Advertiser Disclosure

Credit Cards, Featured, News

Average Credit Card Debt in the U.S. in 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Even as household income and employment rates are ticking up in the U.S., credit card balances are at all-time highs. And as the Fed raises rates, credit card rates rise in tandem, meaning consumers could pay billions in extra interest charges.

We’ve updated our statistics on credit card debt in America to illustrate how much consumers are now taking on.

  • Americans paid banks $104 billion in credit card interest and fees in 2018, up 11% from the prior year, and up 35% over the last five years, as Fed rate increases have been passed on to consumers. MagnifyMoney analyzed FDIC data through March, 2018 for each bank whose deposits are insured by the FDIC.
  • With potentially four Fed rate hikes left to come this year, we estimate the increase in interest and fees paid in the coming year will once again be above 10%, putting Americans on track to pay over $110 billion. Our analysis of the impact of Fed rate hikes found credit card rates are the most sensitive to Fed rate hikes, rising more than twice as fast as mortgage rates.
  • Average APRs on credit card accounts assessed interest are now 15.5%, up nearly 300 basis points in five years, according to the Federal Reserve.

  • Total revolving credit balances are $1.04 trillion as of May, 2018. The figure, reported monthly by the Federal Reserve, is the total amount of revolving credit balances reported by financial institutions, the overwhelming majority of which are credit and retail card balances, according to the CFPB. As of March 2018, non- card-related revolving balances such as overdraft lines of credit were approximately $73 billion according to our analysis of the FDIC data used by the Federal Reserve to calculate total revolving balances.

  • Americans carry $687 billion in credit card debt that is not paid in full each month. This estimate includes people paying interest, as well as those carrying a balance on a card with a 0% intro rate. We based the estimate on a CFPB study of credit card account data that found 29% of total credit card balances are paid off each month, implying 71% of credit card balances revolve each month. We applied the percentage to the Federal Reserve’s revolving credit balance data less $72 billion in non-credit card revolving debt to reach $687 billion in credit card balances carried over month to month.
  • 44% of credit card accounts aren’t paid in full each month, according to the American Bankers Association. Those that don’t pay in full tend to have higher balances, which is why the percentage of balances not paid in full (71%) is higher than the percentage of accounts not paid in full (44%).
  • The average credit card balance is $6,348 for individuals with a credit card, according to Experian. This excludes store credit cards, which have an average balance of $1,841. Both figures include the statement balances of individuals who pay their balance in full each month.

Credit card use

  • Number of Americans who actively use credit cards: 175 million as of 2018, according to Transunion
  • Average number of credit cards per consumer: 3.1, according to Experian. That doesn’t include an average of 2.5 retail credit cards.
  • Number of Americans who carry credit card debt month to month: 70 million.

Credit card debt

The following estimates only include the credit card balances of those who carry credit card debt from month to month — they exclude balances of those who pay in full each month.

  • Total credit card debt in the U.S. (not paid in full each month): $687 billion
  • Average APR: 15.54% (also excludes those with a 0% promotional rate for a balance transfer or purchases)
    • This estimate comes from the Federal Reserve’s monthly reporting of APRs on accounts assessed interest by banks.

Credit card balances

The following figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

  • Total credit card balances: nearly $1.04 trillion as of May 2018, an increase of 5% percent from the previous year. This includes credit and retail cards, and a small amount of overdraft line of credit balances.
  • Average credit card balance: $6,358, according to Experian (excludes retail credit cards, which have lower balances. The average consumer has $1,841 in balances on retail cards and we estimate combining all consumers with retail or credit card debt the average is approximately $5,000 per individual). All averages include those who pay their bill in full each month.

Who pays off their credit card bills?

According to the American Bankers Association, as of the end of 2017, accounts that are paid in full versus carrying debt month to month comprise the following mix of open credit card accounts:

  • Revolvers (carry debt month to month): 44 percent of credit card accounts
  • Transactors (use card, but pay in full): 29.5 percent of credit card accounts
  • Dormant (have a card, but don’t use it actively): 26.5 percent of credit card accounts

Delinquency rates

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

Delinquency rates peaked in 2009 at nearly 7%, but in 2018 they have remained below 3%. 

Debt burden by income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the 2016 Survey of Consumer Finances, the top 10 percent of income earners who carried credit card debt had nearly twice as much debt as average.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $2,100. However, their debt-to-income ratio was 13.9 percent. On the high end, earners in the top decile had an average of $12,500 in credit card debt. But debt-to-income ratio was just 4.8 percent.

Income Percentile

Median Income

Average CC Debt

CC Debt: Income Ratio

0%-20%

$15,100

$2,100

13.9%

20%-40%

$31,400

$3,800

12.1%

40%-60%

$52,700

$4,400

8.3%

60%-80%

$86,100

$6,800

7.9%

80%-90%

$136,000

$8,700

6.4%

90%-100%

$260,200

$12,500

4.8%

 

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower income debt carriers. In fact, high-income earners are as likely to pay the minimum as those with below average incomes. If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational differences in credit card use

In 2017, Generation X surpassed the baby boomer generation to have the highest credit card balances. Experian estimates that on average, Generation X has a balance of $7,750 per person, 21.94% more than the national average ($6,354). Boomers carry nearly as much as Generation X with an average balance of $7,550.

At the other end of the spectrum, millennials, who are often characterized as frivolous spenders and are too quick to take on debt, have nearly the lowest credit card balances. Their median balance clocks in at $4,315. The youngest generation, Gen Z, has the smallest average balance of $2,047 per person.34

How does your state compare?

Using data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare median credit card balances and credit card delinquency.

State

Credit Card Debt Per Debtor

Credit Card Debt Per House

Alabama

$3,710.56

$7,198.48

Alaska

$5,879.85

$11,406.91

Arizona

$4,299.70

$8,341.42

Arkansas

$3,289.01

$6,380.69

California

$4,569.51

$8,864.85

Colorado

$4,898.56

$9,503.20

Connecticut

$5,171.89

$10,033.47

Delaware

$4,338.88

$8,417.42

Florida

$4,318.35

$8,377.59

Georgia

$4,727.46

$9,171.27

Hawaii

$5,330.46

$10,341.09

Idaho

$3,791.84

$7,356.18

Illinois

$4,412.71

$8,560.65

Indiana

$3,624.05

$7,030.65

Iowa

$3,169.16

$6,148.17

Kansas

$3,854.05

$7,476.85

Kentucky

$3,457.67

$6,707.88

Louisiana

$3,767.91

$7,309.75

Maine

$3,905.56

$7,576.78

Maryland

$5,287.61

$10,257.96

Massachusetts

$4,720.53

$9,157.83

Michigan

$3,458.51

$6,709.51

Minnesota

$4,257.26

$8,259.08

Mississippi

$3,204.95

$6,217.60

Missouri

$3,763.46

$7,301.11

Montana

$3,732.83

$7,241.69

Nebraska

$3,594.46

$6,973.25

Nevada

$4,263.19

$8,270.59

New Hampshire

$4,943.44

$9,590.27

New Jersey

$5,361.06

$10,400.47

New Mexico

$4,185.93

$8,120.71

New York

$4,969.84

$9,641.50

North Carolina

$4,124.04

$8,000.63

North Dakota

$3,756.19

$7,287.00

Ohio

$3,738.95

$7,253.56

Oklahoma

$4,038.90

$7,835.47

Oregon

$3,881.17

$7,529.48

Pennsylvania

$4,209.21

$8,165.86

Rhode Island

$4,376.34

$8,490.10

South Carolina

$4,187.65

$8,124.04

South Dakota

$3,608.28

$7,000.07

Tennessee

$3,903.24

$7,572.28

Texas

$4,937.00

$9,577.78

Utah

$3,775.21

$7,323.92

Vermont

$4,199.77

$8,147.56

Virginia

$5,404.32

$10,484.38

Washington

$4,568.09

$8,862.09

West Virginia

$3,381.36

$6,559.84

Wisconsin

$3,410.29

$6,615.96

Wyoming

$3,944.72

$7,652.76

 

State

Silent

Boomers

Gen X

Millennials

Gen Z

Alaska

$5,456

$9,495

$8,995

$4,464


$1,518


Alabama

$3,511

$6,461

$6,485


$3,324


$1,455




Arkansas

$3,194

$5,995

$6,197


$3,240


$1,803


Arizona

$4,149

$6,967

$6,778


$3,575


$1,555


California

$4,232

$7,050

$6,578


$3,654


$1,596


Colorado

$4,004

$7,499

$7,439


$3,833



$1,514


Connecticut

$4,091

$8,179

$8,046


$3,716



$2,567


Dist. of Columbia

$5,486

$7,976

$7,393


$4,596



$2,814


Delaware

$4,147

$7,128

$7,144


$3,285



$1,608


Florida

$4,311

$7,047

$6,615


$3,639



$1,837


Georgia

$4,356

$7,517

$6,972


$3,540


$1,835


Hawaii

$4,386

$7,073

$7,355


$4,203


$1,657


Iowa

$2,367

$5,297

$6,163


$2,857


$935


Idaho

$3,477

$6,147

$6,332


$3,193


$928


Illinois

$3,641

$7,054

$7,040


$3,537


$1,556


Indiana

$3,137

$5,998

$6,174


$3,003


$1,402


Kansas

$3,187

$6,514

$6,930


$3,292


$1,421


Kentucky

$3,044

$5,727

$6,080


$3,082


$1,372


Louisiana

$3,679

$6,598

$6,561


$3,425


$1,971


Massachusetts

$3,481

$7,017

$7,022


$3,479

$1,882


Maryland

$4,341

$7,994

$7,458


$3,671


$1,749


Maine

$3,107

$6,054

$6,531


$3,375


$1,286


Michigan

$3,436

$6,049

$6,113


$2,971


$1,523


Minnesota

$3,025

$6,299

$6,898


$3,244


$1,338


Missouri

$3,265

$6,333

$6,757


$3,279


$1,346


Mississippi

$3,218

$5,634

$5,718


$3,043


$2,011


Montana

$3,285

$5,977

$6,868


$3,385


$1,506


North Carolina

$3,481

$6,566

$6,710


$3,397


$1,486


North Dakota

$2,141

$5,362

$6,646


$3,326


$1,467


Nebraska

$2,717

$5,909

$6,498


$3,136


$1,388


New Hampshire

$3,582

$7,140

$7,443


$3,519


$1,666


New Jersey

$4,126

$8,011

$7,882


$3,928


$2,241


New Mexico

$4,373

$6,906

$6,534


$3,532


$1,207


Nevada

$4,733

$6,993

$6,357


$3,700


$1,185


New York

$3,906

$7,127

$7,234


$3,986


$2,495


Ohio

$3,313

$6,383

$6,530


$3,135


$1,465


Oklahoma

$3,484

$6,789

$6,900


$3,493


$1,641


Oregon

$3,618

$6,502

$6,481


$3,245


$856


Pennsylvania

$3,282

$6,550

$7,059

$3,457


$1,545


Rhode Island

$3,524

$7,162

$7,313


$3,371


$1,786


South Carolina

$4,019

$6,537

$6,559


$3,281

$1,375


South Dakota

$2,584

$5,710

$6,900

$3,250


$1,531


Tennessee

$3,388

$6,309

$6,505


$3,308


$1,737


Texas

$4,350

$7,591

$7,119


$3,779


$1,945


Utah

$3,364

$6,411

$6,713


$3,070


$932


Virginia

$4,132

$7,956

$7,968


$3,985

$1,692


Vermont

$3,681

$6,197

$6,547


$3,297


$2,511


Washington

$3,947

$7,365

$7,190


$3,500


$1,355


Wisconsin

$2,740

$5,673

$6,289


$2,914


$992


West Virginia

$2,914

$5,573

$6,158


$3,238


$1,166


Wyoming

$3,523

$6,356

$6,889

$3,663

$1,442

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS:

Advertiser Disclosure

Personal Loans

RocketLoans Personal Loan Review

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

RocketLoans
APR

5.98%
To
29.99%

Credit Req.

640

Minimum Credit Score

Terms

36 or 60

months

Fees

1.00% - 6.00%

LEARN MORE Secured

on LendingTree’s secure website

RocketLoans personal loan details
 

Fees and penalties

  • Terms: 36 or 60 Months
  • APR Range: 5.98%-29.99%
  • Loan amounts: $2,000-$35,000
  • Time to Funding: Same day funding for up to $25,000
  • Hard pull/soft pull: Soft Pull to see offers. Hard credit pull once you submit an application..
  • Origination fee: 1.00% - 6.00%
  • Prepayment fee: None
  • Late payment fee: $15 per occurrence
  • ACH return fee/Returned check fee: $15 per occurrence

Eligibility requirements

  • Minimum credit score: 640 (Using a FICO® 9 model)
  • Minimum credit history: 2 years
  • Maximum debt-to-income ratio: 40% excluding mortgage and 70% including mortgage
  • Minimum income: $24,000 annually (from any source)

Rocket Loans does not lend in North Carolina, Iowa, West Virginia or Nevada. You must be at least 18 years old to apply for the loan (19 in Alabama and Nebraska). Your credit score, existing debt load, or income may disqualify you from a loan from RocketLoans. Your loan rates will be based off of your income, your credit history, your debt-to-income ratio, homeownership and the size of the loan.

You may be required to submit documents to verify the accuracy of your information (such as pay stubs or tax forms).

Applying for a personal loan from RocketLoans

From start to finish, applying for a personal loan from RocketLoans takes just a few minutes.

Before you can see any offers, RocketLoans requires you to enter your personal information, including your name, address, Social Security number, phone number, employment status, income and homeownership status. RocketLoans uses this information to do a “Soft Pull,” which will allow it to analyze your credit history, debt-to-income ratio, and overall debt burden. The credit pull will not show up on your credit report.

After a minute or two, RocketLoans presents a list of personalized loan offers. The offers include the loan amount monthly payment, length, interest rate (Autopay rate) and the APR (which includes the funding fee). As long as you’re able to provide income and address verification, RocketLoans will underwrite the loan with the terms presented.

*Terms may differ from above example

After choosing a loan option, RocketLoans will verify your identity and income information. It may request that you submit documents (pay stubs, driver’s license, tax returns etc.). RocketLoans will also have you log into the bank account where you want to receive the funds. The company does this to make sure it sends funds to the right place. During the verification process, RocketLoans will do a hard credit inquiry. This hard credit pull could impact your credit score.

Once RocketLoans verifies all of your information, you’ll be instructed to sign the loan documents online. Then, RocketLoans will transfer the loan to your bank account via an electronic, automated clearing house transfer (ACH transfer). Funds up to $25,000 may be available the same business day, but funding could take up to three business days based on your bank’s rules.

Pros and cons of a RocketLoans personal loan

Pros:

Cons:

  • Fast: RocketLoans has an easy online application that minimizes the need to find extra documentation. If you qualify, you could receive the funds the day you apply.
  • 24/7/365: RocketLoans doesn’t take days or evenings off. Their loan offers are fully underwritten, so you can apply and be approved for a loan at your convenience. Loan funding only happens on business days.
  • Individualized offers: RocketLoans only shows individualized offers. You don’t have to wonder what your interest rate will be — RocketLoans will show multiple offers based on your ability to repay.
  • Originations fees: Personal loans from RocketLoans carry a 1.00% - 6.00% origination fee. In contrast, many digital lenders have no origination fees.
  • Moderate to high interest rates: Borrowers with excellent credit can see rates as low as 5.98%, but other lenders offer better rates. Some borrowers can face interest rates as high as 29.99% APR.
  • Limited options for repayment terms: Borrowers can choose between 36 or 60 month payback periods. Other lenders offer more repayment options based on a borrower’s ability to repay.
  • Poor credit borrowers may not qualify. With a minimum FICO score requirement of 36 or 60, people with poor credit may not qualify.

Who’s the best fit for a RocketLoans personal loan?

So long as you’ve shopped around and compared offers from several personal loan lenders, you’re ready to make an educated decision about which lender is right for you. RocketLoans makes it easy to shop because you can get individualized offers based on your personal information before you even have to apply.

In the end, RocketLoans may not offer the best rates or terms, but it will give you a point of comparison. Plus, checking your rates on RocketLoans won’t hurt your credit. After you check your rate, you can compare RocketLoans’ offers with rates from other lenders. Since you know from our review that RocketLoans carries a 1.00% - 6.00% origination fee, which is paid upfront, you should look for loans that not only offer a better rate but don’t carry an upfront fee. If you can’t find a better deal elsewhere, RocketLoans may be the best option for you.

People who need their loan funded fast will find RocketLoans most valuable. The application process takes just a few minutes (especially if you have pay stubs or tax documents handy). Once your loan is approved (which can happen almost immediately), RocketLoans will send the funds to your bank. Depending on your bank’s rules, you can gain access to the funds the same day.

Alternative personal loan options

LightStream

LightStream is the online personal lending branch of Suntrust Bank. It sets itself apart by offering no-fee loans (including no late fees and No origination fee). Loans from Lightstream carry some of the best interest rates on the market, with rates ranging from 3.09%–14.24%. People with excellent credit can borrow $5,000–$100,000 from LightStream for 24 to 144 months.

LightStream
APR

3.09%
To
14.24%

Credit Req.

660

Minimum Credit Score

Terms

24 to 144

months

Fees

No origination fee

LEARN MORE Secured

on LendingTree’s secure website

Advertiser Disclosure

LightStream is the online lending division of SunTrust Bank.... Read More


Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.09% APR with a term of 3 years would result in 36 monthly payments of $291.21.

SoFi

SoFi is another online-only lender with decent interest rates (7.08%–15.37% for fixed-rate loans and 5.28%-13.24% on variable-rate loans) and No origination fee. Personal loans from SoFi have terms ranging from 36 to 84 months. SoFi is one of the only lenders that offers “unemployment protection” on all personal loans. Borrowers who lose a job will be allowed to temporarily stop payments (for up to 12 months). SoFi also offers nontraditional perks to its members including free career coaching and networking events.

SoFi
APR

7.08%
To
15.37%

Credit Req.

680

Minimum Credit Score

Terms

36 to 84

months

Fees

No origination fee

APPLY NOW Secured

on SoFi’s secure website

Advertiser Disclosure

SoFi offers some of the best rates and terms on the market. ... Read More


Fixed rates from 7.08% APR to 15.37% APR (with AutoPay). Variable rates from 5.81% APR to 14.11% APR (with AutoPay). SoFi rate ranges are current as of August 10, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.81% APR assumes current 1-month LIBOR rate of 2.07% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.Terms and Conditions Apply.

Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.

SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.

SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

Prosper

Prosper is a peer-to-peer lending place that offers 36 or 60 months fixed-rate personal loans for $2,000–$40,000. Rates at Propser range from 6.95%–35.99% APR which includes the cost of a closing fee (also known as an origination fee). People with good or excellent credit may find better rates from other lenders, but people with bad credit have a chance to be approved for a loan at Prosper.

Prosper
APR

6.95%
To
35.99%

Credit Req.

