Conventional Mortgage Loan – What It Is & Different Types for Your Home

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The mortgage industry is rife with jargon and acronyms, from LTV to DTI ratios. One term you’ll hear sooner or later is “conventional mortgage loan.”

It sounds boring, but it couldn’t be more important. Unless you’re a veteran, live in a rural area, or have poor credit, there’s a good chance you’ll need to apply for a conventional mortgage loan when buying your next house.

Which means you should know how conventional mortgages differ from other loan types.


What Is a Conventional Mortgage Loan?

A conventional loan is any mortgage loan not issued or guaranteed by the Federal Housing Administration (FHA), Department of Veterans’ Affairs (VA), or U.S. Department of Agriculture (USDA). 


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Most conventional loans are backed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). These government-sponsored enterprises guarantee the loans against default, which lowers the cost for borrowers by lowering the risk for lenders.

As a general rule, stronger borrowers tend to use these private conventional loans rather than FHA loans. The exception concerns well-qualified borrowers who qualify for subsidized VA or USDA loans due to prior military service or rural location.


How a Conventional Mortgage Loan Works

In a typical conventional loan scenario, you call up your local bank or credit union to take out a mortgage. After asking you some basic questions, the loan officer proposes a few different loan programs that fit your credit history, income, loan amount, and other borrowing needs. 

These loan programs come from Fannie Mae or Freddie Mac. Each has specific underwriting requirements.

After choosing a loan option, you provide the lender with a filing cabinet’s worth of documents. Your file gets passed from the loan officer to a loan processor and then on to an underwriter who reviews the file. 

After many additional requests for information and documents, the underwriter signs off on the file and clears it to close. You then spend hours signing a mountain of paperwork at closing. When you’re finished, you own a new home and a massive hand cramp.  

But just because the quasi-governmental entities Fannie Mae and Freddie Mac back the loans doesn’t mean they issue them. Private lenders issue conventional loans, and usually sell them on the secondary market right after the loan closes. So even though you borrowed your loan from Friendly Neighborhood Bank, it immediately transfers to a giant corporation like Wells Fargo or Chase. You pay them for the next 15 to 30 years, not your neighborhood bank. 

Most banks aren’t in the business of holding loans long-term because they don’t have the money to do so. They just want to earn the points and fees they charge for originating loans — then sell them off, rinse, and repeat. 

That’s why lenders all follow the same loan programs from Fannie and Freddie: so they can sell predictable, guaranteed loans on the secondary market. 


Conventional Loan Requirements

Conventional loans come in many loan programs, and each has its own specific requirements.

Still, all loan programs measure those requirements with a handful of the same criteria. You should understand these concepts before shopping around for a mortgage loan. 

Credit Score

Each loan program comes with a minimum credit score. Generally speaking, you need a credit score of at least 620 to qualify for a conventional loan. But even if your score exceeds the loan program minimum, weaker credit scores mean more scrutiny from underwriters and greater odds that they decline your loan. 

Mortgage lenders use the middle of the scores from the three main credit bureaus. The higher your credit score, the more — and better — loan programs you qualify for. That means lower interest rates, fees, down payments, and loan requirements. 

So as you save up a down payment and prepare to take out a mortgage, work on improving your credit rating too.  

Down Payment

If you have excellent credit, you can qualify for a conventional loan with a down payment as low as 3% of the purchase price. If you have weaker credit, or you’re buying a second home or investment property, plan on putting down 20% or more when buying a home.

In lender lingo, bankers talk about loan-to-value ratios (LTV) when describing loans and down payments. That’s the percentage of the property’s value that the lender approves you to borrow.

Each loan program comes with its own maximum LTV. For example, Fannie Mae’s HomeReady program offers up to 97% LTV for qualified borrowers. The remaining 3% comes from your down payment. 

Debt-to-Income Ratio (DTI)

Your income also determines how much you can borrow. 

Lenders allow you to borrow up to a maximum debt-to-income ratio: the percentage of your income that goes toward your mortgage payment and other debts. Specifically, they calculate two different DTI ratios: a front-end ratio and a back-end ratio.

The front-end ratio only features your housing-related costs. These include the principal and interest payment for your mortgage, property taxes, homeowners insurance, and condo- or homeowners association fees if applicable. To calculate the ratio, you take the sum of those housing expenses and divide them over your gross income. Conventional loans typically allow a maximum front-end ratio of 28%. 

Your back-end ratio includes not just your housing costs, but also all your other debt obligations. That includes car payments, student loans, credit card minimum payments, and any other debts you owe each month. Conventional loans typically allow a back-end ratio up to 36%. 

For example, if you earn $5,000 per month before taxes, expect your lender to cap your monthly payment at $1,400, including all housing expenses. Your monthly payment plus all your other debt payments couldn’t exceed $1,800. 

The lender then works backward from that value to determine the maximum loan amount you can borrow, based on the interest rate you qualify for. 

Loan Limits

In 2022, “conforming” loans allow up to $647,200 for single-family homes in most of the U.S. However, Fannie Mae and Freddie Mac allow up to $970,800 in areas with a high cost of living. 

Properties with two to four units come with higher conforming loan limits:

Units Standard Limit Limit in High CoL Areas
1 $647,200 $970,800
2 $828,700 $1,243,050
3 $1,001,650 $1,502,475
4 $1,244,850 $1,867,275

You can still borrow conventional mortgages above those amounts, but they count as “jumbo” loans — more on the distinction between conforming and non-conforming loans shortly.

Private Mortgage Insurance (PMI)

If you borrow more than 80% LTV, you have to pay extra each month for private mortgage insurance (PMI).

Private mortgage insurance covers the lender, not you. It protects them against losses due to you defaulting on your loan. For example, if you default on your payments and the lender forecloses, leaving them with a loss of $50,000, they file a PMI claim and the insurance company pays them to cover most or all of that loss. 

The good news is that you can apply to remove PMI from your monthly payment when you pay down your loan balance below 80% of the value of your home. 


Types of Conventional Loans

While there are many conventional loan programs, there are several broad categories that conventional loans fall into.

Conforming Loan

Conforming loans fit into Fannie Mae or Freddie Mac loan programs, and also fall within their loan limits outlined above.

All conforming loans are conventional loans. But conventional loans also include jumbo loans, which exceed the conforming loan size limits. 

Non-Conforming Loan

Not all conventional loans “conform” to Fannie or Freddie loan programs. The most common type of non-conforming — but still conventional — loan is jumbo loans.

Jumbo loans typically come with stricter requirements, especially for credit scores. They sometimes also charge higher interest rates. But lenders still buy and sell them on the secondary market.

Some banks do issue other types of conventional loans that don’t conform to Fannie or Freddie programs. In most cases, they keep these loans on their own books as portfolio loans, rather than selling them. 

That makes these loans unique to each bank, rather than conforming to a nationwide loan program. For example, the bank might offer its own “renovation-perm” loan for fixer-uppers. This type of loan allows for a draw schedule during an initial renovation period, then switches over to a longer-term “permanent” mortgage.

Fixed-Rate Loan

The name speaks for itself: loans with fixed interest rates are called fixed-rate mortgages.

Rather than fluctuating over time, the interest rate remains constant for the entire life of the loan. That leaves your monthly payments consistent for the whole loan term, not including any changes in property taxes or insurance premiums.

Adjustable-Rate Mortgages (ARMs)

As an alternative to fixed-interest loans, you can instead take out an adjustable-rate mortgage. After a tempting introductory period with a fixed low interest rate, the interest rate adjusts periodically based on some benchmark rate, such as the Fed funds rate.

When your adjustable rate goes up, you become an easy target for lenders to approach you later with offers to refinance your mortgage. When you refinance, you pay a second round of closing fees. Plus, because of the way mortgage loans are structured, you’ll pay a disproportionate amount of your loan’s total interest during the first few years after refinancing.


Pros & Cons of Conventional Home Loans

Like everything else in life, conventional loans have advantages and disadvantages. They offer lots of choice and relatively low interest, among other upsides, but can be less flexible in some important ways.

Pros of Conventional Home Loans

As you explore your options for taking out a mortgage loan, consider the following benefits to conventional loans.

  • Low Interest. Borrowers with strong credit can usually find the best deal among conventional loans.
  • Removable PMI. You can apply to remove PMI from your monthly mortgage payments as soon as you pay down your principal balance below 80% of your home’s value. In fact, it disappears automatically when you reach 78% of your original home valuation.
  • No Loan Limits. Higher-income borrowers can borrow money to buy expensive homes that exceed the limits on government-backed mortgages.
  • Second Homes & Investment Properties Allowed. You can borrow a conventional loan to buy a second home or an investment property. Those types of properties aren’t eligible for the FHA, VA, or USDA loan programs.
  • No Program-Specific Fees. Some government-backed loan programs charge fees, such as FHA’s up-front mortgage insurance premium fee.
  • More Loan Choices. Government-backed loan programs tend to be more restrictive. Conventional loans allow plenty of options among loan programs, at least for qualified borrowers with high credit scores.

Cons of Conventional Home Loans

Make sure you also understand the downsides of conventional loans however, before committing to one for the next few decades.

