her school to learn more about participating in federal or state work-study programs. And local businesses like coffee shops, restaurants, retail stores, and markets often hire college workers to help out at night and on the weekends.
529 Plans
If your student is still a few years away from attending college, you may want to look into a state-sponsored 529 college savings plan, also known as a qualified tuition program. These tax-advantaged plans offer parents and others an opportunity to save ahead for a family member’s college expenses.
The Takeaway
Using a HELOC vs. student loans to pay for college has advantages and disadvantages. Because you only have to pay interest on the amount you actually borrow, a HELOC can be an affordable alternative, or addition, to lump-sum student loans. And since your home is used as collateral with a HELOC, the interest rate may be lower than with some other borrowing options. Of course, this also means you could lose your home if you can’t make your HELOC payments.
You may want to exhaust any federal financial aid for which your family is eligible — and check out potential private student loan offers — before turning to a HELOC for help. Federal student loans offer borrower protections you can’t expect with a HELOC, and you won’t be putting your home at risk.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Can I use both a HELOC and student loans?
Yes, if the federal financial aid for which you are eligible doesn’t cover all your college costs, you may choose to combine a HELOC with both federal and private student loans. You may want to compare all your options before moving forward, however, and it may be helpful to make a plan for how you expect to use and repay the money you borrow.
Does the interest rate on a HELOC vary?
Yes, a HELOC comes with a variable interest rate, which means the interest rate you pay could fluctuate based on movements in the underlying benchmark interest rate or index.
Are student loan interest rates fixed?
Federal student loans have fixed interest rates, so you’ll pay the same rate for the life of the loan. Private student loans may be offered with a choice of a fixed or variable interest rate.
Can you use a HELOC to pay off student loans?
If you can qualify for a lower interest rate, you might consider using a HELOC to pay off your student loans. But it’s important to keep in mind the upfront and ongoing costs that come with a HELOC — and you’ll lose the tax deduction you receive for the interest paid on your student loans. You’ll also lose the protections that student loans offer borrowers, and you could put your home at risk if it turns out you can’t make your HELOC payments.
Photo credit: iStock/andresr
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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 .
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.