640

Minimum Credit Score

Terms

36 or 60

months

Fees

2.41% - 5.00%

LEARN MORE Secured

on LendingTree’s secure website

Advertiser Disclosure

Prosper is a peer-to-peer lending platform that offers a quick and convenient way to get personal loans with fixed and low interest rates. ... Read More


For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS:

Get A Pre-Approved Personal Loan

$

Won’t impact your credit score

Advertiser Disclosure

College Students and Recent Grads

Understanding Student Loan Interest Rates

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Looking into student loans to pay for college or graduate school? Before you take on debt, it’s important to understand how the interest on student loans work, so you can make smart decisions before you borrow and when it comes time to repay the debt.

Understanding how student loan interest works

When you take out a student loan, the lender charges interest as a fee for borrowing the money. Interest on student loans isn’t a flat fee. Instead, interest on student loans is expressed as a percentage of the unpaid loan amount. Right now, federal direct unsubsidized loans for undergraduates carry a 5.05% annual interest rate. That means the lender charges 5.05% of the unpaid loan balance per year.

When interest on a student loan goes unpaid, the balance of the loan grows over time. For example, during college many students “defer” student loan payments. In general, during deferment, the bank continues to charge interest, so the balance grows over time. A student who borrows $5,000 at a 5.05% interest rate at the start of their freshman year of college will owe $6,119 4 1/2 years later when they start making payments. Generally, any unpaid interest is added to the principal balance once the loan enters the repayment period.

Even though interest rates on student loans are expressed as an annualized interest rate (such as 5.05% per year), interest on federal student loans is determined by a daily interest rate. A 5.05% annual interest rate translates to a 0.0138% daily interest rate.

Once you start making standard monthly payments on the loan, the balance of the loan and dollar amount of interest being charged each day drops. For example, on a 10-year repayment plan, the $5,000 loan that grew to $6,119 loan from the previous example will have a $63 monthly payment.

After making the first payment, the principal balance will fall by $39.30 — the other $25.75 goes toward paying interest. By contrast, with the last payment, $64.78 goes toward balance reduction, and just $0.27 goes towards paying interest.

Many people have heard stories of student loan borrowers who have faithfully made regular payments for decades but have barely made a dent in their balance or owe more money today than when they graduated from college. This doesn’t happen when borrowers make payments based on standard repayment plans. However, it can happen when federal loan borrowers opt for income-driven repayment plans. Under these plans, the monthly payment is based on a person’s income, not on a repayment schedule. That means that the required monthly payment could be less than the amount of interest that the lender charges on the loan. In that case, the balance of the loan grows over time, and the amount of interest charged grows, too.

Variable vs. fixed interest rates

All federal student loans disbursed since July 1, 2006, have fixed interest rates, meaning the interest rate will never change. By contrast, some private lenders offer variable-rate loans. Variable-rate loans are loans where the interest rate may change over time. In general, variable interest rates are set based on an index rate such as the LIBOR (London Interbank Offered Rates). When the LIBOR increases, the variable interest rate on a student loan increases. When it decreases, the interest rate on a student loan decreases. The interest rate on a variable-rate loan could change as often as once a month.

As the interest rate on a variable-rate loan changes, the minimum monthly payment changes, too. A higher interest rate will mean a higher monthly payment, and a lower interest rate will mean a lower monthly payment.

Some variable-rate loans will have maximum interest rates. That means, no matter how high the index rate goes, the lender will not charge more than the maximum rate.

The primary advantage of fixed-rate loans are that borrowers will know exactly how much they owe each month, which makes it easy to budget for. However, most private lenders set higher interest rates for fixed-rate student loans compared with variable-rate loans. That means that borrowers could end up paying more in interest over time.

The lower starting interest rates mean that some people may save money by opting for a variable-rate loan. But variable-rate student loans are riskier than fixed-rate loans. The changing interest rates could mean that borrowers have to make large monthly payments and pay more in interest over the life of a loan.

When should borrowers choose a fixed-rate student loan?

No wiggle room in budget: Fixed-rate student loans are an ideal choice if you don’t have a ton of wiggle room in your budget. You may pay a bit more — but you might not — and you don’t have to worry about your monthly payment increasing.

Long repayment periods: Fixed-rate loans also tend to make sense if your repayment plan will last several years. By contrast, variable rate loans are riskier when you face longer repayment periods. Longer repayments mean that you’ll face a higher risk that the rate will increase significantly from where you first took out the loan.

Small rate difference between fixed- and variable-rate loans: Variable-rate loans often have lower prices, but you get that lower price by taking on more risk. If the interest rate you’ll pay on a fixed-rate loan is just a tiny bit more than the interest rate on a variable-rate loan, the peace of mind is probably well worth the financial cost. Plus, if interest rates fall, you may be able to refinance to a lower, fixed rate in the future.

When should borrowers choose variable-rate student loans?

Expect rapid loan payoff: Borrowers who plan to aggressively pay back loans (and cut years off of standard repayment plans) can take advantage of lower interest rates in the early years of the loan. Even if interest rates rise over time, people who aggressively pay back loans in the early years will save enough in interest to compensate for the higher rate in the later years.

Rate difference between fixed- and variable-rate loans: Most of the time, variable-rate loans are less than 1% cheaper than fixed-rate loans. This offers some savings. But depending on your borrower qualifications (credit score, debt-to-income ratio, etc.), you may qualify for a much better variable-rate loan. If you personally qualify for a much lower rate on a variable rate loan (compared with a similar fixed-rate loan), you can expect to save a lot of cash over the life of a loan, even when student loan interest rates start to rise.

Federal student loan interest rates

Congress sets interest rates on federal student loans. Once you borrow the money, the interest rate on the loan will not change because federal student loans have fixed interest rates, but not all federal student loans have the same interest rates. For example, direct unsubsidized and subsidized loans for undergraduates carry a 4.45% interest rate for the 2017-18 school year. The same loan for graduate or professional students is 6%. PLUS loans, which are available for parents and graduate students, have a 7% interest rate. For federal student loans disbursed between July 1, 2018 and June 30, 2019, rates are as follows: 5% for undergraduate loans, 6.6% for graduate and professional unsubsidized loans and 7.6% for PLUS loans borrowed by parents or graduate and professional students.

How does interest work during deferment?

Many students defer payment on their student loans while they are studying or for select other reasons, such as unemployment or active-duty military service, if their loans offer such flexibility (some private loans and all federal loans do).

During deferment and the grace period following graduation, you will not make payments on your student loans, but interest continues to accrue on the loan. Interest that accrues during deferment is added to the balance of the loan, so your principal loan balance grows during deferment.

However, the U.S. Department of Education helps reduce the burden of interest by paying interest on subsidized loans while the borrower is enrolled in school at least halftime, during deferment and during the grace period that follows graduation. Subsidized loans include direct subsidized loans, federal Perkins loans and the subsidized portions of direct consolidation loans and FFEL consolidation loans.

It’s important to note that deferment is not the same as forbearance. Forbearance is a period of reduced or suspended payments a lender may grant to a borrower going through financial hardship. During forbearance, interest continues to accumulate and will capitalize (be added to the principal balance).

Current interest rates and fees on federal student loans

The table below shows the interest rates and fees on federal student loans for the 2018-19 school year. It’s important to note that some loans have a loan fee. These fees are a percentage of the principal balance, taken from the disbursement and paid to the bank. For example, a $5,000 loan will actually be a $4,946.70 disbursement to you (assuming the 1.066% loan fee).

Federal loan type

Borrower type

Interest rate

Loan fee

Does interest accrue during deferment?

Direct unsubsidized

Undergraduate

5.05% (for loans disbursed between July 1, 2018 and June 30, 2019)

1.066% (for loans disbursed between Oct. 1, 2017 and Sept. 30, 2018)

1.062% (for loans disbursed between Oct. 1, 2018 and Sept. 30, 2019)

Yes.

Direct unsubsidized

Graduate or professional students

6.60% (2018-19)

1.066% (2017-18)

1.062% (2018-19)

Yes.

Direct subsidized

Undergraduate

5.05% (2018-19)

1.066% (2017-18)

1.062% (2018-19)

No.

Direct consolidation

Past borrowers

Weighted average interest rate of all loans being consolidated, rounded up to the nearest one-eighth of one percent.

None.

Generally yes. The subsidized portions of the loan do not accrue interest during deferment.

PLUS

Parents, graduate students and professional students

7.6% (2018-19)

4.264% (2017-18)

4.248% (2018-19)

Yes.

Private student loan interest rates

Private student loans can be a double-edged sword for students and their parents. The private student loan marketplace allows a greater level of borrowing, and some people find better interest rates in the private loan marketplace. However, private student loans generally do not offer the safeguards of federal student loans.

For example, many private loans don’t offer forbearance or deferment (except in-school deferment), and they may have very high student loan interest rates. Unlike federal student loans, most private student loans don’t have income-driven repayment plans, and the interest rates on private student loans aren’t set by legislation. Instead, interest rates on private loans are determined by a variety of factors:

  • Your credit score (or the score of a cosigner)
  • Your income (or the income of a cosigner)
  • Employment status
  • The length of repayment
  • Fixed- or variable-rate terms
  • Rates charged by other lenders

Many private lenders require a cosigner (someone who promises to make payments if you can’t) if you don’t have a high enough income or credit score to qualify for the loan.

Interest rates on private student loans have a much greater variety than federal student loans. For example, some student loan refinancing companies offer interest rates as low as 2.57%. However, some lenders charge interest rates that exceed credit card interest rates.

Borrowers who are considering private student loans should research the costs and have a plan to make the required monthly payment once they graduate.

Student loan interest rate vs. APR

When it comes to student loan borrowing, borrowers should understand both the interest rate and the APR (annualized percentage rate) on a loan. The Federal Truth in Lending Act requires lenders to disclose a loan’s APR. APR measures the annualized cost of all finance charges (including interest and transaction fees) if you make all your payments on time. By contrast, the interest rate on a loan is simply the annual cost of borrowing the money, and does not include other fees.

When you pay off student loans early, you will reduce the total interest you pay on the loan. However, finance charges (such as loan fees or origination fees) are not reduced by paying off the loan early.

Lowering your student loan rates

When it comes to any type of borrowing, paying less in interest means you’ll have more money to put elsewhere. Student loan borrowers should consider methods for reducing the interest rate on their loan, and methods to pay less interest overall. These are just a few options to consider.

Lowering your student loan interest rates

Fill out FAFSA: If you’re a traditional student (generally under 24 years old with limited work/life experience), federal student loans likely offer the lowest possible interest rates on student loans. To qualify for federal aid, you and your parents must fill out the FAFSA (Free Application for Federal Student Aid). The FAFSA may also be required for merit-based aid at your university.

Get a cosigner: Borrowers in the private marketplace may find that a cosigner helps them qualify for a reduced rate. Its common for grandparents or parents to cosign private student loans, but cosigners must exercise caution. If a borrower can’t make their monthly payments, the cosigner has to step up and make the payments, otherwise both borrowers’ credit scores will suffer from the impact of missed payments.

Refinance: Following graduation, borrowers (especially those with high incomes or good credit scores) may be able to reduce their student loan interest rates by refinancing with private loans. However, borrowers must be careful when refinancing. Private lenders generally do not offer income-driven repayment plans or other safeguards that can help borrowers who experience unemployment, underemployment or low incomes. Plus, debts that are refinanced with private lenders will not qualify for federal student loan forgiveness programs.

Enroll in automatic payments: Many private lenders offer borrowers a rate discount when the borrower sets up automatic monthly payments.

Reducing total interest paid

Reducing interest rates aren’t the only way to free up cash. Borrowers may also use other methods to reduce the total amount of interest they put toward loans.

Borrow as little as possible: The less you borrow during school, the less interest that will accrue on the loans. Students may be able to minimize borrowing during school by working, applying for scholarships and grants, and using savings. This may sound obvious, but it’s important to point out, because the amount you’re approved to borrow may exceed what you need, resulting in unnecessary debt and, as a result, unnecessary interest payments. Budget carefully and borrow only what you need.

Pay more than the minimum: The more money you put toward your loans each month, the faster you’ll pay them off. Extra principal payments are especially helpful in the early life of the loan when a large portion of the standard payment goes to interest. When you put extra money toward your loan, be sure that the additional payment goes toward repaying the principal. The Consumer Financial Protection Bureau offers guidance on how borrowers can make sure their lender processes their payments correctly.

Combine income-driven repayment with student loan forgiveness: A lot of times, income driven repayment plans reduce monthly payments only to have the loan balance grow over time. However, if you qualify for a student loan forgiveness program, the lower payment is a huge advantage. Not only will you reduce your cash outflow during the repayment phase, once you complete the requirements for loan forgiveness, you may qualify for forgiveness without any incurring tax penalties. (However, some loan forgiveness requires you to pay income taxes on the forgiven amount.) Different loan forgiveness programs have different requirements, so be sure you qualify before planning to use this strategy.

Pay interest during school: Many students are cash-strapped during their studies, but putting money toward interest may go a long way toward keeping loans at a manageable level. Making interest-only payments during college allows students to keep loans at a set level instead of allowing the lender charge interest on interest once the loan enters repayment and unpaid interest is capitalized (added to the principal loan balance).

Refinance to a shorter term: Borrowers who have sufficient cash flow can reduce their total interest payment by refinancing their loans to a shorter term. Sometimes a shorter term means a better interest rate. But, even without a lower rate, a faster repayment means that less money goes to interest overall. For example, a borrower with a $10,000 loan at 3.5% will pay $1,866.21 in interest over the life of a 10-year loan. If that borrower refinances to a five-year loan (also at 3.5%) the total interest is cut in half to just $915.03.

This page was updated July 17, 2018 to reflect changes to federal student loan rates and fees.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: , ,

Advertiser Disclosure

Small Business

18 Options for Small Business Loans in 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Historically, business lending involved a massive time commitment, high costs and a high risk that a business wouldn’t get all the funding it needs. Online lenders have completely changed the business lending landscape, making it possible to get funding in as little as a few days in some cases. That being said, borrowing from one of these newer online lenders means working with a company you may not be familiar with, which may pose some challenges.

If you’re a small business owner looking for a loan, this guide can help you decide which type of loan best suits your needs. It will also help you compare some of the best lenders and small business loan marketplaces, so you can apply with confidence.

5 ways to use a business loan

Business financing tends to be more complex than consumer finance, so it pays to understand how business lending works.

Businesses typically look for financing during start-up or expansion phases, but businesses may need financing for more mundane reasons. These are a few common reasons businesses seek financing.

Starting a business: More than half of all start-ups use personal savings to start their business, but in many cases personal savings alone aren’t enough to pay for start-up costs. That means many companies need to consider taking out a start-up loan (or finding other means of finance). Antara Dutta, a volunteer mentor and former president of the Delaware chapter of SCORE (the nation’s largest network of volunteer expert business mentors), explained, “Start-up companies need enough money to cover at least twelve months of expenses. It usually takes at least twelve months to get to break even, and we usually say about 18 months to get to the point of earning a profit.”

Managing cash flow: Seasonal businesses may need to seek financing to pay for inventory and materials to complete a project or to stock a store. Other businesses experience a gap between when they pay their bills and when customers pay them. Business owners who cannot cover cash flow needs from personal or business savings may require financing. Invoice factoring or a line of credit may provide the right financing solution for businesses that need to pay bills.

Expanding operations: Businesses looking to expand often need a loan to cover certain costs. Although profitable businesses should consider using business savings, a loan can help a business achieve faster growth. Dutta recommended, “When you’re expanding operations you may be in a good position to refinance any existing debts. Combining debts can allow you to get better terms on all your debts.”

Refinance existing debt: A business that has debt may be able to refinance to cut back on interest or reduce monthly payments. This will strengthen their financial position, and allow for more growth, more profitability or better cash flow.

What to know before you borrow

When it comes to finding the right loan for your business, you’ll have to weigh multiple priorities to find the right loan for your business. These are a few areas business owners should consider when applying for a loan:

Know exactly how much you need to borrow: Whether you’re starting a new business or you’re expanding current operations, you need to explain how much money your business needs, how the business will use the proceeds and how the business will pay back the loan.

Understand the cost of capital: The cost of capital is how much it costs to borrow money. The most common measure for this is APR, although you may see other terms being used. Business owners may struggle to maintain profitability when the cost of capital is too high.

Ask about repayment terms: Unlike most consumer loans, business loans can have a variety of repayment schedules. You may have to make daily, weekly or monthly payments. Be sure you understand how the repayment schedule will affect your cash flow and ability to make timely payments during the repayment period.

Collateral requirements: Business loans may require you to put up certain assets as collateral against the loan. Collateral reduces the lender’s risk because the lender can automatically seize the collateral to recoup their losses. A bank’s collateral requirements aren’t limited to just business assets. Oftentimes, business owners have to use personal assets (like home equity) to guarantee the loan.

“Banks need to know that you’re going to pay them back,” Dutta told MagnifyMoney. “So they might need some collateral, especially for start-ups or high-risk businesses. A lot of times, you’ll have to take out a second mortgage to cover your collateral.”

How much funding you’ll receive: Most start-up companies (69%) who apply for a loan experience a financing shortfall, according to a 2017 small business survey by the Federal Reserve Board of New York. This means the business is approved for a smaller loan than what the company needed. When applying for a loan, it’s important to understand that you may struggle to get enough financing.

How long it will take to get the funds: According to one Harvard Business School working paper, time to funding for business loans ranged from an average of less than five days for short-term lines of credit to more than 45 days for SBA-guaranteed loans. Most online lenders focus on high speed lending, but business owners may have to make sacrifices in other areas (such as cost or repayment terms) to find fast underwriting.

Are pricing and terms transparent? Small business owners often have a tough time comparing prices and payback terms on products from nontraditional (online) lenders. To be sure you’re getting a fair deal, look for clear pricing and terms, including an estimated monthly payment, an APR calculation and whether you face prepayment penalties. If a lender has adopted the SMART Box pricing approach, you can find all this information in your schedule of fees.

18 options for online small business lenders

LendingTree*
LendingTree is an online marketplace for business loans. It has one of the largest networks of lenders in the U.S. Business owners can submit one simple form for business financing, and LendingTree will match the owner with real offers from several lenders. This gives business owners the power to pick the best deal for their business.

  • Financing options include: Term loans, SBA loans, working capital loans, equipment financing, business lines of credit, accounts receivable financing and business credit cards.

*LendingTree is MagnifyMoney’s parent company.

National Funding
National Funding is a non-traditional lender that’s been in business since 1999. The company specializes in lending smaller dollar loans (less than $100,000) to businesses that are underserved by banks. National Funding often takes less than a day to underwrite loans. Loans from National Funding are fixed-interest loans, but the company offers discounts of up to 7% to customers that pay off their loans early.

  • Financing options: Short-term loans, equipment financing, merchant cash advances
  • Short-term loans:
    • Four to 24 months
    • daily or weekly payments
    • $5,000-$500,000
  • Equipment financing:
    • Two to five years
    • Monthly payments
    • Up to $150,000
  • Funding in under 24 hours

RapidAdvance
RapidAdvance is an alternative business lender that’s been issuing loans for more than a decade. The company has an A+ rating with the Better Business Bureau, and most customers appreciate the company’s quick and thorough customer service. RapidAdvance helps business owners get funding fast, but its loans tend to carry very high-interest rates.