  • Less Flexibility on Credit. Conventional mortgages represent private markets at work, with no direct government subsidies. That makes them a great choice for people who qualify for loans on their own merits but infeasible for borrowers with bad credit. 
  • Less Flexibility on DTI. Likewise, conventional loans come with lower DTI limits than government loan programs. 
  • Less Flexibility on Bankruptcies & Foreclosures. Conventional lenders prohibit bankruptcies and foreclosures within a certain number of years. Government loan programs may allow them sooner. 

Conventional Mortgage vs. Government Loans

Government agency loans include FHA loans, VA loans, and USDA loans. All of these loans are taxpayer-subsidized and serve specific groups of people. 

If you fall into one of those groups, you should consider government-backed loans instead of conventional mortgages.

Conventional Loan vs. VA Loan

One of the perks of serving in the armed forces is that you qualify for a subsidized VA loan. If you qualify for a VA loan, it usually makes sense to take it. 

In particular, VA loans offer a famous 0% down payment option. They also come with no PMI, no prepayment penalty, and relatively lenient underwriting. Read more about the pros and cons of VA loans if you qualify for one. 

Conventional Loan vs. FHA Loan

The Federal Housing Administration created FHA loans to help lower-income, lower-credit Americans achieve homeownership. 

Most notably, FHA loans come with a generous 96.5% LTV for borrowers with credit scores as low as 580. That’s a 3.5% down payment. Even borrowers with credit scores between 500 to 579 qualify for just 10% down. 

However, even with taxpayer subsidies, FHA loans come with some downsides. The underwriting is stringent, and you can’t remove the mortgage insurance premium from your monthly payments, even after paying your loan balance below 80% of your home value.

Consider the pros and cons of FHA loans carefully before proceeding, but know that if you don’t qualify for conventional loans, you might not have any other borrowing options. 

Conventional Loan vs. USDA Loan

As you might have guessed, USDA loans are designed for rural communities. 

Like VA loans, USDA loans have a famous 0% down payment option. They also allow plenty of wiggle room for imperfect credit scores, and even borrowers with scores under 580 sometimes qualify. 

But they also come with geographical restrictions. You can only take out USDA loans in specific areas, generally far from big cities. Read up on USDA loans for more details.


Conventional Mortgage Loan FAQs

Mortgage loans are complex, and carry the weight of hundreds of thousands of dollars in getting your decision right. The most common questions about conventional loans include the following topics.

What Are the Interest Rates for Conventional Loan?

Interest rates change day to day based on both benchmark interest rates like the LIBOR and Fed funds rate. They can also change based on market conditions. 

Market fluctuations aside, your own qualifications also impact your quoted interest rate. If your credit score is 800, you pay far less in interest than an otherwise similar borrower with a credit score of 650. Your job stability and assets also impact your quoted rate. 

Finally, you can often secure a lower interest rate by negotiating. Shop around, find the best offers, and play lenders against one another to lock in the best rate.

What Documents Do You Need for a Conventional Loan?

At a minimum, you’ll need the following documents for a conventional loan:

  • Identification. This includes government-issued photo ID and possibly your Social Security card.
  • Proof of Income. For W2 employees, this typically means two months’ pay stubs and two years’ tax returns. Self-employed borrowers must submit detailed documentation from their business to prove their income. 
  • Proof of Assets. This includes your bank statements, brokerage account statements, retirement account statements, real estate ownership documents, and other documentation supporting your net worth.
  • Proof of Debt Balances. You may also need to provide statements from other creditors, such as credit cards or student loans.

This is just the start. Expect your underwriter to ask you for additional documentation before you close. 

What Credit Score Do You Need for a Conventional Loan?

At a bare minimum, you should have a credit score over 620. But expect more scrutiny if your score falls under 700 or if you have a previous bankruptcy or foreclosure on your record.

Improve your credit score as much as possible before applying for a mortgage loan.

How Much Is a Conventional Loan Down Payment?

Your down payment depends on the loan program. In turn, your options for loan programs depend on your credit history, income, and other factors such as the desired loan balance.

Expect to put down a minimum of 3%. More likely, you’ll need to put down 10 to 20%, and perhaps more still.

What Types of Property Can You Buy With a Conventional Loan?

You can use conventional loans to finance properties with up to four units. That includes not just primary residences but also second homes and investment properties. 

Do You Need an Appraisal for a Conventional Loan?

Yes, all conventional loans require an appraisal. The lender will order the appraisal report from an appraiser they know and trust, and the appraisal usually requires payment up front from you. 


Final Word

The higher your credit score, the more options you’ll have when you shop around for mortgages. 

If you qualify for a VA loan or USDA loan, they may offer a lower interest rate or fees. But when the choice comes down to FHA loans or conventional loans, you’ll likely find a better deal among the latter — if you qualify for them. 

Finally, price out both interest rates and closing costs when shopping around for the best mortgage. Don’t be afraid to negotiate on both. 

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How Rising Inflation Affects Mortgage Interest Rates

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

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

Inflation Rate vs Interest Rates

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

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

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

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

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

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

Recommended: Federal Reserve Interest Rates, Explained

What Affects Mortgage Rates?

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

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

Recommended: Understanding the Different Types of Mortgage Loans

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

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

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

Inflation Trends for 2022 and Beyond

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

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

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

•   Increased demand for goods and services

•   Shortages in the supply of goods and services

•   Higher commodity prices due to geopolitical conflicts

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

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

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

Recommended: 7 Factors that Cause Inflation

Is Now a Good Time for a Mortgage or Refi?

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

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

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

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

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

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

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

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

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

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

The Takeaway

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

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

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When Should You Lock in a Mortgage Interest Rate?

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On a $400,000 mortgage, the difference between a 4% and a 5% interest rate comes out to almost $240 per month. That’s over $2,800 per year. 

You could do a lot with that kind of money. And claiming it could be as simple as locking your mortgage rate as soon as you’re ready to make an offer on your house.

Lock too early, though, and you could lose your choice rate — and the savings that come with. So it pays to understand both how closing timelines and mortgage rate locks work. 


What Is a Mortgage Rate Lock?

Mortgage interest rates can bounce around like a pinball. But mortgage loans usually take a month or so to close, so how do you know at the start of the process what your final mortgage rate will be by your closing date?


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Enter: the mortgage rate lock. 

When you apply for a mortgage, you first submit a mortgage application form — called a 1003 form — along with mountains of paperwork documenting your income, assets, liabilities, and firstborn child. The lender reviews your loan application, and (hopefully) preapproves you for a mortgage. 

But that doesn’t mean you’re ready to move forward. If you’re buying a new house or investment property, you need to submit the mortgage preapproval letter with your purchase offers, after all. 

Once you sign a real estate sales contract however, the clock starts ticking. The “time is of the essence” clause isn’t just flowery legalese — it means you need to close by a certain date, or the contract (and your earnest money deposit) become forfeit.

At this point, you call up your loan officer and tell them you’re ready to roll. They can then lock in that moment’s mortgage rate for you, guaranteeing that you get that interest rate if you settle within a certain timeframe. You must do the same if you’re refinancing your current mortgage, though in that case there may be less urgency to close within a specific timeframe.

Rate locks apply to both fixed-interest and adjustable-rate mortgages (ARMs). With the latter, they determine your initial introductory rate.


How a Mortgage Rate Lock Works

No matter how much higher interest rates climb between that moment and when you settle, you still get the interest rate from the moment the loan officer locked it. 

Of course, the reverse is also true. If interest rates fall, you still pay the higher interest rate from the date you locked in your rate. 

Unless you buy a float-down option, that is.


What Is a Float-Down Option?

To hedge against the risk that interest rates fall after you lock in your rate, you can pay your lender for a “float-down option.” If interest rates drop after you locked your rate, this lets you close your loan with the subsequent lower rate. 

But float-down options come at a cost. That cost could come in the form of an up-front fee or higher lender fees at settlement. If the option doesn’t kick in, you could be saddled with a higher interest rate.

Before you can take advantage of a float-down option, interest rates must fall by a certain minimum amount. For example, the lender might set the minimum drop distance at 25 basis points,or 0.25%. If rates only drop by 0.2%, you can’t call in the float-down option. 

Which raises another point: You’re responsible for redeeming your own float-down option. Your lender won’t volunteer the information. You have to keep an eye on interest rates yourself and specifically ask your lender to redeem your option if rates fall. You can only redeem the option once, and after that your rate locks normally.

So make sure you understand the specific rules and costs for your lender’s float-down option before opting for it.


Mortgage Rate Lock Fees

The longer your rate lock, the more likely it is to come with fees. 

For example, your lender may offer a 30-day lock for free, but if you want a 60-day lock, the lender might charge an extra fee that’s expressed as a fraction or multiple of a mortgage point. A mortgage point is 1% of the total loan value — for example, $4,000 on a $400,000 loan. Your lender might cut you a break and charge a fraction of a point rather than a full point, however. 

If you fail to settle within your rate lock period, you can opt to extend your lock, but often at a comparable fee. If mortgage rates have since dropped, you may be in luck, but don’t count on that happening. 


When Should You Lock in a Mortgage Interest Rate?

As soon as you’re ready to proceed with your loan, you should lock in your interest rate. 

You could gamble on interest rates falling and delay locking in a rate, but it means exactly that: gambling. Unless you have a crystal ball lying around, just lock in your rate when you know you’re ready to proceed.

If you’re applying for a purchase loan, lock your rate once you sign the purchase agreement with the seller. If you’re refinancing, you don’t have the same time crunch because there’s no seller involved. Simply decide when you want to settle and work backward from there. 

Just remember that you have to settle within the lock period or you could end up paying a higher interest rate. It usually takes 30 to 60 daysfor mortgage loans to settle. Make sure your loan officer and underwriting team are working toward an on-time close.


How to Lock in a Mortgage Rate

Your mortgage broker or lender locks the rate on your behalf, so you don’t have to “do” anything but ask for it. In most cases, your loan officer will ask you whether you’re ready to lock in a rate when you tell them you’re ready to move forward.

Use the opportunity before locking in a rate to negotiate a lower interest rate, after comparison shopping. You can also negotiate a lower interest rate in exchange for higher lender fees. These are called “discount points” in the industry.

Confirm the length of the lock with your loan officer, and try to get a commitment in writing that they can close within that time period. This commitment won’t be legally binding, but it gives you that much more leverage if they fall behind schedule at your expense. 


Mortgage Rate Lock FAQs

While interest rate locks are pretty simple, first-time homeowners usually have plenty of questions about them. Keep the following in mind as you apply for a mortgage.

Should I Lock in My Mortgage Rate Today?

It depends. Did you sign a real estate sales contract today? If so, then yes. 

Likewise, if you’re looking to refinance your mortgage as soon as possible, then yes, lock in a rate once you choose a lender and get approved. You could wait and hold out for lower interest rates, but that could just as easily backfire on you. 

How Long Can You Lock in a Mortgage Rate?

You can typically lock in a mortgage rate for 15 to 60 days. That includes both conforming and non-conforming loans. 

The length of your lock period depends on the lender’s policies and market conditions. Lock periods may shorten when mortgage rates are rising and lengthen when they’re falling. 

Shorter lock periods — 15 to 30 days — often cost nothing. Longer lock periods often come with additional fees.

What Happens if My Rate Lock Expires Before Closing?

In most cases, you can ask your lender for a rate lock extension. But if you do, they may charge you for the privilege, even if they’re to blame for the delay. 

If you don’t extend the locked rate, you fall at the mercy of the current mortgage rates at the time the lock expires. In other words, your loan rate begins to float with the market once more. In a rising interest rate environment, this means you’ll have a higher monthly loan payment.

What Happens if Rates Fall After I Lock in a Rate?

If you opt for a float-down option and it triggers, your interest rate will drop according to the terms of that option. 

Likewise, if your lock period expires before the loan closes and rates have fallen, you may end up with a lower interest rate when the loan does close — and a lower monthly payment. 

Otherwise, you close on your loan at whatever rate you locked in, regardless of the market interest rate at the time your loan closes. 

Can I Back Out of a Mortgage Rate Lock?

Technically, yes. You can back out of a rate lock. But it comes with consequences. 

You’d need to cancel your entire mortgage application. The lender would effectively throw out your file, and you’d have to reapply for an entirely new loan. That could even mean paying for a whole new home appraisal.

This restarts the lengthy loan process, further pushing back your settlement date. If you’ve made an offer on a house, you’ll likely default on your sale contract and could lose the house to another buyer, putting your home search back at square one.


Final Word

While you have many options for types of mortgages, rate locks exist in nearly every one. 

Word to the wise: Don’t play interest rate roulette. Just lock in a home loan rate when you’re ready to move forward with a mortgage, and if you absolutely must, opt in for a float-down option. But just as you shouldn’t try to time the market in your investments, you shouldn’t try to time interest rates either. 

As a final thought, one surefire way to lower your interest rate is to improve your credit score. Market interest rates rise and fall, but lenders always charge a lower premium over benchmark rates for borrowers with strong credit. Not only does it lower your monthly payment, but it can also lower your down payment to boot. 

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

Source: moneycrashers.com

Student Loan Interest Rates for June 2022

There’s no way around it — college is expensive. This means that for many students, taking out a loan is the only way to realistically cover these expenses. And, like most other loans, student loans accrue interest.

In this article, we’ll explore the current interest rates across the most common student loan products, including federal and private student loans.

When we discuss federal interest rates on student loans in this article, we’re referring to what the rates would be when the freeze is lifted.

Comparing Rates Between Federal, Private and Refinance Loans

Something you may notice is that, at the lowest end, private lenders seem to offer better interest rates than federal. It is important to note that these lowest interest rates are very difficult to get — your credit needs to be outstanding.

It’s also important to remember that, although fixed interest rates appear to have a higher range in the tables below, your interest rate by definition can change. So, while you may qualify for a lower interest rate on a variable-rate loan, it’s entirely possible that this rate will eventually go up and become higher than you would have gotten with the fixed-rate loan. This is simply the tradeoff (and risk) of variable interest rates.

Federal Loan Interest Rates at a Glance

Loan Type Borrower Fixed Interest Rate Loan Fee
Direct Subsidized and Direct Unsubsidized Loans Undergrad students 3.73% 1.057%
Direct Unsubsidized Loans Graduate or professional students 5.28% 1.057%
Direct PLUS Loans Parents and graduate or professional students 6.28% 4.228%

Federal rates increased across the board for the 2021-2022 school year by nearly a whole percentage point. That’s unfortunate, but they are still lower than they have been for years, and generally much lower than an equivalent private student loan.

Federal loans come in two basic types: subsidized and unsubsidized. The primary difference is around when the interest starts accruing:

  • Subsidized student loan: Interest is paid by the Education Department as long as you’re enrolled at least half-time in college.
  • Unsubsidized student loan: Interest begins to accrue as soon as the loan is dispersed.

There are some other differences, but they’re relatively minor compared to this.

The last thing to cover with federal loans is the loan fee (also known as the origination fee). This fee is calculated as a percentage of the total loan amount and then deducted automatically from each disbursement. In practice, this means you’ll receive a smaller loan than the amount you actually borrowed.

Private Loan Interest Rates at a Glance

Loan Type Interest Rates
Fixed rate 3.34% to 14.99%
Variable rate 1.04% to 11.99%

The wide variation in interest rate ranges is due to two factors: different lenders offering different rates, and the fact that the rate you’ll get is impacted by your credit and other factors.

As mentioned above, fixed interest rates tend to have higher rates on paper, but you don’t have to worry about that rate increasing on you, which is a very real possibility with variable-rate loans.

Loan Refinance Interest Rates at a Glance

Loan Type Interest Rates
Fixed rate 2.59% to 9.15%
Variable rate 1.88% to 8.9%

If your credit is good, it’s possible to refinance your existing student loan to get a lower interest rate. This is not always possible, but it can be an option worth exploring. These refinanced interest rates can themselves be lower than “normal” private rates, so it can be an option worth exploring.

How Student Loan Interest Rates Are Determined

Although federal and private loans are technically different, they often follow similar trends. In other words, when federal student loan interest rates go up, private rates are likely to do the same. Likewise for when they go down. Let’s look at what actually goes into determining federal and private interest rates.

Federal Student Loan Interest Rates

These student loan interest rates are set each year by Congress, based on the high yield of the 10-year Treasury note auction in May. The new rate applies to loans disbursed from July 1 to June 30 of the following year.

Federal student loan rates are always fixed. This means that they won’t change during the life of the loan — whatever interest rate you get when you take out the loan is what you’ll keep until it’s paid off (it changes with student loan refinancing).

Private Student Loan Interest Rates

These loans are funded by banks, credit unions, and other private lenders. As such, interest rates vary between the different lenders, and it’s worth shopping around whenever possible.

Private lenders usually offer both fixed-rate and variable-rate loans. Fixed-rate means that your interest rate remains the same over the life of the loan. It can neither increase nor decrease.

A variable interest rate, on the other hand, means that your interest rate can fluctuate with the market. Sometimes you can get lucky and have it go down for a period of time. However, the risk with variable-rate loans is that the interest rate goes up significantly and you end up paying much more than anticipated.

It’s important to keep this in mind when selecting a loan. It may be worthwhile to take a slightly higher fixed interest rate rather than assume the risks of a variable rate.

The Impact of COVID-19 on Student Loans

The interest rate cuts in 2020 had a major ripple effect on student loan interest rates. Despite the slowly recovering economy, interest rates remain lower than they’ve been in years, for federal student loans and private fixed-rate and variable interest rate loans. This is excellent news for student loan borrowers, and we hope to see these rates remain low in the coming year.

Currently, all federal student loan debt is frozen until Sept. 1, 2022. This means that rates are set to zero and no payments are due until that date. This loan repayment freeze originally began in March 2020  at the outset of the pandemic and has been extended six times at this point.