  • Financing options: Short-term loans, unsecured lines of credit
  • Must be in business two years, with at least $5,000 per month in revenue
  • $5,000-$1,000,000 (lines of credit up to $500,000)
  • Loan terms up to 18 months
  • Interest rates starting from 16% APR (fixed simple interest rates)
  • Funding in three days or less

OnDeck
OnDeck is an online business lender and a leader in transparent pricing. It is a member of the Innovative Lending Platform Association, which is an industry coalition that has adopted the SMART Box™ to increase transparency in pricing. OnDeck offers both term loans and lines of credit. Most OnDeck customers will have fair or better personal credit scores (above 600 FICO scores).

  • Financing options: Short-term loans, unsecured Business lines of credit
  • Short-term loans:
    • Three to 12 months
    • Fixed simple interest (you pay all the interest, even if you pay off the loan early)
    • Daily or weekly payments
  • Longer term loans
    • 15 to 36 months
    • Compounding interest rate (you pay less when you pay off the loan early)
    • Daily or weekly payments
  • Lines of credit:
    • Up to $100,000
    • Fixed weekly payments
    • Only pay interest on what you draw
  • Funding in under 24 hours

Credibly
Started in 2010, Credibly (originally RetailCapital) is a small business lender with a focus on using technology and customer service to make business underwriting easier and better. Credibly focuses on short-term lending, and it differentiates itself by having reasonable interest rates (9.99%-36%*) on 18- and 24-month loans.

  • Financing options: Working capital loans and “business expansion loans” (short-term loans with weekly repayment options)
  • Working capital loans
    • Six to 17 months
    • $5,000-$250,000
    • Interest expressed as interest rates (not expressed as an APR*)
    • Daily repayments
  • Business expansion loans
    • 18 or 24 months
    • $5,000-$250,000
    • 9.99%-36% annualized interest rate.
    • Interest rates set as a factor fee. Paying off the loan early will not reduce interest payments.
    • Weekly repayments
  • Funding in 48 hours on average

Finance Factory
The Finance Factory is a one-stop shop for all things related to business financing. It is an online lending marketplace that matches small business lenders to small business borrowers. Because it is a network, it offers a huge range of business loan products including start-up loans, SBA loans, lines of credit, unsecured business loans and more. Some of the products have very low-interest rate loans (however, the underwriting times aren’t as fast as other lenders).

  • Financing options: Start-up funding, SBA loans, business express loans, revenue-based loans, equipment financing, franchise financing
  • Most loans range from $5,000-$500,000 (revenue-based advances from $10,000 to $1 million)
  • Interest rates vary by product from 0%+ on start-up loans, to 6%-8% SBA loans and other rates based on credit and business history
  • Up to 25 years
  • Funding time varies based on loan type. Some loans can be funded in less than 48 hours, but other loans, like SBA loans, may take a month or two.

Seek Capital
Seek Business Capital is a business lending broker that helps business owners navigate the complex business funding world. Seek Capital will use information that you provide to create a funding estimate which is a range of funding amounts, rates, and payback terms that a business owner can expect to procure. Business owners who are happy with the estimate can apply for loans, and Seek Capital will have the loans funded in one to three business weeks. Seek Capital does charge broker fees, so businesses should be careful to compare Seek’s offers and fees with other competitors.

  • Unsecured business loans
  • $5,000-$500,000
  • Same-day loan estimates, three weeks to funding

The Business Backer
Despite major innovations in the world of online business lending, The Business Backer believes that financing is still all about relationships. To help businesses qualify for better interest rates, The Business Backer gives business owners the opportunity to share the story of their business and the circumstances leading them to apply for a loan.

The Business Backer funds some of its own loans, but they also have a network of lending partners. The network means that borrowers can use a single application to apply for multiple types of financing.

  • Financing options include: SBA loans, business line of credit, long-term loans, short-term loans, equipment financing, commercial real estate loans, start-up loans
  • Start-up loans
    • Up to $150,000
    • 8%-20% APR
  • Short-term loans
    • Up to $200,000
    • 14%-51% Annualized Interest Rate
    • Four to 18 months
    • Daily, weekly or monthly payback
    • Fixed interest with early payment discounts available
  • Business line of credit
    • $5,000-$150,000
    • 1- to 3-year terms
    • 18%+ interest rate
  • Funding in as little as 48 hours (though this can vary by loan type)

LoanMe
LoanMe is a business lender that specializes in lending to businesses that don’t qualify for loans from banks, and businesses with urgent cash needs. Interest rates on loans from LoanMe are higher than those from traditional banks, but terms range from two to ten years. Also, unlike many other lenders, LoanMe uses traditional interest formulas. That means the faster you pay off the loan, the less interest you’ll pay.

  • Funding options: Term loans
  • $3,500-$75,000
  • Loans from 2 to 10 years with monthly repayments
  • Interest rates from 24%-149%
  • Same-day funding available

Elevation Capital
Elevation Capital is a lender that offers alternative loan products (especially unsecured short-term loans) to business with as little as three months of revenue history. Elevation’s unique underwriting style means that business owners with poor credit may be able to qualify for a loan.

  • Financing options: Not available
  • Payback terms: Not available
  • Interest Terms: Not available
  • Up to $500,000 in loans
  • Funding in as little as 24 hours.

Reliant Funding
Reliant Funding was founded in 2008, in the midst of the financial crisis. It boasts of over $1 billion in lending to small businesses, and an A+ rating with the Better Business Bureau. Reliant focuses on speed of funding, and underwrites using current business performance rather than personal or business credit history.

  • Term loans ranging from six to 18 months
  • Loans up to $250,000
  • Fixed simple interest rates- (you’ll pay the same amount of interest, no matter how quickly you pay off the loan)
  • Daily payment schedules
  • Same day loan approvals and funding

SmartBiz
SmartBiz is an online marketplace for SBA-guaranteed loans. SBA-guaranteed loans are known for slow turnaround times (with an average of 45 days to funding), but SmartBiz streamlines the process. Their computer algorithm can help determine whether you’re SBA loan-eligible before you complete the complex application. Businesses that qualify can complete their application through the SmartBiz website and may receive funding within seven days of completing their loan application.

  • Funding options: Commercial real estate loans, SBA-guaranteed working capital loans
  • Commercial real estate loans
    • $500,000- $5 million
    • Terms up to 25 years
    • Interest rates ranging from 6.25%-8.5%
  • Debt refinance and working capital loans
    • $30,000 to $350,000
    • Terms up to 10 years
    • Interest rates ranging from 6.25%-8.5%
  • Funding as fast as seven days after application is complete (but it may take longer)

Funding Circle
Funding Circle is one of the nation’s first peer-to-peer (P2P) business lending companies. It specializes in low interest-rate term loans for established businesses. Applications for the loans can take as little as 10 minutes if you have all the required financial documentation ready. Funding Circle is a signatory of the Small Business Borrowers’ Bill of Rights which means that business owners can expect clear and transparent terms from Funding Circle.

  • Funding options: Term business loans
  • Loans from $25,000- $500,000
  • Terms ranging from six months to five years
  • Interest rates from 4.99%-26.99%
  • No prepayment penalties
  • Funding in five days or less

Fora Financial
If your business grosses at least $12,000 per month, and you need cash fast, Fora Financial could provide a viable loan solution for you. The company provides unsecured short-term loans with funding in as little as 72 hours. Business owners who are looking into these loans should read the fine print carefully. Fora offers partial discounts for early repayment. Early repayment discounts are not equivalent to the interest savings you would receive if you paid off a traditional loan early. This means that loans from Fora may be substantially more expensive than traditional loans if you pay the loan early.

  • Financing options: Unsecured short-term loans
  • $5,000-$500,000
  • Terms up to 15 months
  • Fixed simple interest with partial discounts for early repayment.
  • Funding in as little as 72 hours

LendingClub
LendingClub is a P2P lender that specializes in affordable term business loans for business owners that have fair credit (or better). Businesses must have been in business at least 12 months and have revenue in excess of $50,000 annually.

  • Financing options: unsecured term loans, secured term loans
  • Loans above $100,00 require a blanket lien on all business assets
  • Loans from $5,000-$300,000
  • Payback terms from one to five years
  • Interest rates ranging from 9.77% – 35.71%
  • Funding takes an average of 7 days

Headway Capital
Headway Capital is a lender that specializes in small business lines of credit with fixed simple interest rates. This means that Headway charges interest as soon as the funds are drawn, and businesses pay the funds back through weekly or monthly payments.

The Headway Line of Credit may be a good solution for businesses that cannot qualify for traditional credit lines, but need the flexibility that a line offers. To qualify for a Headway line of credit your business must have been operating for at least 12 months with at least $50,000 in annual revenue.

  • Financing options: Line of credit
  • Credit limits: Up to $50,000
  • Repayment periods: 12 to 24 months
  • Fixed simple interest (interest charged when you withdraw and does not compound over time).
  • Weekly or monthly repayments

BlueVine Capital
BlueVine Capital is a company that’s creating innovative working capital solutions for small businesses. They currently offer business lines of credit and invoice factoring options that allow businesses to only pay for financing when they need it. Business owners need a 600 credit score to qualify for a business line of credit and a 530 credit score to qualify for an invoice factoring option. Businesses also need at least $10,000 in monthly revenue to qualify for either option.

  • Financing options: Line of credit, invoice factoring
  • Line of credit
    • Weekly payments
    • $5,000-$5 million
    • Interest rates from 6.9%
  • Invoice factoring
    • $20,000- $5 million
    • Invoice due date must be less than 13 weeks
    • 85%-90% advance rates
  • Funding within 24 hours for first advance, and faster afterward

StreetShares
StreetShares is a newcomer in the P2P lending space. It specializes in moderate interest rates and fast lending. Military members and veterans are especially valued customers, and StreetShares makes sure to give veterans special treatment.

  • Financing options: Term loans, lines of credit, invoice factoring
  • Term loans
    • Three to 36 months
    • $2,000- $100,000 limits
    • Weekly repayments
    • No prepayment penalties
  • Line of Credit
    • $5,000- $100,000
    • Weekly repayments
    • Three to 36-month paybacks
    • No prepayment penalties
  • Invoice factoring (contract factoring)
    • Advance rates up to 90%
    • Monthly factor fees as low as 1%
  • Funding in as little as a few days

LEARN MORE: Types of small business loans

Small businesses operate in every industry, with revenues ranging from less than $100,000 per year to over $100 million per year. On top of that, business have varying levels of profitability and business credit quality. With such diverse business circumstances, it’s not surprising that there are dozens of business loan options.

These are the most common loans for businesses.

#1 Term loans aka short-term, unsecured, secured and equipment loans

Term loans are an umbrella category of business loans comprised of several different types of loans. In general, a term loan is repaid over a fixed period of time, usually by making even payments on a fixed schedule.

Here are the main types of term loans available to small business owners:

Short-term loans

What they are: Short-term business loans have payback periods ranging from three months to two years. Business owners make fixed payments on the loans until they are paid off.

How they work: After approving a loan, lenders deposit funds directly in a business’s bank account. Then, business owners make regular payments to pay off the loan.

General terms offered: Short-term loans often require daily or weekly payments. Many short-term loans have fixed simple interest rates. This means that you will pay the same amount of interest and fees whether you pay off the loan early or on time. The interest rates on short-term loans can be very high.

Most of the time, short-term loans are not secured by any collateral. However, there are important exceptions to this rule. For example, invoice financing (where invoices serve as collateral) can be set up as a short-term loan arrangement.

Speed: Online lenders specialize in short-term lending, and most can fund loans within 72 hours.

Who should use them: Business owners should be careful when taking out short-term loans. The daily payment schedules may make it difficult to maintain positive cash flow while the loan is being repaid. Short-term loans offer funding fast, but they aren’t a sustainable way to fund a business.

Unsecured term loans:

What they are: Unsecured term business loans are loans that are not backed by any underlying asset like your home. Unsecured business loans may require a personal guarantee, which is a promise to repay the loan regardless of business performance.

How they work: When funding on an unsecured term loan, a lender gives a business owner a lump sum of cash to be used for the business. The lender generally doesn’t restrict how the business uses the loan. In exchange for the upfront cash, the business commits to ongoing payments until the loan is repaid.

General terms offered: Unsecured business loans range from short-term loans (such as the loans explained above), to loans lasting up to several years. They may require business owners to make fixed daily, weekly or monthly payments. Except in the case of short-term loans, business owners will generally save money by paying off unsecured term loans early.

Speed: The time it takes to receive funds depends on the type of lender you work with. Online lenders offer funding in as little as three days, but larger lenders may take a week or more.

Who they are best for: Unsecured loans offer excellent protections for borrowers and are ideal to fund riskier ventures. If the business defaults on payments, the lender will have to go through proper collection channels before collecting any assets from the business owner. However, this protection comes at the cost of higher interest rates.

Secured term business loans

What they are: Secured term business loans are term loans that are directly secured by some collateral. That means if the business fails to pay its loan, the lender can immediately seize the underlying asset. Two in five (42%) business loans are secured by business assets (such as equipment, inventory, buildings or land), but an almost equal number (39%) are secured by personal assets, such as a personal vehicle, cash reserves or home equity, according to the Federal Reserve small business credit survey.

How they work: When business owners take on a secured loan, they receive an upfront sum of cash. The lender may limit how the business can use the cash (for example to purchase equipment). The business will make fixed monthly payments until the loan is paid off.

General terms offered: Most of the time, secured business loans have terms longer than two years. The interest rates on secured loans tend to be lower than rates on unsecured loans.

Speed: Like unsecured term loans, midterm loans tend to take several weeks to fund, but the time for funding will vary by lender.

Who should use them: Secured term loans are riskier for business owners since defaulting could lead to the loss of personal assets. However, they are a good choice for a stable business that has the cash flow to support the new loans.

Equipment loans

What they are: An equipment loan is a loan that’s backed by the equipment you purchase for the business. Business equipment would generally include heavy machinery, vehicles, computer servers, farm equipment and more.

How they work: In general, business owners put 10%-20% down on an equipment purchase, and finance the rest using the equipment loan. The business owner will make monthly payments on the loan (in most cases). If the business defaults on the loan, the lender may repossess the equipment and sell it to recoup its losses.

General terms offered: Down payment requirements generally range from 10% (on an SBA 504 loan) to 20% or more. Payback periods usually range from five to 10 years).

Speed: Business owners who complete an equipment loan application should expect to receive funding in under one week.

Who should use them: Businesses with good credit history are approved for equipment financing more than 90% of the time. If your company needs new equipment, an equipment loan is likely the best way to finance it.

#2 SBA-guaranteed business loans:

What they are: SBA-guaranteed business loans are loans that are partially guaranteed by the Small Business Administration. In most cases, the SBA will reimburse banks up to 85% of the loan value if a business owner defaults on the loan. The SBA limits the interest rate that can be charged on these loans, so SBA loans tend to have low-interest rates relative to other forms of business financing.

How they work: To qualify for an SBA loan, business owners must put up personal or business assets as collateral for the loan. In general, the collateral must cover at least 20%-25% of the loan value.

General terms offered: SBA loans are term loans with monthly payments. The interest rates on SBA loans vary by product, but SBA 7a loans (with terms less than seven years) have maximum interest rates ranging from 7%-9% depending on loan size.

Equipment and inventory loans have terms ranging from seven to ten years. Real estate loans may have terms up to 25 years.

Speed: Compared with other loans, SBA loans tend to have slow funding times. The fastest turnaround time is likely from SmartBiz, which claims it can fund loans as fast as seven days after the application is complete. However, the average time to funding for SBA loans tends to be much longer. Industry experts estimate that most SBA loans take at least a month to fund, and could be much longer.

Who should use them: With great interest rates and limited collateral requirements, an SBA loan makes a great choice for any business owner who has the time to wait for funding. These can be especially helpful for starting or expanding a business.

#3 Business lines of credit

Business lines of credit allow business owners to draw from a predetermined credit limit to meet business needs. After drawing down on the line of credit, business owners will make regular payments to pay it off. Business owners only pay for money they borrow, which makes lines of credit a cost-effective financing option for seasonal businesses.

These are a few lines of credit your business might consider:

Unsecured lines of credit

What they are: Unsecured lines of credit are business lines of credit that don’t require any specific form of collateral.

How they work: An unsecured line of credit allows business owners to draw on a line of credit to meet business needs. The business can continue to draw up to the credit limit. When the business repays the line, the credit limit is replenished.

General terms offered: Unsecured lines of credit have a drawdown period (where the business owner can draw from the credit limit). The drawdown period is usually a year long. After that, businesses must renew their line of credit or begin repayment. Generally, the business owner has to make minimum monthly payments during the drawdown period. The interest rates on unsecured lines of credit can be as low as 6.25%, but can be far higher.

Speed: Time to access funding will vary by lender. Large lenders may be able to approve your loan within a week and have funding to your business shortly thereafter.

Who should use them: Unsecured lines of credit are a low-cost, short-term financing solution for mature businesses. Business owners must have a plan to repay the credit line, or they may end up defaulting.

Asset-based lines of credit:

What they are: An asset-based line of credit is a line of credit that’s backed by an asset. The assets are usually outstanding invoices and equipment or real estate.

How they work: Some businesses have a long gap between when they produce work and when they receive payment for it. These businesses may need access to cash to bridge the gap between the time they spend money and when they receive payments. An asset-based line of credit allows businesses to draw on a line of credit that is secured by outstanding receivables and equipment. The business is free to draw on the line up to the credit limit. Once the business repays the loan, the credit limit is restored.

General terms offered: Most lenders will extend asset-based lines of credit for short terms (under a year). Having short terms on the line of credit gives the lender repeated opportunities to evaluate the strength of the line of credit. To qualify for an asset-based line of credit, you generally have to work in the B2B space, and have large receivables.

Speed: Establishing an asset-based line of credit generally takes a week or more.

Who should use them: Asset-based lines of credit are ideal for businesses with long collection cycles such as custom manufacturers and other businesses that sell on terms.

#4 CAPLines

What they are: CAPLines are SBA-guaranteed lines of credit designed to meet cyclical or short-term working capital needs. Businesses may need to show the expected costs of their projects or contracts to qualify for a CAPline.

How they work: Businesses apply for a CAPLine based on the projected costs of an expansion or larger product. When approved, a business can draw on the line up to the credit limit. When the business repays the credit line, the credit limit is restored.

General terms offered: Maturities on these lines of credit top out at 10 years. Currently CAPLines have interest rates ranging from 7%-9% APR.

Speed: Speed will vary by lender.

Who should use them: CAPLines are an appealing option for established businesses with short-term or seasonal borrowing needs.

Frequently asked questions

Lenders consider a variety of factors when underwriting business loans. More than nine in 10 start-ups (92%) rely on the owner’s personal credit score to obtain business financing, according to the Federal Reserve.