The Pros and Cons of Federal Student Loans vs. Private Student Loans

Let’s explore the pros and cons of the two major classes of student loans — federal and private. Neither is perfect, as we’ll see. Rather, each is suited to particular situations and types of borrowers.

Federal Student Loans


Pros

  • Flexible repayment plans. Federal loans are eligible for income-based repayment plans and loan forgiveness. These can be a huge help if you find yourself in a tough financial spot.
  • Much lower requirements. It’s almost always much easier to qualify for a federal loan than it is a private student loan, particularly if you want a good interest rate.
  • More affordable overall. Most of the time you’ll end up paying less on federal student loans than on a private student loan.


Cons

  • Origination fees. Federal student loans are subject to small origination fees, which aren’t part of a private student loan. This means your loan disbursements are usually going to be smaller.
  • Borrowing limits for undergraduates. This means some students may actually need to take out a small private loan in addition to the federal loan to cover their full college costs.
  • Can’t choose your loan servicer. Federal student loans are turned over to a loan servicer to handle the payments and administration of that loan. Some of them have sketchy reputations

Private Student Loans


Pros

  • Larger loans. If you know that you’ll need a certain amount of money, and it’s more than federal loans can offer, it might make more sense to simply go private.
  • Potentially lower rates. A private loan may have lower rates, particularly with student loan refinancing. That said, you’ll need an excellent credit score to get these lowest rates.
  • No origination fees. Private student loans don’t have the origination fees that come with federal student loans.


Cons

  • More difficult to qualify for. Private loans have stricter requirements, particularly around credit histories. Federal student loans are almost always easier to qualify for.
  • Generally higher interest rates. Unless your credit is outstanding, you’ll almost always get a better interest rate with a federal student loan.
  • Less flexibility in repayment options. Some private lenders are willing to work with borrowers on this, but there’s no law or regulation forcing them to, and thus, no guarantee.

Frequently Asked Questions (FAQs) About Student Loan Interest Rates

If you still have questions about student loan interest rates, don’t worry — we’ve got answers. Here are some of the most common questions.

What is the Interest Rate on Student Loans Right Now?

Student loan interest rates range from a low of 1.04% to a high of almost 15%. The rates depend on whether you’re looking at federal or private, which type of loan, which private lender you go with, your credit history, and more. 

That said, here’s the quick bullet list:

  • Federal direct for undergraduate students: 3.34%
  • Federal unsubsidized for grad students: 5.28%
  • Federal Direct PLUS for parents and graduate students: 6.28%
  • Private fixed-rate loans: 3.34% to 14.99%
  • Private variable-rate loans: 1.04% to 11.99%

Will Student Loan Interest Rates Go Up in 2022?

This is a hard question to answer. They are expected to remain fairly low for the foreseeable future, but this can always change. For the 2021-2022 school year, federal rates did increase, but they are still a good bit lower than they were prior to the pandemic.

Are Student Loan Rates Dropping?

Rates increased for the 2021-2022 school year, but remain lower than they were prior to the COVID-19 pandemic. So while they didn’t drop this year, they have dropped significantly compared to a few years ago.

What’s the Difference Between a Subsidized and Unsubsidized Federal Student Loan

A subsidized federal student loan is one in which interest is paid by the U.S. Department of Education Department while you’re enrolled at least half-time in college. An unsubsidized loan, on the other hand, begins accruing interest immediately on disbursement, even if you’re still enrolled in school.

Subsidized student loans have a six-month grace period after graduating. During this time, no payments are due, and the Education Department continues to pay the interest on the loan.

An unsubsidized loan, on the other hand, begins accruing interest immediately on disbursement, even if you’re still enrolled in school. The student is responsible for this interest. Unsubsidized loans still have a six-month grace period after graduation, but interest continues to accrue during this time. The interest then capitalizes, which means it gets added to the original loan amount.

When Do Student Loan Interest Rates Start?

Federal student loan rates are set each spring and go into effect July 1, running until June 30 of the following year. At that point, the new interest rate will take effect.

What is Student Loan Refinancing?

Student loan refinancing is a way to decrease the amount of interest paid on your loan. Essentially, when you refinance, the new lender pays off your existing loan and gives you a new one with new terms.  

Not everyone can refinance — there are fairly strict rules to evaluate your credit and income to determine eligibility. Additionally, you generally reset the length of your loan term when you refinance, so it can sometimes end up costing you more money. 

Finally, while you can refinance a federal loan, you lose the extra benefits they come with, including income-based repayment options.

What is Income-based Repayment?

This is a special repayment option available to federal borrowers that lets you tailor your monthly payments to your income. These plans are typically based on a percentage of your monthly disposable income. This can be quite a bit lower than you’d otherwise pay. The tradeoff is that it can take much longer to pay off the loan. 

Additionally, loans on these repayment plans are automatically forgiven after 20-25 years of payments.

Penny Hoarder contributor Dave Schafer has been writing professionally for nearly a decade, covering topics ranging from personal finance to software and consumer tech.

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Source: thepennyhoarder.com

Margin Trading vs Futures: Compared and Explained

Trading crypto on margin in the spot market is different from using futures to control crypto positions. Margin trading involves using money borrowed from a broker to go long or short crypto. With futures, traders can post margin as collateral to take on large long or short positions on contracts with a specific delivery date. Another type of crypto futures contract, perpetual futures, does not come with a delivery date, but it comes with daily fees.

It’s important for crypto investors to understand the fundamental concept of margin vs. futures. Though there are key differences between trading margin vs. futures, there are also similarities between them, and pros and cons to consider. If you recognize how futures vs. margin trading operates, then you can better decide which of these investing strategies — margin vs. futures — to use when building a cryptocurrency portfolio.

Margin vs Futures

Margin vs. futures feature many similarities, but there are also differences to consider. Analyzing both can help you know if these trading techniques could work with your investing style and tolerance for risk. You might decide to have a margin or a futures account, one of each, or neither.

Similarities

Futures vs. margin trading share some characteristics. For one thing, both methods would allow you to control more of a crypto position than would trading the cash, or spot market, using only your equity. The futures market and a margin account simply go about it differently. Both might entice prospective market participants with potentially big quick gains, but losses can be dramatic too.

It is important to remember that cryptocurrencies are usually much more volatile than stock market indexes. So if you trade with margin or futures, you could expect to see fast movements (either up or down) in your profit and loss numbers.

Differences

As we said earlier, identifying the differences between trading with margin vs. futures could help determine the best investing strategy for your risk tolerance and return objectives. For starters, futures trading requires a good faith deposit to access contracts, often with quarterly maturity, while a crypto margin account lets you leverage the spot market. The futures market might require that you pay closer attention to liquidity — that is, how easily you can trade while still receiving a competitive price.

With a crypto margin account, liquidity is generally not a problem in the spot market; knowing how much you can borrow might be the greater issue to consider. Because the spot market is perpetual, you also must determine for how long you want to own a coin. With futures, by contrast, expiring contracts set a limit on how long you can hold a position; however, you may bypass this by using perpetual futures.

It’s also important to analyze is the premium over the spot price that you are paying or are being paid. Further, trading on an unregulated platform or one with a sketchy reputation could result in possible liquidity failures or liquidation.

Similarities Differences
Margin and futures offer the chance to trade large positions with a small amount of capital Using margin requires paying a broker interest on your loan
Both can result in large and fast losses Futures trading requires a good-faith deposit
With perpetual futures, you can keep an open position indefinitely, similar to how the spot market works, but you also might owe The futures crypto market can experience premiums to spot prices

Margin vs Futures Trading in Crypto

Knowing the differences between margin and futures, as well as the similarities, goes a long way toward protecting yourself from unforeseen risks when trading crypto. You can find out more about crypto trading specifically in SoFi’s Guide to Crypto for Beginners. What’s more, you can learn about other ways that margin trading and futures differ and overlap in the crypto world. For now, here are several key points to consider:

Trading Crypto With Margin Trading Crypto With Futures
Incurs daily expenses via interest owed on borrowed funds Quarterly futures contracts can avoid fees and might be better for long-term holders
Liquid spot prices help ensure a fair price when buying and selling Futures’ basis can fluctuate
It is common to trade with between 3x-to-0x leverage Often higher leverage is employed than with margin trading

Investing and Trading Crypto With SoFi

Trading cryptocurrency on margin, and using futures contracts (including perpetual futures) to control crypto positions are commonly used, through advanced, trading methods.

Each has its own advantages and risks. While crypto margin trading offers exposure to the spot market using borrowed funds, trading with crypto futures lets investors deposit margin as collateral to control large positions for future delivery.

All it takes is at least $10 to buy and sell crypto on SoFi. You can earn a bonus of $10 in Bitcoin by doing so. A benefit of cryptocurrencies is that you can trade outside of standard stock market hours, as the crypto market is open 24/7. SoFi takes security seriously and uses a variety of tools to keep investors’ crypto assets safe.

Start trading crypto today on SoFi Invest.

FAQ

Are margin trading and futures the same?

Margin trading and futures trading are two different trading techniques. It’s key to understand both approaches before using them because they are considered advanced. Margin accounts usually involve traders opening crypto positions with borrowed money. You can control more capital with your portfolio, which allows you to leverage positions. You can experience amplified gains and losses with margin trading, so it is riskier than trading without leverage.

Futures contracts work differently in that they are binding agreements where you agree to buy or sell an underlying asset at a pre-specified price in the future. You can go long or short futures depending on your directional wager. With crypto trading, futures are often quarterly or perpetual contracts.

Do you need margin to trade futures?

You need margin to trade futures. Margin in futures trading refers to a good faith deposit used as collateral to open positions. It does not involve borrowing money from a broker, so there is nothing to repay, but you might owe funding rate fees when you own perpetual futures. Your futures account collateral also represents your maintenance margin — a minimum amount of equity needed to continue trading.

What are futures contracts and how do they work?

While margin traders participate in the spot crypto market, futures traders place trades on assets to be delivered in the future. You can think of futures vs. margin as a difference in the price of crypto in the spot market versus futures prices at some point later. Participants in the crypto futures market speculate on the future price of a coin.

You can use leverage in the futures market — some exchanges allow a leverage ratio of as much as 125:1 — using margin as collateral to open positions. Crypto futures might trade at a large premium to the spot market, and it might take a long time to exit a futures position at a competitive price.


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.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
*Borrow at 2.5% through 5/31/22 and 5% starting 6/1/22. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Photo credit: iStock/FG Trade
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Source: sofi.com

Why Are Bitcoin and Other Cryptos So Volatile?

Bitcoin’s most defining feature might well be that its price always seems to be rising.

In reality, however, the price of Bitcoin doesn’t always go up. To get these screaming vertical price increases, there needs to be some death-defying falls as well. Bitcoin’s very volatility makes this popular crypto a tempting investment for some, and a quite dangerous one for others. Trading in cryptocurrencies might not be for all investors — especially those with a low tolerance for risk.

Bitcoin Price Volatility

There’s no denying that cryptocurrencies, including Bitcoin, are volatile. For instance, in the first half of 2021, Bitcoin doubled in value, reaching a record-breaking high price of $64,000. But it tumbled back to less than $30,000 during the summer months. Then in November, Bitcoin’s price soared again; this time to $68,000 (for another all-time high) only to slip to below $35,000 in January 2022.

And this is just one example. Since its launch in 2009, Bitcoin has posted an impressive price history, and experienced more than a few conspicuous crashes.

Volatility is essentially a given across all types of cryptocurrencies, given the general air of legal, political, institutional, and technological uncertainty that floats around them. But it’s more noticeable with Bitcoin. Bitcoin was the very first cryptocurrency created. Not only is it the most expensive crypto, but likely the most visible, and has become a flagship for the entire crypto/blockchain space. Arguably, Bitcoin could be the coin that led the government, the public, and traditional financial services companies to take cryptocurrencies seriously. Increasingly, millions of ordinary people view Bitcoin as a vehicle for investing, trading, and saving. But before investing in cryptocurrency, an investor would want to consider its volatility seriously.

Why Does Cryptocurrency Volatility Matter?

There’s a reason that nearly anyone who’s well-versed in cryptocurrency would caution novice investors to invest no more than you’re willing to lose. With a highly volatile asset like cryptocurrency, an investor’s overall portfolio value could suddenly shoot much higher or much lower than they would expect, or are prepared for, based on big changes in its price.

Bitcoin is not the only cryptocurrency to experience big price swings that can lead to large gains or losses for investors. Volatility does not play favorites, and most crypto coins, even more familiar assets, like plain vanilla stocks, can experience the phenomenon of volatility. From the second-largest crypto, Ethereum — and popular established coins like Dogecoin, Uniswap, and Filecoin — to crypto projects you might not know, all have experienced price volatility.

Is Bitcoin Particularly Volatile?

There are at least a few reasons why Bitcoin’s price is so unstable.

Liquidity

In financial markets, liquidity is a concept that relates how much a given purchase or sale of an asset will move its overall price. Liquidity, in general, supports overall asset values. Say you have an item that costs $500 but when you go to sell it, there’s no one to buy it; In that case, the $500 price tag is not very meaningful. Low liquidity may be rendering the price of Bitcoin unstable.

A particular concern with Bitcoin is that a huge portion of all the Bitcoin circulating in the world — at this writing, more than 18.5 million bitcoin — will never be bought or sold by anyone. This could be because the coin is stranded in wallets for which the private keys have been forgotten or because they’re held by investors who will never sell, no matter the price. Moreover, Bitcoin’s existence is finite; no more than 21 bitcoin will ever be mined.

By shrinking the amount of Bitcoin in circulation beyond the limits built into the system, Bitcoin’s liquidity could dry up. This means that movements to buy or sell could quickly influence its price, driving it up or down violently.

Speculation

One of the biggest debates surrounding cryptocurrencies is, what’s it for, exactly? Why are people buying it? For individuals who live in countries with unstable or despotic governments, Bitcoin can be a lifeline of stable value. But for many, it is not an especially convenient payment mechanism compared to the fiat currency of existing banking systems.

And yet, many people are buying Bitcoin and willing to pay ever-higher prices for it. The main reason seems that they expect the price to get even higher in time. Some people think the price will go up because Bitcoin is protected against inflation because of its 21-million cap on coin. Some expect wider adoption of Bitcoin as a payment protocol. And some expect it to become widely used by financial services institutions as a store of value.

The FOMO Factor

Essentially, interest in Bitcoin is generated by the idea that other people are going to buy it in the future, at a higher price than it’s selling for today. This expectation is fed by regular headlines about a company or celebrity buying into Bitcoin and the massive profits people are generating from Bitcoin they bought years — or even weeks — ago. In the crypto community, this behavior is known as fear of missing out (FOMO). Speculative investing like this often leads to volatility, because the price can turn down as sharply as it turns up.

At this time, many analysts believe that the questions surrounding cryptocurrency, as well as FOMO, are precisely what are keeping Bitcoin’s prices high. An asset’s price likely would swing if a large portion of investors are trying to get in front of buyers who come in later. Those who buy a crypto immediately when it comes to market could dump the coin just as quickly. This could happen if an investor made a profit, or they no longer believe that more investors will buy into the crypto.

The Takeaway

Bitcoin’s volatility is based on at least two factors: its potentially low liquidity, and the plethora of unanswered questions about crypto, a still-new asset class. Investors and anyone who follows the news are aware of shocking highs and lows in Bitcoin’s value.

Interested in trading crypto? With SoFi Invest® crypto trading, members can buy and sell popular coins like Bitcoin, Filecoin, and Ethereum. With the convenient mobile app, you can trade crypto 24/7 – even on weekends, holidays, middle of the night.

Find out how to get started with SoFi Invest today.

FAQ

In general, are cryptocurrencies more volatile than stocks?

Yes. Investing in the stock market has been a mainstay of the U.S. economy since the late 1700s. Stocks are also regulated, subject to oversight by the SEC, and other government agencies. Cryptocurrencies as an asset class are quite new, not fully regulated, and do not yet have a proven track record in U.S. markets. As we discussed, crypto is considered a speculative investment. Complex assets — like high-yield bonds, options, mortgage-backed securities, and other derivatives, including crypto — are subject to greater volatility than are plain vanilla stocks.

Which cryptocurrency is the most volatile?

The answer: It changes every day. And, volatility is not selective. Popular coins, like Bitcoin (BTC) and Ethereum (ETH), take their turns at being “most-volatile” just as often as do the tiny cryptos you might not have heard of . Cryptocurrency’s volatility has spawned a number of reliable indexes that track and report its daily price fluctuations, including Yahoo Finance and Shufflup .

Is volatility a good thing for crypto?

Volatility is neither good nor bad. Rather, it’s a phenomenon that exists in all financial markets for a mix of reasons. Cryptocurrency skeptics might see crypto’s volatility as a danger sign, a reason to stay away. However, sometimes volatility can benefit a new fast-growing asset, like crypto.

This is happening currently, with profit-seeking traders and wealthy venture capitalists streaming toward crypto. Venture capital funding can help seed new start-ups and advance technical innovation. And new money flowing into a sector often brings heightened liquidity, which makes for healthy financial markets.

The FOMO factor, which we discussed above, and just plain curiosity also can have a positive effect on crypto. For example, some large traditional financial services (TradFi) institutions that were prior crypto-naysayers are now showing an interest in the crypto sector.


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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SOIN0322033

Source: sofi.com

The Best Student Loans of May 2022

College costs are overwhelming for a lot of families. So students turn to student loans to cover them. Most students, following expert recommendations, start with federal student loans, but those aren’t always enough to cover costs.

When federal student loans don’t cut it, you can turn to private student loan lenders to fill in the gap.

Unlike federal student loans, private student loans offer a variety of options for interest rates, loan amounts and terms that could make picking one daunting. So we’ve pulled together a list of some of the best student loans available to make it easier for you to compare and vet your options.

Federal student loans have been in the news a lot lately as the U.S. Education Department has

Keep reading below the table for more details on every lender, plus all the information you need to find the college funding plan that’s right for you and your family.