On top of business and personal credit, lenders also need to evaluate your business’s financial prospects during underwriting. Banks lean heavily on the information in your last two years of tax returns. “Banks need to see that you have revenue in excess of your expenses, or you’re not likely to be approved,” Dutta told MagnifyMoney. “Some business owners show losses year after year to minimize their taxes, but that means they won’t be able to get a loan when they need it.”

Start-up companies may need to submit a business plan and a detailed sales model to show how they will earn the revenues to pay back a loan. The plan will show the bank that you have a plan to fix problems should they arise.

The application process for business loans varies by lender.

Most online lenders have simple applications that take just minutes to complete. You’ll provide basic information about yourself and your company. On top of that, you’ll upload documentation to show the financial state of your company (for example, three months of bank statements or two years of tax returns).

Local banks, some of the biggest providers of loans to small business owners may have a more complicated lending process. It’s common for banks to require a detailed business plan with an application. Dutta recommended, “Before taking out a loan, you’ll want to get help from an industry-specific accountant who can help you make a business plan. Don’t be afraid to spend a little money if you’re taking on a big amount of debt. If you can’t afford [an industry-specific accountant], of course, get free help from SCORE. Just be sure to customize any templates you use to meet your needs.”

Following the 2008 financial crisis, small business lending took a dive, and it hasn’t fully recovered. Finding business funding remains a challenge for many business owners.

Small businesses tend to have the hardest time getting financing. In 2015, just 54% of businesses with less than $100,000 in annual revenue were approved for loans. By comparison, businesses earning between $1 million – $10 million in annual revenue saw an approval rate of 81%.

Approval rates for business funding also depend on your firm’s credit quality and where you apply. Firms with good credit (low credit risk) that applied at small banks were approved for business loans 78% of the time in 2016. Firms with medium or high credit risks had the best odds of being approved by an online lender. However, even with online lenders, just 45% of high-risk businesses managed to gain approval.

As of 2014, the average business owner who needed a loan, spent 33 hours looking for financing options, but the actual time to get a funding depends on the loan you’re considering. For example, SBA-guaranteed loans take up to several months to underwrite. On the other hand, online lenders in the business space can often underwrite and fund loans in a matter of days.

The cost of a loan varies based on the type of loan, the collateral required and who issued the loan. For example, loans from prominent online lender OnDeck had an average interest rate of 42.5% annualized, but borrowers often faced even worse interest rates when they took on financing from online lenders.

On the other hand, some forms of business financing can be very cost effective. Interest rates on most SBA loans are under 10% APR, and some lenders boast rates as low as 4.99% on fixed-term loans.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: ,

Advertiser Disclosure

Reviews

SoFi Money Checking Account Review

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

SoFi Money review
iStock

SoFi, the financial institution known for low rates and low fees on student loans and mortgages, is making a foray into consumer checking accounts. SoFi Money™, SoFi’s forthcoming checking account, will offer a high-yield checking account with no account fees.

The new account isn’t yet available to the public, so you’ll have to join a waitlist if you want to sign up.

In the meantime, we looked at every aspect of SoFi’s new checking account offering to see how it stacks up to competitors.

What sets Money apart from the competition is that SoFi clearly wants this account to be a one-stop shop for both savings and checking. Basically, the SoFi Money account will offer an interest rate that’s much higher than the rate on most checking accounts. This means you can keep your savings in your checking account rather than a savings account. This sounds convenient, but it’s not always the best idea.

Some people may manage to save more money when they separate their money into a different account, even if the account doesn’t have a great interest rate. And you can certainly find savings accounts with higher yields than the 0.92% APY SoFi Money is offering.

We dug into the details that are available at this time to see who should consider replacing their current checking account with SoFi Money.

SoFi Money vs Ally and Capital One 360

The SoFi Money account offers an excellent blend of low fees and high interest rates, but it won’t be perfect for everyone. We’re highlighting a few accounts that shine where the SoFi Money account is a bit weaker.

“I see SoFi Money’s biggest competition being from Ally and Capital One. Both offer free online interest checking accounts with lots of perks,” said Ken Tumin, editor of DepositAccounts.com, another LendingTree-owned site.

“Their checking account rates may be a little lower than SoFi’s checking account for most balances, but they also offer savings and money market accounts which offer much higher interest rates. Savings and money market rates have risen much more than checking account rates since the Fed began raising interest rates.”

Bank

APY (Checking)

APY (savings)

0.92%

N/A

Pros:

  • No monthly fee
  • No overdraft fees
  • High APY on checking
  • 6 monthly ATM reimbursements include international ATMs

Cons:

  • No savings accounts
  • No free ATM network
  • 1% foreign transaction fee when you use your Visa® Debit Card


0.20% on account balances up to $49,999.99.



0.75% on account balances from $50,000 to $99,999.99.




1% on account balances of $100,000 or more.

1.00%

Pros:

  • No foreign transaction fees
  • Overdraft line of credit available (opt-in only)
  • Free Capital One® and Allpoint® ATM use
  • Instant transfer between Capital One checking and savings

Cons:

  • Low APY on checking
  • No ATM reimbursement
  • $9 NSF fee
  • $35 overdraft fee per item (only if opted into “Next Day Grace”)


0.10% on account balances up to $14,999.99.



0.60% on account balances of $15,000 or more.

1.45%

Pros:

  • Up to $10 ATM reimbursement
  • Free use of Allpoint® ATMs
  • High-yield savings
  • Instant transfers between checking and savings (including free transfers to protect against overdrafts)

Cons:

  • $25 overdraft fee (one per item)
  • Up to 1% foreign transaction fees
  • ATM reimbursement only available in the United States

What’s exciting about the SoFi Money account

No account fees. This will be a huge benefit to people who tend to keep low balances or live paycheck to paycheck, as fee-free accounts are few and far between among traditional big banks these days. With SoFi Money, you won’t pay a monthly maintenance fee and you won’t have to worry about paying non-sufficient funds fee (NSF) or overdraft fees either. You’ll also get free checks, free automatic bill pay and free mobile funds transfers. Very few banks offer this level of “fee free,” and those that do often offer paltry interest rates.

High yield without complicated account requirements. Some high-yield checking accounts require account holders to maintain minimum balances, use their debit card a certain number of times or set up direct deposit. SoFi has no such requirements. The interest rate on the account is currently 0.92% APY, and it is a variable interest rate that is subject to change. In a rising rate environment, you could easily see that rate go up over time, as many other banks have been raising their rates in response to the rising federal funds rate.

Up to $1.5 million in FDIC insurance. One of the unique features of the SoFi Money account is in its design. Money kept in the SoFi Money account is actually “swept” into one of six program banks. All six banks give account holders up to $250,000 in FDIC insurance, so SoFi Money™ holders get up to $1.5 million in total FDIC insurance. While not many people will need that much insurance, it is a notable feature.

ATM fee reimbursement. SoFi doesn’t charge any ATM fees, but SoFi also isn’t part of an ATM network. That means other banks may charge you to make a withdrawal from your SoFi Money™ that bank’s ATM. To help soften that blow, SoFi says it will reimburse account holders for up to six ATM fees per month, even on international ATMs. After that, you have to pay for other bank’s ATM fees out of your own pocket. What’s interesting with this perk is that there’s no dollar amount tied to that reimbursement. They say they’ll reimburse you for six ATM fees, no matter what those fees add up to. In contrast, other banks may reimburse for ATM fees up to a set dollar limit, like $10 at Ally.

Membership with SoFi. Opening a SoFi Money account makes you a member of SoFi. SoFi isn’t an exclusive club, but it provides its members with unique services like career coaching, local networking events and an entrepreneurship accelerator. If you’re looking to grow in your career, spruce up your resume, network with local career-minded individuals or just put a face with your bank, SoFi provides events that can help you out.

Digital first banking. Most people will interact with their SoFi Money account through the digital app. The app will include mobile banking features such as bill pay, photo check deposit, and mobile cash transfers. Although SoFi promises a digital-first experience, it remains to be seen if they can deliver. SoFi had a rocky update to its current app at the end of 2017, but has resolved the issues. Hopefully, the addition of SoFi Money to the SoFi app goes smoothly.

No account minimums. You do not need to maintain any particular balance to avoid fees or to earn interest.

Free checks. Plenty of SoFi Money account holders will forgo physical checks altogether, but those that need them can request checks for free.

SoFi Money features that aren’t so great

There isn’t much not to like about SoFi Money™, to be honest. But there are a couple of areas where we think other banks do it better. Although, considering the few fees SoFi charges, plus the relatively high APY it offers, some of these shortcomings might be fine to overlook, depending on how you use your account.

Six free ATM uses per month: SoFi isn’t part of a network of ATMs, which means that account holders will get hit with other banks ATM fees every time they visit an ATM. SoFi will refund up to six ATM fees every month as long as the ATM has a Visa, Plus or NYCE logo. This is a decent benefit since SoFi will even refund fees from international ATMs.

However, some banks including Bank of Internet USA (domestic ATMs only), the Summit account at Aspiration Bank, Charles Schwab High Yield Investor Checking® account and Fidelity® Cash Management Account offer unlimited refunds on other banks ATMs (plus have a network of ATMs).

Interest rates: The SoFi Money account currently has a 0.92% APY yield. This rate is far higher than most checking account rates, but you can find checking accounts with higher interest rates (particularly if you have less than $20,000 in your account) elsewhere. However, finding high-yield checking accounts with as few eligibility requirements and fees will be tough. SoFi still has an edge there.

1% foreign transaction fee: Like most checking accounts, SoFi charges a 1% foreign transaction fee whenever you use your debit card to make a purchase in a foreign currency. Although this is common, some banks waive this fee.

magnifying glass

What’s in the fine print?

  • 1% foreign transaction fee. Whenever you use your SoFi Money Visa® Debit Card to pay for something in a foreign currency, you’ll pay a 1% fee to have the transaction converted to U.S. dollars. This is even true when you use the card to withdraw cash from an international ATM. This is a standard rate that few banks waive.
  • Standard fees for ingoing and outgoing wire transfers (actual fees not yet announced).
  • To open up a SoFi Money account, you must be 18 years old and a U.S. citizen or permanent resident.
  • ATM fee refunds capped to six refunds per month. With a cap this high, most people won’t run into charges, but it could be a limiting factor for some people.

Accounts with better interest rates

Smaller banks that have “reward” checking accounts offer superior interest rates to the rates offered by SoFi. These banks limit their high interest rates to a subset of balances. They also require account holders to meet certain account usage requirements (such as debit card use minimums or direct deposits). Despite these requirements, these checking accounts may be superior savings vehicles.

For example, people with low checking account balances should consider an account at America’s Credit Union rather than SoFi. America’s Credit Union offers a 5.00% APY on balances up to $1,000. (After that, rates drop to .10% on balances between $1,000.01 and $15,000 and .25% on balances over $15,000.01). This account doesn’t have any monthly service fee, but it doesn’t offer any ATM refunds. Plus, earning the high interest rate requires you to meet several standards including 10 monthly uses of the debit card, at least $15,000 in loans or deposits with ACU, and at least $500 in direct deposits monthly.

Still, with a massive 5% APY on the first $1,000, many people can earn more interest by checking with America’s Credit Union. You can learn more about the details, requirements and limitations of America’s Credit Union here.

People with larger account balances (up to $20,000) may prefer holding their account at Consumers Credit Union. This account has no monthly service fees, unlimited ATM reimbursement and high-yield accounts. You’ll earn 3.09% APY on balances up to $10,000, 3.59% APY on balances up to $15,000 and 4.59% APY on balances up to $20,000.

Consumers Credit Union requires account holders to meet four requirements to earn interest. The requirements include making 12 point-of-sale debit purchases (without using a PIN number), having a direct deposit or bill pay, signing onto the online banking system once per month and signing up for eStatements. The requirements may be annoying, but the interest is shockingly high. Learn more about the account here.

Accounts that reimburse all ATM fees worldwide

One of the drawbacks to the SoFi Money account is the limit of six ATM fee reimbursements per month. If you’re a heavy ATM user (especially while abroad), it’s worth noting that some accounts offer unlimited ATM fee reimbursement even on international ATMs.

The Charles Schwab High Yield Checking account is probably the best example of this feature. Not only will you receive unlimited ATM reimbursements, you’ll also avoid paying any foreign transaction fees. However, this account has an APY of 0.15% compared with SoFi’s 0.92% APY.

Similarly, the Summit account at Aspiration Bank has unlimited reimbursement on ATMs worldwide. This account also offers a 1.00% APY on accounts with balances over $2,500 (.25% APY on smaller balances). However, you will still pay a 1.1% foreign transaction fee, and Aspiration charges a number of other fees, including not-sufficient funds fees.

Accounts with no foreign transaction fees

The 1% foreign transaction fee on SoFi Money accounts isn’t an onerous fee, but some major banks waive this fee. Once again, the Charles Schwab High Yield Checking account waives all foreign transaction fees. It also offers unlimited reimbursements on ATM fees worldwide. This is likely the premier account for international travelers, but it offers a paltry .15% APY.

Capital One 360 also waives all foreign transaction fees on its checking accounts. However, these accounts carry a number of other fees and a lower interest rate than the SoFi Money account. Plus, Capital One won’t reimburse ATM fees charged by other banks.

Final take on SoFi Money

SoFi Money is a checking account that will make a lot of sense for a lot of people. It’s one of the simplest accounts, and it offers unique benefits. The blend of low fees and higher interest rates should appeal to plenty of people. It’s an account that beats out most checking accounts from large banks, and it beats out accounts from most smaller banks, too (especially on the low-fee front).

If SoFi manages to implement the account without messing up its app, this account will quickly become a favorite account among people seeking accounts that don’t charge unnecessary fees.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: , ,

Advertiser Disclosure

Best of

RANKED: The Best Tax Software of 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’re like most Americans, you dread filing your taxes. You have to track down the right forms, deal with the IRS and try to remember all your deductions and credits. That’s why so many people turn to online tax software to help file taxes. Great tax software simplifies the filing process without draining your wallet. But choosing the right software can be as much work as filing your taxes.

To help you choose the right software, we’ve tested 10 of the leading online tax software packages.

We’ve ranked each software on the following criteria: usability, helpfulness of support articles, availability of audit support and accessibility of tax and technical support. Then, we compared these criteria to the price to determine which software package is best for your situation.

Which tax software fits your needs? Find out below.

Best tax software of 2018

Best bargain for tax software: H&R Block More Zero

Of the 10 tax software packages we reviewed, only two allow all users to file state and federal taxes for free (Credit Karma Tax and DIY Tax). Unfortunately, Credit Karma suffers from bugs and inadequate technical support, and DIY Tax suffers on usability. This year’s best bargains offer the most functionality for the lowest price.

H&R Block More Zero H&R Block More Zero offers the best free software for the most users in 2018. Not only can you file free online, you can also use the H&R Block Tax Prep app to complete your filing.

Users who qualify for the More Zero package will find an easy-to-use Q+A interface, robust knowledge articles and free technical support alongside free state and federal filing. The More Zero software allows users to import their W-2 and 1099-INT forms. Plus, you can deduct student loan interest, property and real estate taxes and mortgage interest. On top of these deductions, you’ll be free to claim most major credits including the Earned Income Tax Credit, The Child Tax Credit and Dependent Care Credits. Among the top tax filing services, this is the most expansive free option available.

Unfortunately, not all users will qualify for H&R Block’s More Zero offer. If you need to declare investment income, self-employment income or you need to itemize beyond home ownership, H&R Block will charge you.

Runner-up: FreeTaxUSA

FreeTaxUSA offers free federal tax filing, but state filing costs an additional $12.95 for all users. FreeTaxUSA offers a question-and-answer interface, and in-software calculators that make it easy enough for beginners to file their taxes. FreeTaxUSA supports most major forms, so even people with rental properties, self-employment income or credits to claim get the same prices.

FreeTaxUSA doesn’t have as many import options, but it does allow you to import your previous returns (even from a competitor) to make comparisons easier. Plus, all users get email support for tax questions and technical support. For people who don’t qualify for H&R Block’s More Zero offer, FreeTaxUSA offers a bargain-priced alternative.

Best for Simple Filing: TurboTax Absolute Zero

Simple filers are W-2 employees who claim the standard deduction. You don’t earn money on the side, and your only other income comes from bank interest or dividends. You typically file as single or married filing jointly, and you want filing your taxes to take as little time as possible.

TurboTax Absolute Zero If you earn less than $100,000, and you don’t need to itemize your taxes, TurboTax Absolute Zero is likely the best software. You can use the highly-rated TurboTax app to snap pictures of your W-2 and file your taxes from your home. The Absolute Zero service supports student loan interest deduction, the saver’s tax credit and child-related tax credits.

Runner-up: H&R Block More Zero

H&R Block’s More Zero offers free state and federal filing for qualified users. Since H&R Block doesn’t limit their More Zero package to people earning less than $100,000, this is a great software for simple filers with higher incomes. With More Zero, you can claim all the deductions and credits that TurboTax offers, plus you can itemize your homeownership expenses.

The H&R Block user experience isn’t quite as easy to navigate as TurboTax’s (and it’s app isn’t as highly rated), but it is still an excellent choice for many filers.

Best for Maximizing Deductions and Credits: TaxSlayer Classic

Charitably-inclined people, most homeowners, parents who pay for child care, and people who qualify for the earned income tax credit may want to maximize deductions and credits.

TaxSlayer Classic TaxSlayer Classic offers federal filing for $17 and state filing for $22. The software offers a clean interface with a straightforward interview style for filing. For maximizing deductions and credits, you’re not likely to find a better software for the price. TaxSlayer gives you access to technical support, but you need to upgrade to ask tax-related questions.

Runner-up: FreeTaxUSA Free

FreeTaxUSA uses an interview-style interface to help users maximize deductions and credits. Unlike most software packages, FreeTaxUSA doesn’t force you to upgrade to itemize deductions or search for all major credits. You will pay nothing for federal filing and $12.95 per state. The interface is clean, and the interview questions aren’t stuffed with jargon. Even first-time filers should feel comfortable using the software.

FreeTaxUSA doesn’t have the same visual appeal or super-simple navigation of top competitors, but it offers a decent user experience at a fraction of the price of some of the top competitors.

Easiest for New Filers: H&R Block More Zero

Filing taxes for the first time can be intimidating, but a great tax software can put new filers at ease. When making recommendations for new filers, we prioritized the simplicity of the user interface and easy access to tax professionals.

H&R Block More Zero Many new filers will qualify for H&R Block’s More Zero free federal and state filing. H&R Block offers an easy-to-use interface that will make sense for first-time filers, plus it has lots of easy to understand articles and help buttons.

If you’re not feeling confident that you completed your taxes correctly, you can opt for the $49.99 Tax Pro Review. The certified tax professionals can review your return and offer expert guidance to be sure it’s done properly.