Interest rates accurate as of late April 2022 and subject to change. Variable rates listed are margins added to a base rate such as LIBOR or SOFR, which could add around 0.30% to 1%.

Best Student Loans at a Glance

Lender Variable APR with Autopay Fixed APR with Autopay Loans for
Credible 0.94% – 11.98% 3.02% – 14.08% Undergrad and grad, refinancing
Earnest Starting at 0.94% Starting at 2.99% Undergrad and grad
College Ave 0.94% – 11.98% 3.24% – 12.99% Undergrad, grad and career training, refinancing
Sallie Mae 1.13% – 11.23% 3.50% – 12.60% Undergrad, grad and career training
SoFi 1.05% – 11.78% 3.47% –11.16% Undergrad and grad, refinancing
Ascent .47% – 11.31% 4.36% – 12.75% Undergrad, grad, career training and bootcamp
LendKey Starting at 1.57% Starting at 3.99% Undergrad and grad, refinancing
Citizens Bank n/a 3.48% – 10.78% Undergrad and grad, refinancing
PNC Bank Starting at 1.09% Starting at 2.99% Undergrad, grad and career training, refinancing
Purefy 1.74% – 7.24% 2.43% – 7.94% Refinancing
Sparrow 0.99% – 11.98% 2.99% – 12.99% Undergrad, grad and career training, refinancing
Student Loan Authority n/a 2.99% – 4.61% Undergrad, grad and career training, refinancing
Chicago Student Loans n/a 7.53% – 8.85% Undergrad (juniors and seniors)
Funding U n/a 7.49% – 12.99% Undergrad
Discover 1.79% – 11.09% 3.99% – 11.59% Undergrad, grad and career training, refinancing
Splash Financial 1.74 – 8.27% 1.99% – 8.27% Undergrad, grad and career training, refinancing

Credible

Best for Comparing Loan Rates

4.5 out of 5 Overall

Key Features

  • Compares rates from top lenders
  • See multiple offers without hard credit check
  • Variable APR as low as 0.94%

Through Credible’s loan marketplace, you can fill out an application to see pre-qualified rates for multiple lenders in one place. Select options that work for you, like deferred or interest-only payments while you’re in school, fixed or variable rates, and loan terms that fit your plan. Once you choose a loan offer, you can finish your application and sign your loan agreement with the lender directly.

Credible

Variable APR

0.94% – 11.98%

Fixed APR

3.02% – 14.08%

Loans for

Undergrad and grad, refinancing

Earnest

Best for Flexible Repayment Options

5 out of 5 Overall

Key Features

  • 9-month grace period
  • Skip one payment/year
  • Pay monthly or every two weeks

Earnest offers an easy-to-use, modern platform to find loans for undergrad, grad school and professional degrees with a nine-month grace period before beginning repayment after school. Loans come with an option to defer one payment every 12 months with no extra fees or interest. Apply online, and get an offer within 72 hours.

Earnest

Variable APR

Starting at 0.94%

Fixed APR

Starting at 2.99%

Loans for

Undergrad and grad, refinancing

College Ave

Best for Affordable In-School Repayment

3.5 out of 5 Overall

Key Features

  • Variable APR as low as 0.94%
  • Parent and cosigned loans available
  • 4 repayment options

College Ave is a mainstay in student loans and refinancing. Apply for loans to cover undergrad, grad and professional degrees, and career training programs. The online application is quick and easy, and borrowers tout the company’s customer service, so you’ll be on top of your loan from application to repayment. Choose how you repay while you’re in school to save money and fit your budget.

College Ave

Variable APR

0.94% – 11.98%

Fixed APR

3.24% – 12.99%

Loans for

Undergrad, grad and career training, refinancing

Sallie Mae

Best for College Financial Planning

2 out of 5 Overall

Key Features

  • Faster applications for returning borrower
  • Scholarships available
  • Credit cards and banking options

Sallie Mae is a private lender and platform for financial products for students. The business no longer originates or services federal loans, as it’s most known for. Apply for private student loans, credit cards and savings accounts designed for students. With Multi-Year Advantage, returning borrowers have fast applications and high approval rates to make it easier to get your money each year.

Sallie Mae

Variable APR

1.13% – 11.23%

Fixed APR

3.50% – 12.60%

Loans for

Undergrad, grad and career training

SoFI

Best for SoFi Banking Clients

4 out of 5 Overall

Key Features

  • No fees
  • Unemployment protection
  • Earn rewards to repay loans faster Summary

SoFi is well known for student loan refinancing, and it offers other types of loans including in-school student loans with no hidden fees. As a SoFi member, you get access to perks, including subscriptions to products like Grammarly, Evernote and Coursera, to support your education. With unemployment protection, you get forbearance on loans for up to three-month increments if you lose your job.

SoFi

Variable APR

1.05% – 11.78%

Fixed APR

3.47% –11.16%

Loans for

Undergrad and grad, refinancing

Ascent

Best for Graduated Repayment

4 out of 5 Overall

Key Features

  • Graduated repayment available
  • Hardship repayment options
  • Bootcamp loans available

Ascent offers student loans and scholarships for your full academic career. Apply online with no application fees to see your prequalified rates without a hard credit check. Use loans to pay for everything from a traditional undergrad or grad program to career training and even career-boosting bootcamps.

Ascent

Variable APR

1.47% – 11.31%

Fixed APR

4.36% – 12.75%

Loans for

Undergrad, grad, career training and bootcamp

LendKey

Best for Loan Reconnaissance

4 out of 5 Overall

Key Features

  • Work with community banks and CUs
  • Student loans and refinancing options
  • Rates as low as 1.57%

LendKey is a student loan servicer and a platform for finding the best student loan and refinancing options from partner community banks and credit unions. LendKey’s platform streamlines the process, so you get the benefit of working with a community-oriented institution without the headache of multiple application processes.

LendKey

Variable APR

Starting at 1.57%

Fixed APR

Starting at 3.99%

Loans for

Undergrad and grad, refinancing

Citizens Bank

Best for Citizens Bank Customers

3 out of 5 Overall

Key Features

  • Loyalty discounts
  • Cosigner release option
  • Multi-Year Approval

Citizens Bank is an established financial institution with more than 40 years of experience providing student loans and other financial services. With multi year approval, you can get approved for new loans year after year with a faster application and no hard credit check. Citizens Bank customers can get an interest rate discount up to 0.25 percentage points.

Citizens Banks

Variable APR

n/a

Fixed APR

3.48% – 10.78%

Loans for

Undergrad and grad, refinancing

PNC

Best for Undergraduate Loans

2.5 out of 5 Overall

Key Features

  • Established traditional bank
  • Cosigner release option
  • Student loans and refinancing options

PNC Bank is one of the largest banks in the United States, with nearly 200 years of experience in financial services. Student loans and refinancing are among its vast services. The PNC Solution Loan is designed specifically for undergraduates, to bridge the gap when federal student loans don’t cover all your expenses. It also offers graduate and professional loans.

PNC Bank

Variable APR

Starting at 1.09%

Fixed APR

Starting at 2.99%

Loans for

Undergrad, grad and career training, refinancing

Purefy

Best for Refinancing Student Loans

3 out of 5 Overall

Key Features

  • Student and parent loan refinancing
  • Compare multiple lenders
  • No hard credit check

Purefy is for anyone out of school, repaying student loans and looking for ways to save money. Use the platform to compare student loan refinancing options from multiple lenders side-by-side. The platform is free to use, and you can see prequalified rates in minutes. You can refinance private or federal loans through its partner lenders.

Purefy

Variable APR

1.74% – 7.24%

Fixed APR

2.43% – 7.94%

Loans for

Refinancing

Sparrow

Best for Easy Student Loan Repayment

4 out of 5 Overall

Key Features

  • Compare offers from multiple lenders
  • App to automate loan repayment
  • Manage private and federal loans

Sparrow is a platform for student loans, refinancing and repayment in one place. You can fill out a single application to see prequalified offers from multiple partner lenders for private loans or refinancing. Then use the app to manage and automate repayment of your private and federal student loans in one place.

Sparrow

Variable APR

0.99% – 11.98%

Fixed APR

2.99% – 12.99%

Loans for

Undergrad, grad and career training, refinancing

Rhode Island Student Loan Authority

Best for Income-Driven Repayment

5 out of 5 Overall

Key Features

  • Income-based repayment available
  • Fixed interest rates
  • Less-than-halftime students eligible

RISLA is a nonprofit organization offering student loans and refinancing for borrowers all over the U.S. Its loans have more borrower protections than most private student loans: You have income-driven repayment options, a fixed interest rate and two repayment terms to choose from (10 or 15 years). Limited loan forgiveness is even available for students who complete internships.

Rhode Island Student Loan Authority

Variable APR

n/a

Fixed APR

2.99% – 4.61%

Loans for

Undergrad, grad and career training, refinancing

Chicago Student Loans

Best for Equitable Lending

4.5 out of 5 Overall

Key Features

  • Merit-based approval and interest rates
  • No cosigner needed
  • Income-based repayment options

Chicago Student Loans by A.M. Money works with limited schools around the Midwest, but if your school is eligible, this is a great option for equitable lending. Approval and interest rates are determined based on your academic achievement, not your credit or income. And income-based repayment plans are available if you can’t afford your monthly payment.