Runner-up: Credit Karma Tax

New filers who need to itemize their taxes, have self-employment income, capital gains or rental income won’t qualify for H&R Block More Zero. For these categories, Credit Karma Tax offers a free alternative for new filers. If you run into issues using Credit Karma Tax, you can chat with a live tax product professional. Plus, qualified filers can get an interest-free federal tax refund advance loan of up to $1,000 using Credit Karma’s Early Bird Advance.

Unfortunately, this recommendation has to come with a warning. Credit Karma has struggled with tech-related issues this year, and its customer service is overburdened. If you run into issues, you may want to consider an alternative option.

Best Audit Protection: FreeTaxUSA Deluxe

The IRS has the right to audit anyone, but people who have tax profiles that differ from the norm are more likely to get audited. No tax software (or accountant) can prevent you from getting audited, but some services will give you help during an audit. The best audit assistance from a tax software includes personal help from a tax specialist or an accountant. When you purchase audit assistance, you can expect that a tax specialist will help you understand IRS instructions if you get audited. They will also help you write responses to IRS notifications, and develop a plan to prepare for the audit.

FreeTaxUSA Deluxe FreeTaxUSA Deluxe costs $6.99 for the software, and an additional $0 for federal filing and $12.95 for state filing. The Deluxe upgrade doesn’t change the underlying software, but Deluxe users get an audit assistance guarantee. If you’re audited you’ll get personal assistance from a tax professional. The tax professional will help you understand IRS directions, and help you prepare for your audit. While the software isn’t quite as easy to use as major filing services (like H&R Block or TurboTax), the audit assistance is the lowest price on the market.

Runner-up: TaxSlayer Premium

TaxSlayer Premium uses an interview style and info bubbles to guide users through their returns. In addition to the excellent user experience, TaxSlayer Premium (and Self-Employed) offer audit assistance. If the IRS audits you, a trained tax professionals will help you prepare for the audit, and understand what the IRS needs from you. TaxSlayer Premium costs $35 for federal filing and $22 for state filing. TaxSlayer costs more than FreeTaxUSA, but it offers a slightly better user experience.

Best for Investors: H&R Block Premium – Online Version

If you buy and sell stocks, bonds, or options outside of your tax-advantaged retirement accounts, you need a tax software that can handle all your information. The best tax software for investors allows you to connect directly to your brokerage accounts. It should easily differentiate between dividend income, and short and long term capital gains.

H&R Block Premium H&R Block Premium online software costs $54.99 for federal filing and $36.99 for state filing. Although this is more expensive than other software services, the price is justified. H&R Block connects directly to your brokerage account to calculate the tax you owe. Connecting to your brokerage not only saves you time (a must if you’re an active trader), it can save you money too. H&R Block calculates your cost basis for you. This makes it possible for the software to accurately calculate gains and losses and differentiate between short and long term capital gains. H&R Block offers an easy way for investors to accurately calculate what they owe (and not pay a penny too much).

Runner-up: TurboTax Premier

TurboTax offers an exceptionally strong user experience for stock market investors who need to report stock sales, mutual fund sales or deal with Employee Stock Purchase Plans. TurboTax connects to thousands of brokerages, and they make it easy to accurately report your income. Plus, they calculate your cost basis in a stock which can minimize your taxes. TurboTax Premier online software costs $59.99 for federal filing and $36.99 for state filing. It’s a little bit more expensive than H&R Block, but it also offers a slightly better experience for investors.

Best for real estate investors: TurboTax Premier

Taxes for real estate investors can be confusing. Real estate investors can deduct tons of expenses, and they need a great software to help them calculate their deductions. In particular, a great tax software needs to help you depreciate your property, find and deduct real estate expenses and calculate amortization expenses.

To determine the best software, we prioritized features like helpful support articles, intuitive depreciation and amortization calculators and access to expert tax support.

TurboTax Premier TurboTax Premier costs $59.99 for federal filing and $36.99 for state. TurboTax has robust calculators and easy to understand articles that help users minimize their taxes. The step-by-step instructions make TurboTax a top choice for both new and experienced real estate investors. On top of that, QuickBooks users can upload their expenses directly to TurboTax, and TurboTax will do the hardest work for you.

Runner-up: TaxSlayer Premium

TaxSlayer Premium costs $35 for federal filing and $22 for state filing. The real estate portion of TaxSlayer has real estate calculators that are still simple enough for most real estate investors. If you get confused, or you’re not sure how to classify an expense, you can speak to a tax specialist who can guide you to the right decisions.

TaxSlayer doesn’t allow you to import any real estate forms, and the step-by-step guidance isn’t as robust as TurboTax’s. However, TaxSlayer costs 40 percent less than TurboTax and comes with audit assistance. For the right real estate investor, TaxSlayer could be a bargain.

Best for the self-employed: TaxSlayer Classic or Self-Employed

Are you a freelancer or contractor? If so, you may need help deducting many business-related expenses. This means that taxes can get messy in a hurry. The best tax software for self-employed people makes it easy to claim business deductions. It will also offer robust explanations that will help you understand amortizing equipment expenses and whether you qualify for a home-office deduction.

TaxSlayer Classic TaxSlayer Classic uses a simple interview filing system that makes it easy for the self-employed to declare their income and minimize deductions. TaxSlayer Classic supports all forms needed to minimize deductions. At a cost of just $17 for federal filing and $22 for state filing, TaxSlayer offers a top software experience at a reasonable price. If you prefer to get help from a professional (and get audit assistance), you can upgrade to TaxSlayer Self-Employed for $55 (federal and state filing included).

Runner-up: TurboTax Self-Employed

TurboTax makes it easy for those who are self-employed to find deductible expenses using its interview-style interface. It offers dozens of articles that can help self-employed folks understand their taxes better. Self-employed filers who use QuickBooks for their bookkeeping can effortlessly import their expenses. Once you import your data from QuickBooks, TurboTax does the work of categorizing expenses, and deducting them.

TurboTax Self-Employed is one of the most expensive tax software options online; it costs $89.99 for federal filing and $36.99 for state filing. It comes with a complimentary one-year subscription to QuickBooks Self-Employed accounting software (offer not valid if you’re a QuickBooks subscriber already on a payment plan).

Best for getting your return fast: Credit Karma Tax

Credit Karma Tax is offering an “Early Bird Advance” of up to $1,000 for qualified filers. The advance comes on a prepaid debit card (American Express Serve® Card).

Credit Karma Tax Technically, the advance is an interest-free loan issued through Credit Karma’s bank partner, MetaBank. If you accept the advance, the IRS will send your full refund to MetaBank. MetaBank will repay the loan using the refund, then send the remainder to you.

Credit Karma Tax is a completely free filing service, and it has a decent user interface. Unfortunately, it has had several technical glitches this year, and Credit Karma has struggled to respond in a timely manner. If you run into trouble, you may want to try a different filing service.

Runner-up: TurboTax Self-Employed

TurboTax makes it easy for those who are self-employed to find deductible expenses using its interview-style interface. It offers dozens of articles that can help self-employed folks understand their taxes better. Self-employed filers who use QuickBooks for their bookkeeping can effortlessly import their expenses. Once you import your data from QuickBooks, TurboTax does the work of categorizing expenses, and deducting them.

TurboTax Self-Employed is one of the most expensive tax software options online; it costs $89.99 for federal filing and $36.99 for state filing. It comes with a complimentary one-year subscription to QuickBooks Self-Employed accounting software (offer not valid if you’re a QuickBooks subscriber already on a payment plan).

Best for small businesses: TurboTax Business

Sole proprietors and single-member LLCs can also use tax software for self-employed filers. As long as the software supports a Schedule C, it will work for your small business needs.

If you’re part of a partnership, a corporation or a multi-member LLC, then you need more than the standard tax software that we reviewed above.

Corporations need software that supports Form 1120. S Corporations (with more than one member) need tax software that supports Form 1120S. Partnerships and multi-member LLCs need software that supports Form 1065.

If you need business tax software, consider one of these options.

TurboTax Business

Total cost:

  • $159.99 for federal software (up to five federal e-files)
  • $49.99 per state software
  • $19.99 per state e-filing fee.

TurboTax Business offers the same interview-style interface that consumers love, but it offers increased functionality. Small-business owners can use it to create unlimited W-2 forms and 1099-MISC forms.

H&R Block Premium and Business

Total Cost:

  • $79.95 for federal software (up to five federal e-files)
  • $39.95 per state (first state free)
  • $19.95 per state filing.

H&R Block offers an excellent interview-style user interface with increased functionality such as creating employee forms. On top of this, you can chat with a live tax expert after you purchase the software. This software supports the major forms for businesses, estate and trusts and nonprofit organizations.

TaxAct for Small Businesses

Total costs:

  • $97 State and Federal Bundle
  • $60 Federal filing only

TaxAct has a slightly more stripped-down user interface than H&R Block or TurboTax, but business owners can easily complete everything they need to do. TaxAct comes with unlimited tax support from a professional when you purchase the product.

Tax Software Pricing, Plans, and Insights

1040.com

1040.com - Tax Software Pricing According to 1040.com, tax filing should be smart and simple. 1040.com is on point by offering free live chat and email-based technical support. They also have support articles that are approachable and informative. Simple filers will have an easy time using 1040.com. Plus if you qualify for a 1040EZ (meaning you have W-2 income and no dependents and you don’t need to itemize), you can get completely free filing.

Unfortunately, people with more complex filing needs will find 1040.com unusable. It doesn’t have built-in calculators that real estate investors or stock market investors need to file accurately. The higher-priced levels don’t offer the functionality to justify the price.

If you qualify for the free edition of 1040.com, consider using it, but other filers will need to walk away.

 

Free$24.95$44.95
Price$0 Federal
$0 Free
$24.95 Federal
$19.95 State
$44.95 Federal
$24.95 State
Best For1040EZ (No Dependents, income under $100,000)Itemizers, people with children, stock market investorsSelf-employed, real estate investors, people with income

Superlatives: None

Credit Karma Tax

Credit Karma Tax Credit Karma Tax offers free federal and state filing for all users. Even though Credit Karma is completely free, it supports almost all major forms, so you can be confident that it has what you need.

Credit Karma’s refund dashboard shows you how income, deductions and credits influence your tax refund. In addition to the helpful refund tracker, Credit Karma offers an Early-Bird Advance. Early filers may qualify for an interest free loan of $500, $750 or $1,000 on a Serve card. Right now, Credit Karma is the only free online filing service that offers refund advances. Credit Karma also offers 24/7 live chat support from tax specialists.

As far as free filing services go, Credit Karma Tax looks great on paper. Even though it did away with the interview-style navigation, it still has a decent user interface. Unfortunately, during testing, we found a few bad gateways, and the default settings “hide” certain forms from users which makes navigation difficult. Credit Karma Tax doesn’t allow users to import forms (other than prior year tax returns and W-2 forms), which can be a pitfall for active traders and real estate professionals.

Adding to those negatives, Credit Karma seems to struggle with their tech support. Users can request tech support via email, but Credit Karma has posted that response time may be delayed due to the high volume of help requests.

Superlatives: Best for getting your refund fast, runner-up easiest for new filers

DIY Tax

DIY Tax DIY Tax offers 100% free federal and state filing for everyone. The software is accurate, and it allows you to import your prior year’s taxes for your reference.

However, DIY Tax has a cluttered user interface. With so much jammed on every page, you might miss something important while filing. Real estate investors and small business owners need to be careful with this platform, since the depreciation and amortization calculators can be confusing. The software offers free technical support via live chat or email, but they push Liberty Tax Service offices for tax support (Liberty Tax is their parent company). As you file, you will see ads for their offices in the software. Often, these ads include a coupon for an office visit. Remember, filing in a Liberty Tax office isn’t free.

Superlatives: None

eSmart Tax

eSmart Tax eSmart Tax and DIY Tax are the same software package. However, you have to pay for eSmart Tax. Why would you pay? The Deluxe and Premium packages offer unlimited phone or email support from tax specialists, which can prove helpful. But in most cases, eSmart Tax isn’t a great option.

 

FreeBasicDeluxePremium
Price$0 Federal $29.99 State$24.95 Federal
$35.95 State
$38.95 Federal
$35.95 State
$49.95 Federal
$35.95 State
Best For1040EZHomeowners, people with dependents, sole proprietors, freelancers without inventory and with less than $5,000 in expensesStock market investors with dividend income, self-employed people with home office deductions or inventory expensesStock market investors with capital gains or losses, real estate investors, people who sold a home in the previous years

Superlatives: None

FreeTaxUSA

FreeTaxUSA Deluxe FreeTaxUSA isn’t actually free, but it’s one of the best bargains in the tax software market. The software guides users through an interview process that makes filing easy. The interface is clean, so you don’t have to worry about missing something important. FreeTaxUSA makes it easy to import your tax return from a competitor, so you can review year-to-year changes in your taxes. You can also chat with tax and technical specialists if you run into issues. This kind of support makes FreeTaxUSA stand out among other bargain priced software services.

FreeTaxUSA offers two pricing tiers. At either level, you’ll pay at least $12.95 for state filing, and you can upgrade to a Deluxe software package for an additional $6.99. The Deluxe upgrade gives you priority support (meaning you get to cut in line if you need tax help). Upgrading also gives you access to a tax specialist if you’re audited.

 

FreeDeluxe
Price$0 Software fee
$0 Federal
$12.95 State
$6.99 Software fee
$0 Federal
$12.95 State
Best ForAll major schedules supportedAnyone who wants audit support

Superlatives: Best Audit Protection, best bargain for self-employed workers

H&R Block Online

H&R Block H&R Block is one of the biggest names in tax software for good reason. People with complex tax returns will love the value that H&R Block offers. H&R Block offers unlimited technical support to all filers, and phone and chat tax support for those who pay. H&R Block’s More Zero option is one of the most inclusive free filing options on the market. Homeowners, parents, and savers with W-2 income can maximize their refund using the free option.

H&R Block offers easy navigation, helpful interview questions, and robust articles that can help you untangle even the most complex filing situation. You can also import information from your brokerage account which makes filing capital gains taxes a snap. If you run into issues, you can either ask a tax professional, or you can upgrade to the $44.99-$89.99 Tax Pro Review. With a Tax Pro Review, an H&R Block Tax Professional will review your return before you file, and fix any errors.

The only disappointment is that H&R Block online filing customers do not get a guarantee of audit assistance. To get audit assistance from H&R Block you must purchase a desktop software or visit one of the offices.

H&R Block’s software isn’t quite as easy to use as TurboTax, but it’s a bit less expensive. In particular, freelancers and self-employed people with basic expenses will see huge value since they can purchase the Premium edition.

As an added bonus, you can get up to a 5% boost on your refund if you choose to have your refund loaded to an Amazon gift card.

 

More ZeroDeluxePremiumSelf-Employed
Price$0 Federal
$0 State
$49.99 Tax Pro Review
$34.99 Federal
$36.99 State
$79.99 Tax Pro Review
$54.99 Federal
$36.99 State
$89.99 Tax Pro Review
$74.99 Federal
$36.99 State
$89.99 Tax Pro Review
Best ForHomeowners, parents, people with W-2 incomeStock market investors dividend income only, self-employed with basic expenses, other itemizersReal estate investors, self-employed with less than $5000 in expenses and no inventory, stock market investors with capital gainsSelf-employed people, Uber drivers

Superlatives: Best bargain, easiest for new filers, best for investors, runner-up best for simple filing

OLT.com

OLT.com OLT.com offers bargain basement pricing, and it supports all major filing situations. Unfortunately, the low price shows in the interface. It’s cluttered, difficult to navigate and doesn’t allow many imports. OLT.com has a large volume of support articles, but it stuffs the articles with confusing tax-jargon.

The one bright spot for this software is the $7.95 Premium upgrade that brings audit support and tax help from a professional. Even with this value, we don’t recommend OLT.com for most situations. This year, you can find a better software at lower prices.

 

FreePremium
Price$0 Federal
$9.95 State
$7.95 Federal
$7.95 State
Best ForAll major schedules supportedAnyone who wants audit support

Superlatives: None

TaxAct

TaxAct TaxAct uses a question-and-answer style to guide you through your taxes. It offers helpful articles, and you can receive phone and email support from tax and technical professionals. If you want audit assistance from TaxAct, you must upgrade to the expensive Premium level.

If you’re a stock market investor, you can use TaxAct’s stock market assistant to help you minimize your capital gains taxes. This feature becomes available at the self-employed level. It’s a helpful tool, but not as good as connecting directly to your brokerage accounts.

For the most part, TaxAct simplifies tax filing, but it costs more than it should. TaxAct costs nearly as much as industry leaders H&R Block and TurboTax, but it does not provide the same value.

 

FreePlusSelf-EmployedPremium
Price$0 Federal
$0 State
$29.95 Federal
$37 State
$44.95 Federal
$37 State
$59.95 Federal
$37 State
Best For1040EZ, 1040AItemizers, stock market investors with only dividend income, real estate investorsSelf-employed, stock market investors with capital gains and lossesPeople seeking audit defense

Superlatives: None

TaxSlayer

TaxSlayer TaxSlayer has an incredible user interface and helpful support articles. When it comes to itemizing deductions or finding credits, it is one of the easiest to use tax software packages on the market. In addition to a great software experience, TaxSlayer also premiered refundNOW in 2018. Qualified filers can get an interest-free advance of up to $1000 from TaxSlayer’s partner bank, River City Bank. The tax refund comes either via a prepaid debit card or a direct deposit.

Unlike most tax software, TaxSlayer supports all forms on its second-tier Classic level. If you’re a real estate investor or a self-employed worker, this means that you can complete your return at a low price. Their Premium and Self-Employed levels gives you access to live chat support, audit protections and help from tax professionals.

When you’re comparing prices at TaxSlayer note that Classic, Premium and Self-Employed offer the same software but have different support features.. The Classic level doesn’t include help from tax professionals or audit assistance, which are included with Premium or Self-Employed levels. Premium and Self-Employed are virtually identical except for their pricing. The Self-Employed option is $2 cheaper if you have to file both state and federal taxes, but Premium is $20 cheaper if you only need to file federal taxes.

 

Simply FreeClassicPremiumSelf-Employed
Price$0 Federal
$0 First State ($22 each additional)
$17 Federal
$22 State
$35 Federal
$22 State
$55 (Federal and State included)
Best For1040EZAll others (itemizers, stock market investors, real estate investors, self-employed, etc.)People who want audit assistance or help from a tax professional and DO NOT need to file a state returnPeople who want audit assistance or help from a tax professional and MUST file a state return

Superlatives: Best for maximizing deductions and credits, best for self-employed, runner-up best audit protection, runner-up best for real estate investors, runner-up best for getting your refund fast

TurboTax

TurboTax If you’re looking for the Cadillac of tax software, TurboTax again takes the prize. Their interface is easy to navigate, and it offers superior usability for real estate investors, self-employed workers and stock market investors. Paying customers who get stuck can get help from technical professionals. TurboTax takes their support seriously. With your permission, support staff can “draw” on your screen to guide you through tough situations. However, technical support isn’t tax support. If you need help from a tax professional, you have to upgrade to the overpriced $149.99 TurboTax Live option. This gives you on-demand support from a tax professional, and a tax pro will review your taxes before you file.

1040EZ filers get to use TurboTax Absolute Zero for free, but all other filers will pay a far higher price. If you’re just looking to itemize your taxes, TurboTax isn’t worth the price, but active traders, real estate investors and self-employed people may find that the price is worth it.

Unfortunately, TurboTax premium pricing means that some offerings are not worth the money. If you want audit support from TurboTax you have to purchase TurboTax Max. The price of audit support. TurboTax’s MAX costs $44.99 which is a lot higher than audit support from other companies.

 

Absolute Zero*Deluxe*Premier*Self-Employed*TurboTax Live*
Price$0 Federal
$0 State
$39.99 Federal
$36.99 State
$59.99 Federal
$36.99 State
$89.99 Federal
$36.99 State
$149.99 Federal
$36.99
Best For1040EZ/ 1040AItemizersInvestors, real estate investorsSelf-employedPeople who want a review from a CPA

*Anyone can upgrade to TurboTax’s MAX for $44.99.

Superlatives: Best for simple filers, runner-up best for investors, best for real estate investors, runner-up best for self-employed

Tax software FAQs

The IRS sends 90% of refunds within three weeks of receiving the return. The sooner you file, the sooner you can expect your return.

You can check on the status of your refund starting 24 hours after e-filing using the “Where’s my refund?” page from the IRS. You can also check on your refund status using the IRS2Go app.

Tax-related identity theft is the no. 1 reported form of identity theft. However, most theft isn’t the direct result of using online software. Any time you apply for a credit card or use online banking, your information enters the digital world. If this information gets stolen, you’re at risk. Nobody can eliminate the possibility of identity theft, but you can work to protect yourself.

Part of protecting yourself involves only giving out your information on trusted websites. When you file your taxes, you provide all your personally identifiable information to a software service. You need to know whether or not that information is safe.

Every software company that we reviewed is an authorized IRS e-File provider. This means that these sites comply with the security and business standards set forth by the IRS.

None of the software packages we reviewed will sell your personal information to a third party. They require you to use multi-factor authentication. This makes it difficult for hackers to access your personal information. These websites are as secure as possible, but they are not 100% safe.

If you think you’ve been the victim of tax fraud, contact the IRS immediately at 1-800-908-4490 to work with their resolution specialists. You will need to file an identity theft affidavit that explains that someone filed taxes in your name.

If you don’t want to use tax software, you can choose a paper filing option. Each state requires you to mail your check to a different office.

You can also use the IRS’s free electronic fillable forms. However, these offer limited guidance and can be difficult to use. With so many other free options, these should be a last resort.

Finally, you can hire a professional tax preparer to do your taxes for you. Be sure that the person you hire is in the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

An accountant can save you time, headache, and in some cases, money. Tax professionals must follow the tax code, but their specialized knowledge helps them pick up on deductions or credits that you might miss on your own.

In general, the more complex your tax return, the more you may want to hire an accountant. If you choose to hire an accountant, be sure that they are an authorized tax return preparer. They should sign your return as an authorized preparer.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: ,

Advertiser Disclosure

Mortgage

Taking out a Mortgage for a Manufactured Home

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Looking to buy a place to call home without taking on massive debt? A manufactured home may be the least expensive way to buy a house that meets your family’s needs. The average sales price of a new manufactured home was just under $75,000 in August 2017, according to the Manufactured Housing Survey. That’s less than a quarter of the median price for a new single-family home, which was $314,200 in August.

“More people are turning to manufactured housing to deliver homes that fit their needs and wants, at prices they can afford,” according to Patti Boerger, VP of Communications for the Manufactured Housing Institute. On average, manufactured homes cost about $51 per square foot — that’s nearly half the price of a traditional site-built home, according to 2015 Census data.

However, the inexpensive house often comes with an expensive loan. According to research from the CFPB, between 2001 to 2010, two-thirds (65%) of all manufactured home owners used the expensive chattel loan option to pay for their mortgage. While chattel loans provide a viable solution for buying a manufactured home, many homeowners have lower cost financing options. This is especially true for the two-thirds of manufactured homeowners who own their lot.

Manufactured, modular or mobile? What’s the difference?

Many people use the terms manufactured, modular and mobile homes interchangeably, but there are some distinctions. For a home to be a manufactured home, it must meet Manufactured Home Construction and Safety Standards set up by the Housing and Urban Development department (HUD) in 1976. Homes that meet the standards receive a certification called a HUD tag. HUD tags make the home eligible for a variety of financing including Federal Housing Administration (FHA) insured loans. Fabricated homes built prior to 1976 cannot be HUD certified, so the HUD department calls them mobile homes.

Modern manufactured homes can either be attached to a permanent foundation (like a concrete slab or pier footings) or a temporary foundation (such as a ground and anchor foundation). Homes attached to a temporary foundation could accurately be called mobile homes since you could move them. However, even moving a mobile home is a massive task.

Modular homes are a type of manufactured home that is delivered to the site in multiple pieces. These homes must meet the local standards of site-built houses rather than the Manufactured Home Construction and Safety Standards.

Despite the differences, many companies manufacture and install both manufactured and modular homes.

How to finance a manufactured home

iStock

While taking out any mortgage is a huge undertaking, manufactured home mortgages can be especially confusing. Borrowing options for manufactured homes aren’t only limited by your credit, down payment and income qualifications. The home you buy also influences which loans are available to you.

These are the steps you’ll need to take when buying a manufactured home, according to a loan officer who specializes in manufactured-home financing.

Buying a used manufactured home

Buying a used manufactured home is a bit like buying a used car from a private seller. You can get a great deal, but you need to complete due diligence before buying.

  1. Decide whether to buy the lot: Nearly two-thirds of manufactured homeowners own the lot where their home is located. Buying both the lot and the home means you may qualify for conventional mortgages. Homebuyers who plan to rent their lot will only qualify for chattel loans.
  2. Check for the HUD tag: The home needs to have a HUD tag indicating that it meets safety standards. The tag is a metal plate that you should be able to find on the outside of the manufactured home. If you can’t find the physical HUD tag, ask the owner to request a Letter of Label Certification from the Institute for Building Technology and Safety.
  3. Check title history: Every manufactured home has a unique serial number that can be used to look into past ownership information. As a buyer, you’ll want to look into statements of location to determine whether the home has moved in the past. The exact site for searching manufactured home history varies by state. However, the most likely candidates include your state’s department of transportation, department of housing, or register of deeds websites.If you find that a home has moved from its original location, the home won’t qualify for a traditional mortgage (like an FHA, conventional, or VA loan).
  4. Compare loans options: Use the information you gathered in the previous steps and the guide below to help you determine the best loan for your situation. Whether you choose a traditional loan or a chattel loan, you can compare rates from multiple lenders to get the best deal.
  5. Property appraisal: Once you qualify for a loan, your lender will appraise your manufactured home. The lender will also send inspectors to check on the home’s foundation and confirm that it meets current standards.
  6. Close on loan: If the property meets the required standards, you may proceed with the loan closing process.
  7. Transfer title: Following the loan closing, the title will be transferred to you. At this point, you may have to convert the home from personal property to real property (more on that later). Your closing attorney or lender can help you with the conversion.

Buying new

Buying a new manufactured home means you can buy the exact home you want. It also opens up more opportunities to qualify for traditional mortgages (if you also own your lot).

  1. Find lot: Whether you plan to rent a lot or buy one, you’ll need to find a location for a home. Some people will place a new home on land they already own.
  2. Start home design process: In some cases, you may pick a manufactured home right off of a vendor’s lot, but many people choose custom designs for their homes.
  3. Determine loan options: Home manufacturers may point you toward certain lenders, but don’t be afraid to shop around. Comparing multiple lenders often yields a better deal. If you plan to buy land, you can consider using a conventional mortgage.
  4. Property assessment: Before a bank will allow you to close on a conventional loan, they will require a property assessment. This assessment will determine whether the site can hold a proper foundation.
  5. Close on loan: Once the property passes inspection, you’ll close on your home loan. If you’re taking out a conventional mortgage, your initial loan may be a construction loan, but it will convert to a mortgage once the manufacturer completes the home.
  6. Home delivered to property: After the loan closes, the manufacturer will deliver and install the home on the property.
  7. Title property: Once the home has been delivered, you’ll need to title the property. If you’ve taken out a traditional mortgage, you’ll have to title the property as real property.

Choosing the best mortgage for your manufactured home

Traditional mortgages such as FHA loans, conventional mortgages and VA loans offer financing up to 30 years with (potentially) low fixed rates. However, they also have more stringent buying criteria. Chattel loans have higher interest rates and shorter payoff periods, but the criteria for borrowing is a bit looser.

You can use the information below to determine what loan may fit your situation best.

 

Chattel Loans

FHA Loans

Conventional Mortgage

VA Loans

VA Loans for Manufactured Homes

Overall

Best for borrowers who want to buy the home only, and place it in a rented lot.

Best for borrowers with a small down payment who want to buy a manufactured home and the lot.

Best for borrowers with a large down payment who want to buy a manufactured home and the lot.

Best for military members who want to buy a manufactured home and the lot.

Best for military members who want buy a manufactured home and rent a lot.

Credit score required

Ability to pay criteria

500, but banks have minimum underwriting standards

620

Credit score standards set by lender

Credit score standards set by lender

Down payment required

5% (10% for borrowers with credit scores 500 or below)

Credit score between 500-579: 10%



Credit score at or above 580: 3.5%

5% (10% for people with thin credit)

None

5%

Interest rates

Average 6.79% in 2014 (most recent data available)



Between 0.5-5.5% higher than traditional loans

Average 4.22%

Average 4.25%

3.97%

Varies by lender

Upfront financing fee

Up to 2.25% (can be financed)

1.75% (can be financed)

None

1.25-3.3% depending on your military status, homebuying experience and down payment (can be financed)

1%

Mortgage insurance

Up to 1%

0.45-1.05%

0.5% annually

None

None

Mortgage limits

Home only: $69,678


Lot only: $23,226


Home and lot: $92,904

Generally, $294,515 for single-family units, but it varies by location, and you should check the limits in your area

Generally, $453,100

Generally $453,100

Value of home and lot

Mortgage term limits

20 years for home only



20 years for single-section home and lot



15 years for lot only



25 years for a multi-section home and lot

Up to 30 years

Up to 30 years

Up to 30 years

15 years for lot only



20 years for single-wide home



20 years for single-wide home and lot



23 years for a double-wide home



25 for a double-wide manufactured home and lot

Titling requirements

Personal Property

The house must be titled as real property, and you must own the lot where the house is located.

Must own land (or be part of a co-op), and home must be titled as real property.

The house must be titled as real property, and you must own the lot where the house is located.

Personal or real property

Foundation requirements

Foundation anchors or permanent foundation

Permanent foundation (including pier and footing)

Permanent foundation (foundation anchors may be appropriate depending on the manufacturer’s requirements)

Continuous slab or load-bearing piers and footings.

Foundation anchors or permanent foundation

Minimum size

400 square feet

400 square feet

600 square feet

None

400 square feet (single wide), 700 square feet (double-wide)

Can home move?

Yes

Only from manufacturers to permanent foundation (even if purchasing used).

Only from manufacturers to permanent foundation (even if purchasing used).

Must be permanently affixed and titled as real property.

Yes

Where to compare lenders

Manufactured Housing Institute

HUD FHA Lender Search

LendingTree mortgage comparison*

LendingTree VA mortgage comparison*

Manufactured Housing Institute (Call to ask about VA loans)

*LendingTree is MagnifyMoney’s parent company.

Personal property versus real property titling

When it comes to financing a manufactured home, one of the most important considerations is how you plan to title the home. Buyers can choose to title a manufactured home as personal property which is how you title a boat, RV or vehicle, or real property which is how you title a traditional home.

In most parts of the country, you have had a permanent foundation to title your loan as real property. Some states require you to own your lot while others allow you to title your home as real property on leased land. You can find out the exact titling requirements in your state by working with the register of deeds in your county.

How you title your property will have a tremendous effect upon your total ownership experience. These are the seven ways titling may affect your experience:

Upfront taxes: When you purchase real property you pay transfer taxes, but when you purchase personal property you pay sales tax. The sales tax rate is generally higher than the transfer tax fee. Some states have sales tax exemptions for manufactured home buyers.

Property tax rate: Real property may be taxed at a higher rate than personal property in your state. If you title as real property, you may pay higher property taxes every year you own your home.

Default process: If you choose to title your home as personal property, your lender can repossess your home if you default. The default process will be governed by the Uniform Commercial Code, so you don’t have the full rights and protection of a property owner. People who title their home as real property have the right to a full foreclosure process which may give them time to get out of default before losing their home. Foreclosure laws vary by state.

Loan modifications: People who are in danger of losing their home often look for loan modifications to make their home affordable again. The largest home loan modification program is the Making Home Affordable Program, which outlines criteria for Home Affordable Mortgage Program (HAMP) loan modifications. HAMP modifications are only available to manufactured homeowners who own their lot and home and have both classified as real property.

Rights of joint owners: Titling your home as personal property also has disadvantages if your spouse defaults on a debt. In some states, manufactured homes that are classified as personal property may be seized for a default on debt, even if the home is owned by both spouses and the default was the responsibility of just one spouse. On the other hand, homes classified as real property do not face that problem.

Borrowing options: If you title your home as personal property, you have the option to take out an FHA chattel loan, a personal loan or owner-held financing solutions. When you opt to title your home as real property you gain the option to take out FHA loans, conventional mortgages, VA loans and other government-backed mortgages. These mortgages tend to be lower cost and have more protections.

Advantages of manufactured homes

Manufactured homes are no longer the boxy trailers of a few decades ago. Buyers can now select a range of new features that are attractive to new buyers including fully-functional kitchens, open layouts and attractive roofs. These features come at about half the price per square foot of site-built homes.

Much of the cost savings come from the manufacturing process itself, which ensures that home building isn’t subject to costly weather delays, and the standardized parts make it easier to build.

In addition to lower construction costs, manufactured homeowners often have lower utility bills than site-built homeowners due to the small size of manufactured homes. Older manufactured homes are notorious for having poor energy efficiency, but manufactured homes built after 1994 are subject to current HUD energy standards for manufactured homes. Some home manufacturers are taking energy efficiency a step further by manufacturing Energy Star-certified manufactured homes which are at least 15% more efficient than manufactured houses built to code.

Disadvantages of manufactured homes

Despite the cost and energy advantages, manufactured homes have drawbacks. Manufactured homeowners who do not (or cannot) choose to title their home as real property has decreased rights if they default on their loan. When titled as personal property, manufactured homes may be repossessed or taken as part of another debt settlement suit (depending on state laws). Manufactured homeowners who don’t own their land may miss out on a wealth-building opportunity since the land may appreciate while home structures tend to depreciate in value.

Finally, the mortgages available for manufactured homes may be more limited than those for site-built homes. In particular, many manufactured homeowners have to rely on high-priced chattel loans rather than mortgages for site-built homes.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: , , , ,

Advertiser Disclosure

Personal Loans

Is it Possible to Refinance a Personal Loan?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

refinance a personal loan
iStock

Trapped in a personal loan with a high interest rate or a massive monthly payment? It is possible to refinance to a loan that better suits your financial needs. We’ll explain how to refinance a personal loan and pitfalls to avoid when refinancing unsecured debt.

Is it possible to refinance a personal loan?

Refinancing a personal loan involves taking out a new loan to pay off an existing personal loan. Some people will refinance by negotiating new loan terms with their existing lender. However, many people refinance by taking out a new loan from a different lender. They use the proceeds of the loan to payoff their current loan.

It’s important to note that many lenders don’t advertise personal loan refinancing. However, you shouldn’t necessarily exclude them from your loan refinance search.

For example, a company spokesperson from SoFi (one of our top-rated personal loan issuers) explains that it treats all personal loans like incremental debt. If the company believes you can handle the payments on both your existing loan and your new loan, you may qualify for the new personal loan. On the other hand, Lightstream, a division of SunTrust Bank, specifically offers personal loan refinancing. LightStream prices loans differently based on their intended use. Either company could be a great option to refinance your personal loan.

Depending on your income, your credit score, and your credit usage you may find a great rate at any number of personal loan companies.

When does it make sense to refinance a personal loan?

Refinancing your personal loan generally makes sense when the new loan comes with better terms or you need to refinance in order to remove a cosigner.

For example, your credit may have improved or your income increased significantly enough that you may qualify for a loan with a better APR. On the other hand, you may be struggling to meet your monthly payments and want to take out a new personal loan with lower monthly payments and a longer loan term.

“It could make sense to refinance almost any time if you can get better terms,” says Todd Nelson, business development officer for Lightstream, a division of SunTrust Bank. “Less interest is always a good thing.”

How to refinance a personal loan

No matter your goal, you’ll want to take a few steps to make sure that you get the best possible deal on your new loan.

Understand your existing loan

Before you pay off an old loan, check whether your loan has prepayment penalties, so you can factor any penalties into your loan analysis. Most banks do not charge prepayment penalties for personal loans, but those that do will typically charge a set fee for paying off a loan early. The terms and conditions of your loan will outline whether or not you have to pay a prepayment penalty. If you don’t understand the terms, you can talk to your lender to clarify the rules.

In addition to understanding your prepayment penalties, you’ll want to know your interest rate, the time remaining on your loan, and the required monthly payment. Refinancing your loan may affect all three of these numbers.

Get your credit in order

Once you understand your existing loan, you’ll want to check your credit score. You may need to make some efforts to clean up your credit before applying for a loan refinance. In particular, removing errors from your credit report and paying down credit card debt may help to improve your odds of approval. If possible, avoid applying for additional loans for three to six months before you refinance your personal loan. Applying for multiple lines of credit in a short time period makes you look like a worse credit risk according to the Fair Isaac Corporation, which creates the FICO® scores that are widely used in lending decisions.

Although your credit score matters, it’s not the only factor lenders will consider when setting your loan rate. “A great credit score doesn’t mean you’ll get the best rate,” Nelson cautions. Lenders will also consider your existing debt load, your income and how you’ve used debt in the past.

Prepare a budget

Refinancing a debt means your monthly payment will change. You’ll want to be sure that you can handle the change by preparing a budget. You need to know how much you can realistically pay each month, so you can continue to make timely payments every month.

Start shopping around for a new loan

Once you have your finances in order, you’ll want to start shopping for new loans. A great place to start is with LendingTree, where you can fill out a short online form and potentially get quotes from several lenders at once. LendingTree is the parent company of MagnifyMoney.

LEARN MORE

If you don’t see banks offering better terms, you may want to stick with your current loan until you pay it off.

Apply for multiple loans

When you see the potential for savings, start applying for new personal loans. When you apply for a new personal loan, you will see a hard credit inquiry on your credit report. The more places you apply, the more credit inquiries you’ll see.

However, multiple credit inquiries won’t destroy your credit if you apply within a few weeks.
According to the credit reporting bureau Experian, “Generally, credit scoring models will count multiple hard inquiries for the same type of credit product as a single event as long as they occur in a short window of a few weeks.”