Chicago Student Loans

Variable APR

n/a

Fix APR

7.53% – 8.85%

Loans for

Undergrad (juniors and seniors)

Funding U

Best for Merit-Based Lending

5 out of 5 Overall

Key Features

  • Approval by GPA and non-credit factors
  • No cosigner needed
  • More than 1,000 eligible schools

Funding U makes undergraduate loans based on a student’s GPA, not their family’s credit history. It uses a credit check to set interest rates, but also factors in your GPA and year in school — the rate goes down as you progress nearer to graduation! Funding U works with more than 1,460 nonprofit colleges and universities.

Funding U

Variable APR

n/a

Fixed APR

7.49% – 12.99%

Loans for

Undergrad

Discover

Best for Rewards for Good Grades

3.5 out of 5 Overall

Key Features

  • No origination or late fees
  • Cash reward for good grades
  • Variable APR as low as 1.79%

In addition to its full suite of financial services, Discover offers student loans for undergrads, grad students and professional degrees with no origination or late fees. You’ll get rewarded for good grades: Get a 1% cash reward for each new loan if you have a GPA of at least 3.0 for the term(s) the loan covers.

Discover

Variable APR

1.79% – 11.09%

Fixed APR

3.99% – 11.59%

Loans for

Undergrad, grad and career training, refinancing

Splash Financial

Best for Refinancing Undergrad and Med School Loans

4.5 out of 5 Overall

Key Features

  • Compare offers from multiple lenders
  • No origination fees or prepayment penalties
  • Exclusive interest rates from partner lenders

Splash Financial lets you compare in-school student loans and student loan refinancing (and personal loans) from multiple lenders with a simple and quick online application. In addition to its search function, Splash partners with its lenders to offer exclusive interest rates — with fixed rates as low as 1.99% — to help you get the best deal possible.

Splash Financial

Variable APR

1.74 – 8.27%

Fixed APR

1.99% – 8.27%

Loans for

Undergrad, grad and career training, refinancing

Types of Student Loans

The first thing you need to know before applying for any student loans is the difference between federal and private student loans. These two types of loans are treated differently and offer significantly different options for repayment and forgiveness down the line, so know what you’re signing up for before you borrow.

Federal Student Loans

Federal student loans are backed by the U.S. government and make up the vast majority of student loans borrowed every year in the country.

Application: You apply for federal loans along with other types of federal student aid for college through the Free Application for Federal Student Aid, a form you fill out every year to demonstrate your family’s financial situation. The U.S. Department of Education (ED) approves basic undergraduate loans and grants based on financial need, not creditworthiness, so students can apply for federal financial aid without a cosigner.

Types of loans: The government makes four types of student loans: Direct Subsidized, Direct Unsubsidized, Direct PLUS for parents or graduate students, and Federal Perkins Loans for students with exceptional financial need. It also awards grants and work study awards based on financial need. PLUS loans are granted based on creditworthiness, but might still be easier to get than some private loans.

Interest rates: Federal student loan interest rates are standard and not based on a borrower’s credit history. Congress sets them each year for loans disbursed that year, and you keep that rate for the life of your loan. For example, the interest rate for 2021 was 3.73% for Direct undergraduate loans, 5.28% for graduate student loans and 6.28% for PLUS loans.

Repayment plans: The required repayment for federal student loans starts six months after leaving school (or going less than half time), and the standard repayment plan splits monthly payments evenly over 10 years. Subsidized loans don’t accrue interest while you’re in school, while unsubsidized loans do.

Federal student loans are originated and serviced by private institutions, but they’re backed by a guarantee from the federal government, so ED sets repayment terms. You can opt into a graduated payment plan or income-driven repayment, both which would extend your time to repay and could give you a more affordable monthly payment (as little as $0).

Only federal loans are eligible for forgiveness under programs like Public Service Loan Forgiveness and for national forbearance periods like we’ve seen during the pandemic. The pause on loan payback has been extended six times since the start of the pandemic.

Refinancing options: Even though you receive one lump payment (if you get a refund) each semester, you might have multiple student loans to your name. You can combine them with a Direct Consolidation Loan, a student loan consolidation option creates one balance and one monthly payment, and sets the interest rate at the average of all the loans. This isn’t a money-saving step, but could make repayment simpler.

You can also refinance federal student loans using a private refinancing option, which could save you money if you have strong credit and can keep up with payments. This would pay off your federal loan balances and replace them with a private loan. It removes the repayment and forgiveness options that come with federal loans.

Private Student Loans

Private student loans are consumer loans made by private banks, credit unions and financial institutions. They’re treated differently from other types of private loans, but don’t come with as much flexibility as federal loans.

Application: You apply for private student loans directly with the lender or servicer providing the loan. Lenders approve loans based on creditworthiness, just like other credit products, so you have to have a strong credit history or apply with a creditworthy cosigner to be approved. Most (but not all) lenders include an option to release the cosigner after a few years of steady payments.

Types of loans: Private student loan lenders typically offer student loans for undergraduate students, graduate students and professional degrees. Some also offer loans for career training or alternative education like bootcamps. The loans all offer the same basic terms, but interest rates and loan amounts usually vary based on the degree covered.

Interest rates: Private student loan interest rates are set based on creditworthiness and can range from less than 1% to 12% or more depending on the prime rate. Fixed rates are set when you take out a loan and stay the same for the life of the loan, while variable interest rates fluctuate up and down when the Fed adjusts the prime rate.

Repayment plans: Private lenders don’t offer the same amount of protection in repayment as the federal government, but they usually offer a variety of repayment options so you can choose a plan that helps you save money without being overwhelmed by payments. You usually get to choose whether to pay off interest and/or principal while in school, or defer all payments until six months or more after school.

Many private lenders offer forbearance options of a few months at a time, so you can pause payments due to financial hardship without defaulting on your loan. They don’t, however, offer income-driven repayment, so your monthly payment is unaffected by your ability to pay it.

Private student loans aren’t eligible for forgiveness under federal plans, but you might be able to discharge them in bankruptcy under limited circumstances.

Refinancing options: If your financial situation improves, you can apply to refinance your student loans with the same or a different private lender. This pays off your existing loans and replaces them with a new loan with better terms, like a lower interest rate or lower monthly payments.

Should You Take out a Federal or Private Student Loan?

Nearly every expert will tell you to use private student loans as your last resort to pay for school. First exhaust free funding, like grants, scholarships and work study. Then take on federal student loans. Then, if your costs aren’t covered, take out private student loans to fill the gap.

That’s because private loans are the riskiest of all those options.

Federal student loans may be subsidized to save on interest, and they come with flexible repayment plans that offer relief when your income is low. And they’re eligible for forgiveness for student loan borrowers who qualify. Most private loans don’t have those options.

However, private student loans could come with significantly lower interest rates than federal student loans if you have good credit. Federal loans come with standard rates between 3% and 7% and don’t reward good credit (or punish bad credit).

After exhausting free funding, the most ideal route is to borrow a subsidized federal loan — which won’t accrue interest while you’re in school — then consider refinancing once the repayment period starts, you’ve built a strong credit history and feel confident in your ability to make monthly payments for the term of the new loan.

Even most private student loan lenders encourage borrowers to look into federal funding before taking out a private loan while you’re in school. They’re generally designed to fill gaps for students who aren’t eligible for enough in federal student loans to cover their costs to attend college.

Student Loan Costs to Consider

When you evaluate private student loan offers, you’ll probably focus on the interest rate, because that has a significant impact on the long-term cost of the loan. But there are other costs to consider.

Before accepting any loan offer or signing the agreement, make sure you know how much you’ll pay (if anything) in these common costs:

  • APR: Annual percentage rate is commonly called the interest rate (though they’re a little different). It’s usually the most prominently advertised feature of student loans. Student loan interest rates tend to fall between 3% and 11% and can be fixed or variable — the latter means they’ll change with the prime rate. A higher credit score can get you a lower interest rate and vice versa.
  • Origination fee: Some lenders charge a fee to receive your loan, though that’s less common with student loans than other types of loans. Origination fees are usually around 2% or 3% of the loan amount. They come out of the amount disbursed to the school, so you likely won’t notice them unless you’re very particular about math.
  • Late fee: Most loan agreements come with a fee for late payments, usually a percentage of the payment due. Many student loan lenders are doing away with late fees and building in options for flexible repayment, so shop around to compare your options!

What Is a Cosigner?

A cosigner is someone who shares the responsibility of a loan with the borrower. If you — the borrower — can’t qualify for a loan on your own because of bad credit or no credit, you could apply with a cosigner with good credit to qualify.

You receive the funds, but you both bear responsibility for repaying the loan, and repayment or default impacts both credit scores.

Cosigners are common for private student loans, because many people entering college are young and have almost no credit history. You can cosign with a parent, guardian or other creditworthy person, who basically guarantees the loan in case you don’t repay.