When you apply for a personal loan refinance, you’ll need all your personal identification documents, and you may need proof of income (such as a pay stub, W-2 form or a tax return).

Check out our list of the best personal loans for 2017.

Choose the best offer

Once you have a few offers in hand, you’ll want to compare them to see which is the best deal for you.

You can use this calculator to compare the interest you expect to pay on your existing loan (use your current balance, current interest rate, and current monthly payment at the top) with the interest and fees you’ll pay on a new personal loan.

When you find the best offer, you can accept the loan terms with your new lender.

Pay off your old loan

The process for paying off your old loan will vary by lender. According to Nelson from Lightstream, lenders who work with high-credit-score applicants will generally deposit the funds into your checking or savings account. Then it’s up to you to pay off your existing debt.

In general, you can close your old debt by making a payment through the Bill Pay portal on your lender’s website. After you make the payment, you should see a balance of $0. You can call your lender to be sure that the final payment is processed and the loan is closed.

Lenders that work with subprime borrowers may pay off the old debt directly. In those cases, you should still call the lender to confirm that your old debt is closed.

Shopping for lower interest rates

If you’re looking for a lower interest rate, you’ll probably find a better personal loan in one of two circumstances. First, you may find a better interest rate if your credit score improved since taking out the loan. The more your credit score improved, the more likely you are to see great refinancing options.

You may also find a better interest rate if you didn’t originally shop around. In this situation, it may pay off to compare personal offers from a few different lenders. You may be surprised by how low your rate can go.

Of course, a lower interest rate doesn’t mean you’ll necessarily save money when you refinance your personal loan. You will want to do the math the following to see if you will actually save money with a refinance. If the origination fees and the total cost of interest are lower than the remaining interest on your loan, it makes sense to refinance the loan.

Finding lower monthly payments

Anyone looking to lower their monthly payments will usually want to refinance to a longer loan. While credit score improvements may lower your monthly payment a little, spreading the payments over a longer period lowers the payments even more.

If you’re facing a pinched cash flow, refinancing to a longer loan may make sense (especially if you can combine it with a better interest rate). The problem with refinancing to a longer loan is that you’ll generally pay more interest in the long run. Use this personal loan calculator to see how much more you’ll pay over time.

Taking out a larger loan

Some people consider refinancing a personal loan when they want to take on a bigger loan for an upcoming expense, or to consolidate additional debt. Refinancing makes sense if the new loan has a lower interest rate. In general, you want to keep your loan at the lowest interest rate possible, even if that means having two payments. If you want to take on more debt, be sure your budget can handle the added expense. Create a debt payoff plan before you take on any new debts.

When to avoid refinancing a personal loan

Even with lenders offering tantalizingly low interest rates, refinancing a personal loan doesn’t always make sense.

Refinancing isn’t cost-effective

For example, you don’t want to choose a new loan if it won’t save you money. This calculator can help you compare your current costs to the interest and fees you’ll pay if you choose to refinance. High origination fees may keep an otherwise attractive offer from being cost-effective.

Aggressive debt payoff

Refinancing a personal loan may backfire if you’re on an aggressive debt payoff plan. A loan with an origination fee may require several months of standard payments to reach a break-even point. This refinance calculator can help you determine how long it takes to reach the break-even point. (Use a tax rate of 0 percent.)

When you don’t have a debt payoff plan

Some people feel tempted to refinance a personal loan when their budget gets tight, and the monthly payments feel high. A personal loan refinance could be a smart financial move, but the refinance needs to be part of your comprehensive money management strategy. Before refinancing, create a realistic debt payoff plan.

Things to watch out for

In general, personal loans are straightforward, but you should beware of these personal loan traps (especially if you’re trying to refinance a subprime personal loan).

Prepayment penalties: Most major banks don’t charge prepayment penalties, but before you refinance, you’ll want to check your existing loan, too, to make sure one isn’t lurking in the fine print. A prepayment penalty may negate some of the savings you get from lowering your interest rate.

Credit insurance: Some lenders will try to get you to buy life insurance to cover the cost of the loan if you die. In general, this is not a good value. In fact, the Consumer Financial Protection Bureau (CFPB) has adopted measures that restrict the sale of credit insurance. However, you may still hear a pitch for the product.

It makes a lot of sense to have some level of insurance in place to cover your debts if you’re married, lose a job, etc. However, an inexpensive term life policy is a far better value than a loan specific policy. Job loss credit insurance may be a more compelling product, but it can be very expensive. Be sure to weigh the cost of the insurance before purchasing it.

Origination fees: Many personal loans come with origination fees, which can be as high as 8 percent of the loan’s value. That makes taking out a new loan an expensive proposition. Compare the remaining interest on your loan to the cost of the origination fee plus the interest cost of the new loan before deciding to refinance.

Late payment fees: Some lenders will charge you a late fee if you miss your payment date. Late fees can drive up your loan costs in a hurry. Anyone who has struggled with payments in the past will want to check this fee before refinancing.

Alternatives to refinancing a personal loan

Refinancing a personal loan to another personal loan isn’t always the cheapest option. If you’ve got great credit, or you own a home you might find cheap options to eliminate your debt.

Balance transfer credit cards

Some credit card companies will allow you to transfer a personal loan balance to a promotional 0 percent intro APR balance transfer credit card. This can be a quick way to drop your interest rate in a hurry.

Before you apply for a balance transfer credit card, you’ll want to check on a few things. First, you won’t want to apply for a credit card from a bank that holds your debt. For example, you won’t want to opt for the Citi Simplicity® Card - No Late Fees Ever
if a Citi Affiliate owns your debt.

It’s also important to clarify that the credit card company will allow you to transfer a personal loan balance to your credit card. For example, the Chase Slate® card does not allow you to transfer personal loan balances to your credit card.

You can generally learn more about a lender’s balance transfer policy by reading their terms and conditions page in a section entitled Balance Transfers. However, if the terms aren’t clear, you should take the time to call a bank representative before applying.

A balance transfer credit card is an appropriate solution for people who can pay down their personal loan debt before the introductory rate expires.

HELOCs

Homeowners who have equity in their house may also find that a HELOC, or home equity line of credit, offers better terms than their existing personal loan. A HELOC has tax-deductible interest, and it operates like a line of credit. You can use a HELOC to pay off higher interest debts, or to pay for other important expenses. However, you need to be careful not to treat a HELOC as free money. You still need to pay off your HELOC in time.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS:

Get A Pre-Approved Personal Loan

$

Won’t impact your credit score

Advertiser Disclosure

Health

The Ultimate Guide to Obamacare (Updated for 2018)

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Since Obamacare (or, as it’s officially known, ACA, the Affordable Care Act) created the first federal health insurance marketplace in 2013, some 20 million Americans have become newly insured.

Consumers who don’t qualify for Medicaid or Medicare or who don’t have private insurance through their employer can shop for health coverage either through the federal marketplace — HealthCare.gov — or by way of their state’s exchange.

This year, ACA applicants will have to wade through an average of 30 plans from two or three different insurers to make their insurance choice. The open enrollment period for Obamacare coverage begins Nov. 1 and ends Dec. 15, with coverage due to begin Jan. 1, 2018.

That’s where this guide will come in handy. We will explain exactly what it’s like to enroll, what documents you should have on hand, and, of course, how to sort through all the health insurance options you may find.

Have any burning Obamacare questions? Send us a note at info@magnifymoney.com.

Part I: What is Obamacare?

Most people use the blanket term “Obamacare” when they talk about President Barack Obama’s signature health care legislation, 2010’s Patient Protection and Affordable Care Act (ACA). The ACA touched almost every aspect of the health insurance industry. It had implications for employer-run health insurance plans. For government health plans, too.

One of the most visible features of the ACA was the creation of federal and state health care exchanges that sell health insurance to people who don’t have affordable coverage through other means. Many people who buy health insurance through the exchanges say they purchased Obamacare plans.

Some of the important features of these plans include:

  • Accessibility: All Americans may purchase health insurance through a federal or state-run health exchange even if they have a pre-existing condition.
  • Standardization: All health insurance plans must cover preventive care at 100 percent, and they must cover the costs associated with most medical procedures.
  • Affordability: The ACA offers tax credits and cost-reduction subsidies to limit the monthly premium costs for people earning less than 400 percent of the federal poverty line. Insurers may use age and smoking status to set monthly premium costs, but no other factors may be considered.

It’s also important to note that the ACA has a requirement called the individual mandate. You must get health insurance coverage, or you will most likely pay a penalty at tax time. You can get qualified health insurance through your employer or a government program. However, if you don’t get it there or through some other source, you will need to purchase an Obamacare plan or pay that penalty.

Who can buy insurance through a health care exchange?

Most Americans can purchase health insurance through a health care exchange. If you do not receive insurance through your employer and you don’t qualify for Medicaid or Medicare, then you are likely eligible.

Most long-term, legal immigrants to the United States may purchase insurance. HealthCare.gov maintains a comprehensive list of qualified immigration statuses for purchasing insurance through the marketplace.

Most large employers and some midsize or small companies offer health insurance benefits to their employees. If your employer offers affordable health insurance to you (costing less than 9.56 percent of your total income), you will not qualify for health insurance subsidies through the exchanges.

Incarcerated people and those living outside the United States cannot purchase insurance through the marketplace.

Part II: Obamacare costs and tax subsidies

One major factor to consider when weighing the options is your expected tax subsidy. Most people buying insurance through the health care exchanges will qualify for a health insurance subsidy. This subsidy is applied in the form a credit that immediately reduces the cost of your Obamacare plan coverage.

According to a study from the Centers of Medicare and Medicaid Services, 84 percent of people who purchased insurance through a health care exchange qualified for a health insurance subsidy in 2017. The average subsidy was about $371 in 2017.

With the subsidy applied, nearly eight out of 10 (77 percent) health insurance purchasers paid less than $100 a month for their health insurance premiums in 2016.

To qualify for a subsidy, you must meet three standards:

  1. You must not have access to affordable insurance through an employer (including a spouse’s boss).
    1. Affordable insurance for 2018 is defined as individual coverage through an employer that costs less than 9.56 percent of your household’s income.
    2. You can check that your insurance offers minimum-value coverage by having your human resources representative fill out this form.
  2. You must have a household modified adjusted gross income between 100 and 400 percent of the federal poverty line.
    1. You can calculate modified adjusted gross income using this formula:
      1. Adjusted gross income (Form 1040 Line 37) +
        Nontaxable Social Security benefits (Form 1040 Line 20a minus 20b) +
        Tax-exempt interest (Form 1040 Line 8b) +
        Foreign earned income and housing expenses for Americans living abroad (Form 2555)
  3. You’re not eligible for coverage through Medicaid, Medicare, the Children’s Health Insurance Program (CHIP) or other types of public assistance. Some states have expanded Medicaid to anyone who earns up to 138 percent of the federal poverty line.

How can I calculate my subsidy?

The easiest way to calculate the subsidy you will receive is to use a subsidy estimator from HealthCare.gov or the Kaiser Family Foundation. Both calculators estimate your subsidy based on the information you provide. They also help you understand what factors affect your subsidy estimations.

Your income, household size and the cost of premiums in your state factor into your subsidy. Premium tax credits can help reduce the amount that you will spend on monthly premiums to a set percentage of your income. You will receive the same subsidy, no matter which plan you ultimately choose.

Below you can see the maximum amount you will spend on insurance premiums (for a silver plan) based on your income.

Income (based on 2017 federal poverty line)

Max monthly Silver Plan premium cost after subsidies

Special notes


Lower 48 states:
$12,060-$16,702



Alaska:
$15,060-$20,857



Hawaii:
$13,860-$19,195


Lower 48 states:
$20.20-$46.21



Alaska:
$25.23-$57.70



Hawaii:
$23.22-$53.11

Check if you qualify for expanded Medicaid.


Lower 48 states:
$16,703-$30,209



Alaska:
$20,858-$37,724



Hawaii:
$19,196-$34,718


Lower 48 states:
$47.05-$203.91



Alaska:
$58.75-$254.64



Hawaii:
$54.07-$234.35

You will qualify for cost-reduction subsidies if you purchase a silver plan.


Lower 48 states:
$30,210-$48240



Alaska:
$37,725-$60,240



Hawaii:
$34,719-$55,440


Lower 48 states:
$203.92-$384.31



Alaska
$254.65-$479.91



Hawaii:
$234.36-$441.67

If you earn more than 400% of the poverty line, you will not qualify for subsidies.

Income (Based on 2017 federal poverty line)

Max monthly Silver Plan premium cost after subsidies

Special notes


Lower 48 states:
$24,600-$34,069



Alaska:
$30,750-$42,587



Hawaii:
$28,290-$39,179


Lower 48 states:
$41.21-$94.26



Alaska:
$51.51-$117.82



Hawaii:
$47.39-$108.39

Children will qualify for CHIP. Check if you qualify for expanded Medicaid.


Lower 48 states:
$34,070-$49,200



Alaska:
$42,588-$61,500



Hawaii:
$39,180-$56,580


Lower 48 states:
$95.97-$259.94



Alaska:
$119.96-$324.93



Hawaii:
$110.36-$298.93

Children in 46 states will qualify for CHIP. You may qualify for extra savings if you purchase a silver plan.


Lower 48 states:
$49,201-$61,621



Alaska:
$61,501-$77,027



Hawaii:
$56,581-$70,864


Lower 48 states:
$259.95-$415.94



Alaska:
$324.93-$519.92



Hawaii:
$298.94-$478.33

In some states, children will qualify for CHIP. You may qualify for extra savings if you purchase a silver plan.


Lower 48 states:
$61,622-$98,400



Alaska:
$77,028-$123,000



Hawaii:
$70,865-$113,160


Lower 48 states:
$415.96-$783.92



Alaska:
$519.94-$979.90



Hawaii:
$478.35-$901.51

In a limited number of states, children qualify for CHIP up to 375% of the poverty line. If you earn more than 400% of the poverty line, you will not qualify for subsidies.

What circumstances might affect my eligibility for a subsidy?

Your subsidy can change if your circumstances change. It’s important to plan for such circumstances.

(Read ahead: “What happens if I don’t qualify for a subsidy?”)

Families with children:

Instead, they will receive free or low-cost insurance through CHIP. You can enroll your children in CHIP through the health insurance marketplace, or by calling 1-800-318-2596. You may need to speak with a Medicaid agent in your state to see if you qualify. You can also learn more about CHIP through InsureKidsNow.gov.

Your children may qualify for CHIP even if you and your spouse qualify for an employer-sponsored health insurance plan, though this rule varies by state. In some states, families that have children and employer-based coverage may receive financial assistance to purchase the coverage.

CHIP does not have enrollment deadlines, so you can apply at any time.

Families where one spouse has work coverage:

Some employers only offer health insurance to their employees. Spouses and children cannot get covered. In that case, you can buy insurance with a subsidy through the marketplace.

Families with expensive employer coverage:

If you can purchase family coverage through your or your spouse’s employer, then you will not qualify for subsidies. If an employee can gain individual coverage for himself or herself for less than 9.56 percent of total household income, the insurance is considered affordable. Coverage for the family isn’t factored into the affordability calculation.

This so-called “family glitch” affects two million to four million people and requires them to pay high prices for premiums. If you are caught in this situation, your children may qualify for CHIP. However, uncovered spouses and children must purchase insurance or pay the individual mandate penalty unless coverage for the family costs more than 8.05 percent of your household income. Even in those cases, you will still not qualify for premium assistance.

Senator Al Franken, D-Minn., has proposed a Family Coverage Act that may rectify the tax code, but it has not been passed.

Individuals getting married in 2018:

If you’re getting married next year, your subsidy depends on your combined income. In the months preceding your marriage, your income is one-half of your and your spouse’s combined income. Once you get married, your subsidy is based on your joint income and your qualifying family.

You need to report a marriage to be eligible for a special enrollment period on HealthCare.gov or through your state’s insurance exchange.

Individuals getting divorced in 2018:

If you get divorced or legally separated in 2018, you must sign up for a new health insurance plan after you separate. Your subsidy will be based on your income and household size at the end of the year. However, you will need to count subsidies received during your marriage differently than subsidies received when you’re legally separated.

For the months you are married, each spouse divides advanced subsidies received to each new household. If spouses cannot agree on a percentage, the default is 50 percent. If the plan only covered one taxpayer and his or her dependents, then the advanced tax credits apply 100 percent to that spouse.

Divorce reduces your income, but it also reduces your household size. These factors change your estimated subsidy. How much will depend on the magnitude of each change.

Reporting a divorce makes you eligible for a special enrollment period. When you enroll in a new plan, the exchange website will help you estimate your new subsidy for the remainder of the year.

Giving birth or adopting a child:

You have 60 days from the birth or adoption of your child to enroll him/her in a health care plan. If you miss this window, your child will not have health coverage, and you will pay a penalty. However, if you enroll your child in a timely manner, you can expect your subsidy to increase.

Report the birth or adoption of a child to be eligible for a special enrollment period on HealthCare.gov or via your state’s insurance exchange.

A newborn or adopted child may be eligible for CHIP rather than subsidized health insurance.

Turning 26:

If you’re on your parents’ insurance, generally you can stay until you have turned 26, but you should check your plan to be sure. You will have a 60-day special enrollment period to get your own plan from the health care exchange when you turn 26.

You may also be eligible for a special enrollment period from an employer-sponsored health plan. If you fail to have health insurance for more than three months, you will pay a penalty.

Losing employer coverage:

If you lose employer-based health coverage, you can either enroll in COBRA or purchase a plan through the health care exchange. Once you enroll in COBRA, you become ineligible to purchase subsidized coverage through the exchange.

You need to report job status changes to be eligible for a special enrollment period on HealthCare.gov or your state’s insurance exchange.

Changes in income:

Premium tax credits are based on your annual income. If you increase your income, you will be expected to pay back some or all of the advance premium you received. If you earn more than 401 percent of the federal poverty line, all premiums need to be repaid. If you earn less than 400 percent of the federal poverty line, you may have to pay back $2,500 of advanced premiums per family or $1,250 for individuals.

You need to report income changes to avoid under- or overpaying on your premiums throughout the year.

Moving states or counties:

Most insurance plans that you purchase through the marketplace are state- and county-specific. If you move, you need to report the relocation through the insurance exchange. You may have to change insurance plans after moving. Moving to Alaska or Hawaii will allow you to claim a greater subsidy amount than you can claim in the lower 48 states. If you move from Alaska or Hawaii, you can continue to claim the higher subsidy amount for the whole year.

Part III: Bronze, silver, gold, platinum: Choosing the right Obamacare plan for your needs

The health care exchanges — both federal- and state-run — classify health insurance plans into four categories: bronze, silver, gold, and platinum. Metal categories are based on how you and your plan split the costs of your health care.

According to a 2016 study by the Department of Health and Human Services, 76 percent of consumers who bought a silver plan in 2016 stood to save an average of $58 a month by switching to the lowest-premium plan in 2017.