Student loans often come with an option for cosigner release, so the cosigner doesn’t have to stay tied to the loan for years after the student’s left school and gone off on their own. Cosigners can usually be released after around 12 to 36 months of on-time payments, with proof of the borrower’s income.

Who Can Take out a Private Student Loan?

Any student can usually apply for a student loan from a private lender, but creditworthiness determines whether you’ll be approved.

Lenders generally have basic requirements for student loans, as well, including:

  • You must be enrolled at least half-time in a degree-granting institution.
  • You must be the age of majority in your state (usually 18 or 19).
  • You must be a U.S. citizen or resident.

Some lenders make exceptions for these, though. For example, Ascent offers a Bootcamp Loan, which wouldn’t come with the enrollment requirement. Some lenders also make loans for international students who aren’t U.S. residents.

How to Get a Private Student Loan

Follow these steps to apply for a private student loan.

  • Weigh your options. Before turning to private loans, fill out a FAFSA to see your options for federal financial aid. This doesn’t commit you to taking out a federal loan, and it has no affect on your credit score; it just gives you all the information you need to make a decision. If federal aid won’t cover your costs, look into private loans.
  • Find a cosigner. If you don’t have strong credit, get a cosigner on board before you apply. Use a site like Credit Sesame or Credit Karma to check your credit score and history for free to see where you stand.
  • Get pre-qualified. Lenders let you fill out a little information about yourself — usually all online — and run a soft credit check to give you an idea of the interest rate and loan terms you could qualify for. That lets you compare offers before submitting to a hard credit inquiry that impacts your score. Marketplaces like Credible and LendKey let you see and compare several pre-qualified offers with one application.
  • Choose a lender. Choose the loan offer that looks like the best fit for you, and finish your application with the lender. You can usually do this part all online, too. The lender will run a hard credit check and might need more information from you, like proof of income. You could get a decision as soon as the same day or after a few days, depending on the lender’s process.
  • Accept your loan. Once approved, you can review and sign your loan agreement — remember to note any fees! — and accept your funds. Lenders send student loan funds directly to your school to pay for tuition and fees, and the school will send you a refund for any extra amount.

Frequently Asked Questions (FAQs) About Student Loans

We’ve rounded up the answers to some of the most common questions about where to get the best private student loans.

What Type of Loan is the Best Value to Students?

Which student loan options are best for you depends on your family’s financial situation. Private student loans can be an optimal option financially, because of potentially low interest rates and short repayment terms. But they’re only available to students with good credit or creditworthy cosigners. Federal student loans are available based on financial need and come with a host of repayment and forgiveness options that could protect low-income borrowers in the long run.

What Type of Student Loan Has the Lowest Interest Rate?

Private student loans can have interest rates as low as 1% but might be as high as 12% or more, depending on your credit. Federal loan rates are set by Congress for all borrowers and fall around 3% to 5% for undergraduate loans. If you (or your cosigner) have good credit, a private student loan could get you the lowest interest rate.

What is the Biggest Student Loan You Can Get?

The size of your student loan depends on what kind of loan you take out. For private student loans, it’s determined by your credit and the term of the loan you want. Some private lenders set caps on student loan amounts, and some will lend up to your full cost of attendance. For federal loans, your loan amount is determined based on your cost of attendance and expected family contribution. If you demonstrate financial need, your federal loan might go beyond tuition, and you could receive a refund to help cover living expenses. Undergrads can borrow a max of between $5,500 and $12,500 each academic year, and grad students can borrow up to $20,500. 

Contributor Dana Miranda is a Certified Educator in Personal Finance® who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine.

Source: thepennyhoarder.com

Bad Deal at the Car Dealership? Here’s What You Should Know.

Save more, spend smarter, and make your money go further

Oops, you realized you may have gotten a bad deal at the car dealership. Maybe it was an impulse purchase or a very convincing salesperson persuaded you to go beyond your budget. Or perhaps you’re now struggling to pay your other bills after purchasing the car and don’t feel comfortable with the monthly payment amount. 

If you’re experiencing mechanical problems, you may be able to take it back to the dealership, depending on your warranty (if you purchased one) and your state’s lemon laws. If there are no mechanical issues with the car, under contract, you must continue paying for the vehicle and likely cannot return it to the dealership. 

Whatever situation you’re in, if you’re thinking of getting out of your car loan, there are a few options. Figuring out which one makes the most sense depends on your situation and preference for wanting to keep the car and refinance the loan, sell or trade it in, for example.

Here’s what you need to know to put yourself in a better financial position if you believe you’ve gotten a bad deal at the car dealership. 

How to determine if you got a bad deal on your car loan

The definition of “bad” is subjective, but generally speaking, determining if you got a bad deal on your auto loan boils down to affordability and your monthly budget. These factors may likely make your car a source of strain for you:

  • Your payments are too high and you’re stretching your budget too thin.
  • The interest rate is high for your credit score range. (If your credit has improved since the time you took out the loan, you may be able to qualify for a less expensive interest rate.)
  • The price of the car was too high.
  • The “extras” you purchased (i.e., vehicle warranty) were too expensive or unnecessary. 

What is considered a good interest rate?

The interest rate should generally not be higher than what you’d pay on a credit card. At the time of writing, the average credit card interest rate is around 18 percent. If it’s higher than that, you should consider getting out of it quickly with a refinance. 

According to Experian, these are the average interest rates you might expect to pay for an auto loan, based on your credit score range. 

Credit score range Average APR for new auto loan Average APR for used car
Super Prime (781-850) 3.65% 4.29%
Prime (661-780) 4.68% 6.04%
Subprime (501-660) 7.65% 17.74%
Deep Subprime (300-500) 14.39% 20.45%

Refinance your car loan

Consider refinancing if you’re unhappy with the interest rate, monthly payment, terms of your auto loan, or all of the above. If you’re concerned about keeping costs down, refinancing makes more sense than going out to get a new car. Keep in mind there are a few fees to pay when you refinance, and Upstart takes care of these fees for you. When you refinance, over purchasing another vehicle, you’ll also avoid expensive sales tax as well as the temptation to purchase a pricier car.

When you refinance, you’re essentially getting a brand new loan to pay off your existing one with the goal of lowering the interest rate and monthly payment. 

Check your credit score before you decide to go this route. If your score needs improvement, you may need to spend a few months paying your bills on time or paying down other debt before you apply. Otherwise, you may not qualify for a better interest rate. 

Some lenders examine alternative data outside your credit score to determine whether you qualify. For example, Upstart-powered banks also looks at your education* and employment, which is one reason why Upstart’s underwriting model is unique from other lenders. 

How to refinance your auto loan

Because you’re taking out a brand new loan when you refinance, you can change the term, or length of how long you have to pay back the loan. If you originally took out a three-year loan but found it difficult to keep up with the high payments, you could refinance to five years. Keep in mind that a longer loan term means you will pay more over the life of the loan in interest. 

Before you jump into a refinance, make sure you won’t have to pay any fees or penalties for paying your current loan off early. Once you confirm you won’t get charged, you can start shopping around for the best interest rates online. 

Remember that you can still shop around for the best score within a certain time frame (usually 30 days) and the hard pull will only count as a single inquiry. This is referred to as rate shopping.

Alternatives to fixing a bad deal at the dealership

If you don’t want to refinance, there are a few other options to consider. 

Trade-in your car: If you’re going this route, go for a less expensive vehicle. This downgrade will help reduce your overall auto debt.

Sell your car, private party: This may require more effort and time on your part, as there are a few more steps involved when selling your vehicle without your title (meaning, it’s still technically owned by the bank), including:

  • Asking your lender for the payoff balance
  • Obtaining the value of your car—you can do this through Kelly Blue Book or Edmunds
  • Paying off the vehicle so the lender can release the title to the new owner

There’s a possibility that you may also end up upside down on your loan, which means your car’s value is less than your loan’s payoff amount. For example, if your car is worth $20,000 but you still owe $25,000 on the loan, you may have a tough time finding a private buyer who would be willing to pay you $25,000 for the vehicle. 

Avoid getting a bad auto loan next time

Mistakes happen for a reason and sometimes, the lesson needs to be learned first-hand in order to avoid making the same ones in the future. Here’s what to do in order to not make the same mistakes the next time you need to purchase a car:

  • Shop around for the best rates and compare multiple offers from lenders.
  • Choose a loan term that is realistic for you, even if it’s longer than what you want.
  • Put a down payment of at least 20 percent, if you can. This helps reduce the overall cost of your loan.

Refinancing from a high to lower interest rate can make a big difference in your monthly budget and can help you better manage your payments. 

The good thing about refinancing is that you can do it completely online and receive your interest rate almost instantly. 

Find out how Upstart can help you get out of a bad deal at the dealership and get your rate in just a few minutes without affecting your credit score. 

State Restriction: Car refinance loans not available in IA, MD, NV, or WV. Car refinance loans in IL and MO are originated by Cross River Bank or Midwest BankCentre. All other car refinance loans are originated by Cross River Bank, an FDIC New Jersey state chartered commercial bank.

*Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan

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Source: mint.intuit.com