But that doesn’t meant the cheapest plans are necessarily best for you. They often come with higher out-of-pocket expenses, like deductibles, which can make them very expensive if you end up needing lots of medical care through the year.

Think of this way — the higher the premium, the more comprehensive the coverage will be and the lower your out-of-pocket costs. If you expect that you’ll need fairly frequent medical care or treatment, you might be better off choosing a more comprehensive plan despite the higher monthly premium.

Obamacare ‘Metal’ Plans: Explained

Bronze Plan

Cheapest premium, 60% coverage

Bronze health plans offer the least amount of estimated coverage. Insurers expect to cover 60 percent of the health care costs of the typical population. These plans feature the lowest monthly premiums, the highest deductibles and high out-of-pocket maximum expenses. Just under one-quarter (23 percent) of health insurance enrollees opted for a Bronze plan in 2017.

Silver Plan

Moderate premium, 70% coverage

Silver health plans offer moderate estimated coverage. Insurers expect to cover 70 percent of health care costs, and plan members cover the remaining 30 percent. If you qualify for cost-reduction subsidies (also called “extra savings”), you must purchase a silver plan. In 2017, 71 percent of all participants in the health care exchanges opted for a silver plan.

Gold Plan

High premium, 80% coverage

Gold health plans offer high levels of estimated coverage. Insurers expect to cover 80 percent of health care costs, while plan members cover the remaining 20 percent. These plans feature high monthly premiums, but lower deductibles and out-of-pocket maximums. Only 4 percent of all health insurance consumers on the health care exchanged opted for a gold plan in 2017.

Platinum Plan

Highest premium, 90% coverage

Platinum health plans offer the highest level of protection against unexpected medical costs. Insurers expect to cover 90 percent of medical costs, and plan members cover the remaining 10 percent. These plans have the highest monthly premiums and the lowest deductibles and out-of-pocket maximums. Just 1 percent of all health insurance exchange participants purchased a platinum plan in 2017.

Catastrophic Plans

Cheapest premium, lowest coverage

Catastrophic health plans: People under age 30 or with hardship exemptions may purchase individual catastrophic health insurance plans. These plans are not available for families. Catastrophic plans do not have a cost-sharing component. Your out-of-pocket maximum will be $7,350. Once you reach $7,350 in medical expenses, your insurance company will pay the remaining costs.

Catastrophic plans cover most preventive services. Catastrophic plans generally offer the lowest monthly premiums, but you can’t use a premium tax credit to reduce your monthly cost.

Now that you know all the types of plans offered, it’s time to choose the one that fits your needs.

What to consider before choosing a plan

Choosing a health plan can seem like a daunting task, but you can get all the help and information you need to make an informed decision. Your health and your pocketbook matter, and we want to help you protect both.

Your tax subsidy: Before you choose a plan, you’ll decide whether to receive advanced or deferred subsidies.

If you take your subsidy upfront, it will reduce your premiums right away. If you defer it, then it will be given to you as a tax credit when you file your taxes. If you over- or underpay your premiums throughout the year, the will have to reconcile the amount owed at tax time.

Most people with predictable income and household size should take most or all of the subsidy upfront. However, if you expect to undergo a major life change (such as an increase in income, a marriage or a divorce), consider taking less of your subsidy in advance.

Time to shop. For people shopping for 2018 coverage, the average number of plans available is 30. Rather than comparing every plan, we recommend creating criteria around the following variables:

  1. Monthly cost: Consider how the monthly premium will affect your budget. This does not mean you should choose the plan with the lowest premiums, but you should consider the price. People without chronic conditions who have adequate emergency savings may want to at least consider opting for an option with low monthly premiums.
  2. Deductible and co-insurance: Do you have the emergency fund or income you need to cover a small medical emergency? A broken arm, stitches or an unexpected infection can result in hundreds of dollars in medical costs. If you have a high-deductible plan, you’ll need to cover these costs without help from the insurance company. If possible, choose a plan with a deductible that you could comfortably cover out of your savings or income.
  3. Maximum yearly cost: Add the annual cost of your premiums and your out-of-pocket maximum to determine your maximum yearly cost. In a worst-case scenario, this is the amount you will pay out of pocket. People with chronic conditions that require heavy out-of-pocket fees should try to limit their maximum yearly cost. A plan with a higher maximum yearly cost may represent a higher risk.
  4. Services and amenities: All insurance plans from the marketplace cover the same essential health benefits, but some offer more unique services such as medical management programs, vision and dental coverage.
  5. Health savings accounts: If you choose a high-deductible plan, you may want to opt for one lets you contribute to a tax-advantaged health savings account. Any money you contribute to this account (up to annual established limits) reduces your taxable income, and will not be taxed upon withdrawal when it used for medical expenses.
  6. Network of providers. It’s important to be sure that your preferred medical providers contract with the plan you choose. Not every doctor is “in network” with every insurance plan. You can check each plan’s provider directory before making a selection.

Once you have a firm grasp of your particular criteria, look for plans that fit your needs and ignore the rest.

Using the exchange website, you can filter and sort plans based on these factors. Most people need to balance cost and coverage to find a plan that works for them.

If you are part of the minority that need to buy their own health insurance plans, you should know that not every state uses HealthCare.gov to host their state’s health insurance exchange. Residents in the following states should use their specific state exchange to look for health insurance:

California; Colorado; Connecticut; Washington, D.C.; Idaho; Maryland; Massachusetts; Minnesota; New York; Rhode Island; Vermont; Washington.

Part IV: How to enroll in Obamacare

Applying for insurance takes 30-60 minutes if you have all the necessary information in hand.

Your Obamacare enrollment checklist:

  • Names, birthdates and Social Security numbers for all members of the household
  • Document numbers for anyone with legal immigration status
  • Income information for all coverage-holders
  • Information about employer-sponsored health plans
  • Tax return from previous year (to help predict income)
  • Student loan documents
  • Alimony documents
  • Retirement plan documents
  • Health Savings Account documents

State or federal marketplace?

If your state does not offer its own health care exchange, you should use HealthCare.gov. As mentioned in the previous section, each state has the right to choose whether to run its own or use the federally run exchange and some do use their own.

The state-run exchanges perform the same functions as the federally run exchange. They allow you to estimate your tax credit and purchase insurance. As a consumer, you must provide the same information to your state as you would on the federal exchange.

While the online user experience will vary when states adopt their own online marketplace, the Affordable Care Act is a federal law and program. This means that the requirements and benefits do not change from state to state, even if the exchange platform changes.

The website interface for the federal exchange is simple, but answering the questions may be confusing. It’s important to fill out the application as accurately as possible so you can enroll in the best health insurance plan for you.

We’ve done our best to clarify the confusing portions in our step-by-step process below.

Filling out your Obamacare application

Family and household info

Start the application by filling out contact information and basic information about members of your household. Even if a member of your family will not need coverage, include that relative in your application.

The website will help you determine if a member of your household has insurance options outside the health care exchange. It will also help you determine if a person is a dependent. For the purpose of the health care exchange, your family includes all the people included on your income tax filing.

You need to know Social Security numbers, birthdates, immigration and disability status, and whether each household member can purchase health insurance through an employer plan.

Income and deductions

Next you’ll estimate your income for the coming year. Include all the following forms of income:

  • Jobs
  • Self-employment income (net)
  • Social Security benefits
  • Unemployment income
  • Retirement income
  • Pensions
  • Capital gains
  • Investment income
  • Rental/royalty income
  • Farming and fishing income
  • Alimony received

Afterward you’ll enter deductions. The application calls out student loan interest and alimony paid, but you should estimate all “above-the-line deductions” that should be included. These include:

  • Retirement plan contributions: 401(k), 403(b), 457, TSP, SEP-IRA, simple IRA, traditional IRA
  • Contributions to a Health Savings Account
  • Self-employed health insurance premiums
  • Tuition and fees paid
  • Educator expenses (up to $250 per teacher)
  • Half self-employment tax
  • Moving expenses
  • Early-withdrawal penalties from a 1099-INT

Do not double-count income or deductions since you’ll fill out these forms for each person. If you make a mistake, you can edit it when you review your household summary.

Additional information

Finally, you’ll fill out a few other miscellaneous details that will allow the application to confirm that you are eligible for subsidies or marketplace insurance.

It’s especially important that you have accurate information about job-related coverage for you and your family. This information will determine your eligibility for subsidies and other government programs.

Completing Obamacare enrollment

After you complete the application, you can review and submit it. At this point, the system will suggest which members of your household should complete CHIP or Medicaid applications. The remaining family members can enroll in a health insurance plan.

Part V: Where to get help enrolling In Obamacare coverage

Because of the complex nature of the marketplace exchange, there are marketplace navigators. These professionals provide free, unbiased help to consumers who want a hand filling out eligibility forms and choosing plans.

Marketplace navigators. You can find local marketplace navigators through the health care exchange website.

Be advised: The Trump administration has slashed budgets for health care navigators, leading some states to close down the programs altogether. As a result, it may make it difficult to find help locally from a navigator in some states.

Nonprofit organizations. Outside the exchange, nonprofit organizations are working to help people gain coverage by teaching them about their insurance options. Enroll America offers free expert assistance to anyone who makes an appointment. You can use the connector below to make an appointment with one of their experts.

Insurance brokers. Brokers can offer another form of help. Brokers aim to make it easier for consumers to compare insurance plans and apply for coverage. Insurance brokers have relationships with some or all of the insurance companies on the marketplace. Using a broker will not increase the price you pay for a plan, and it will not affect your subsidies. However, here’s another important note: Online brokers may not have 100 percent accuracy regarding a plan’s details. It’s important to visit a plan’s website before you enroll in a plan.

If you want to work with a broker, consider some of these top online brokers. PolicyGenius compares all the plans that meet criteria that you establish, and they serve up the top two plans that meet those criteria. HealthInsurance.com makes applications quick and easy, and the site specializes in special enrollment help.

Medicare plan finder. If you’re over age 65, use Medicare Plan Finder to find a Medicare plan that works for you.

CHIP: Likewise, if you think your children qualify for CHIP, use Insure Kids Now to enroll them in your state’s plan.

PART VI: Frequently asked questions

What happens if I don’t apply for insurance?

In most cases, you must enroll in health insurance or you’ll have to pay a penalty.

The penalty for 2018 hasn’t yet been released, but the 2017 penalty was calculated as the greater of 2.5 percent of your income (up to the national average cost of a bronze plan) or $695 per adult and $347.50 per child (up to $2,085).

This steep penalty means that most people are better off purchasing some health insurance.

However, under certain circumstances you can avoid buying insurance and avoid paying the penalty. These are a few of the most common exemptions:

  • Health care cost-sharing ministry members: Must show evidence of membership
  • Low income, no filing requirement: If you do not earn enough income to file taxes, then you are automatically exempt from paying a noncoverage penalty.
  • Coverage is unaffordable: For 2017, if you, your spouse, or your dependents cannot obtain employer coverage or a bronze plan for less than 8.05 percent of your income (after applicable subsidies), you may opt out of coverage. (However, if your individual coverage from an employer costs less than 9.56 percent of your income, and your employer offers family coverage, nobody in the family will qualify for subsidies).
  • Short coverage gap: You went without insurance for less than three months.
  • Living abroad: No coverage is required if you live abroad for at least 330 days.
  • General hardships:These include homelessness, eviction, foreclosure, unpaid medical bills, domestic violence and more.  (You must get a marketplace exemption.)
  • Unable to obtain Medicaid: If you earn less than 138 percent of the federal poverty line, and your state didn’t expand Medicaid, you don’t have to purchase health insurance.
  • AmeriCorps coverage
  • Members of qualified religious sects: Must be granted exemption through HealthCare.gov.

Although you will not pay a penalty, you may still want to seek out catastrophe insurance or some other coverage to help with high potential health costs.

What happens if my plan was canceled?

For 2018, some insurers dropped their insurance plans from the health care exchange. In some states, major insurers Aetna and Humana are exiting the exchange. As a consumer, you cannot assume that the plan you chose in the past will be around next year.

If you used HealthCare.gov in the past, and your insurance plan remains in place, you’ll automatically be enrolled in the same plan again this year. This is true even if important variables like the deductible and premiums changed from last year.

If your plan was canceled, HealthCare.gov will automatically enroll you into a new health insurance plan with a price and coverage quality comparable to your previous plan’s.

Although the federal exchange will help you opt into a new plan (ensuring that you have some health insurance coverage), it’s far better to select a new plan on your own. You can enroll in a new plan Nov. 1 through Dec. 15. If you do not enroll in a new plan during this time, you will be stuck with the automatic enrollment option.

Whether you’re shopping for a new plan or reviewing an old plan, take these steps before open enrollment ends.

  • Update personal information on your application. Your income, household size, where you live and more will affect plan and subsidy eligibility. It’s important to keep your application up to date. The plan that fit you last year may no longer be appropriate, but you won’t know unless you keep the information current.
  • Review your plan before you re-enroll. You should receive a notification in the mail if your plan has been changed or canceled. Take the time to understand if the changes affect you.
  • Compare plans that fit your needs. Consider enlisting free help from a health care navigator, a nonprofit or a broker to help you decide.
  • Choose the plan that best fits your needs and your budget.

What options do students (and their dependents) have for health insurance?

University students who are enrolled full time have multiple options for health insurance.

Under age 26: All student under age 26 may continue to receive coverage from their parents’ insurance plan even if living in another state. Of course, it may make more sense to gain coverage in the state where you’re living, so review the coverage network with your parents. Many coverage networks only include doctors in a few ZIP codes.

If you visit an out-of-network doctor, you will face higher deductibles and out-of-pocket maximums. As an alternative to staying on your parents’ plan, you can purchase your own health insurance plan through the health care exchanges even if you are a dependent.

Students who are dependents and over age 26 may be required to purchase their own health insurance plans.

University coverage: Many students will opt for a student health plan from their university. In general, student health plans meet minimum qualifying coverage criteria, and are affordable options. However, student health plans are not treated as employer coverage. Because of that, students may still qualify for Medicaid or insurance premiums. Students (especially independent students) should look into these alternatives when reviewing their insurance options.

The spouses and dependents of students must take time to understand their options. These are a few common scenarios:

If a student or spouse has an affordable employer-sponsored plan that covers family members: Student and spouse do not qualify for insurance subsidies or Medicaid. Children may qualify for CHIP. Student and spouse should seek coverage through either the student health plan or the employer-sponsored plan in most cases. All members of the family must have qualified health coverage, or they will pay the individual mandate penalty.

Student health plan doesn’t offer coverage for spouse or dependents, and neither spouse has an employer-sponsored health plan: Spouse and dependents can apply for Medicaid, CHIP or subsidized insurance through the health care exchanges (provided they meet income criteria). Student may choose any coverage option (including Medicaid or subsidized insurance) without paying a penalty.

Student health plan offers coverage of spouse or dependents, and neither spouse has an employer-sponsored health plan: Student, spouse and dependents may purchase the student health plan. They can also apply for Medicaid, CHIP or subsidized insurance through the exchanges (provided they meet income criteria). All family members may choose any coverage option without paying a penalty.

Where if I don’t qualify for a subsidy?

If you don’t qualify for a health insurance subsidy, you can still apply for health insurance through HealthCare.gov or your state’s health insurance exchange. However, some insurers offer more or different options outside the exchange. Anyone who doesn’t qualify for a health insurance subsidy should consider using an online broker instead to look for plans.

People who don’t qualify for a health insurance subsidy should reconsider their health insurance options in 2018. An analysis by the Kaiser Family Foundation said that a number of insurers have requested double-digit premium increases for 2018. Based on initial filings, the change in benchmark silver premiums will likely range from -5 to 49 percent across 21 major cities. (These rates are still being reviewed by regulators and may change, the analysis said.)

With rapidly rising costs, enrollees without subsidies may want to consider the lower-cost bronze plans to see if they meet their health insurance needs.

Part VII: The ultimate Obamacare glossary

Understanding basic health insurance terminology can help you make a more informed decision about your options. Here are common terms you should know.

This credit can be taken in advance to offset your monthly premium costs. The subsidy is based on your estimated income and can be taken directly from your insurer when you apply for coverage. You must repay credits if you qualify for a smaller subsidy once taxes have been filed. You can learn more about repayment limitations here.

This program was designed to provide coverage to uninsured children who are low-income but above the cutoff for Medicaid eligibility. The federal government has established basic guidelines, but eligibility and the scope of care and services are determined at the state level. Your children may qualify for CHIP even if you purchase an insurance policy through the health care exchange. You can learn about CHIP eligibility through the marketplace or by viewing this table at Medicaid.gov.

Your share of the costs of a covered health care service. This is the percentage you must pay out of pocket after you have met your annual deductible. You pay a specific coinsurance amount until you meet your out-of-pocket maximum.

If you earn between 100-250 percent of the federal poverty level, you may qualify for additional savings. This extra savings reduces your out-of-pocket maximum, and it offers assistance with copays and coinsurance.

Disclaimer: There is ambiguity surrounding whether or not Congress and the White House will appropriate funds for the cost sharing subsidies. In October, President Trump used an executive order to cut off funding for the subsidies. However, the Affordable Care Act still requires that health insurers must issue them to all people earning 100-250 percent of the federal poverty line. As a result of this Trump executive order, many insurers raised premiums for silver plans. The premium increases will not affect the prices that people with subsidies will pay, but they will affect the prices you pay if you do not qualify for a subsidy.

Until the Affordable Care Act or the cost sharing subsidies are repealed, insurers will continue to pay cost reduction subsidies in 2018.

A fixed amount you pay for a covered medical service, typically when you receive the service or prescription. Also commonly referred to as a “copay.”

The amount you pay for covered health services before your insurer begins to cover part of your costs. According to the IRS, a high-deductible health insurance plan is any plan with a deductible over $1,300 for an individual or $2,700 for a family.

Medical services are only covered if you go to doctors, specialists or hospitals in the plan’s network (except in an emergency).

These plans focus on integrated care and focus on prevention. Usually, coverage is limited to care from doctors who work for or contract with the HMO. Generally, out-of-network care isn’t covered unless there is an emergency.

Health Savings Accounts (HSAs) allow you to save and invest money for current or future medical expenses. You do not have to pay any taxes on money you contribute to an HSA, and you can withdraw the money tax- and penalty-free if you use the funds for a qualified medical expense.

You can only contribute to an HSA if your insurance meets the standards for a high-deductible insurance plan. Individuals can contribute up to $3,450 to a health savings account, and families can contribute up to $6,900 in 2018.

If you shop for insurance through Healthcare.gov, plans will indicate whether they are HSA approved. To be an HSA compatible plan, your deductible must be at least $1,350 for an individual or $2,700 for a family. The out of pocket maximums on these plans must be less than $6,650 for an individual or $13,300 for a family.

The out-of-pocket maximums required by the IRS do not line up with Affordable Care Act maximums, so many plans with high deductibles will not allow you to contribute to an HSA. If contributing to an HSA is an important part of your financial plan, be sure to filter for HSA compatibility on HealthCare.gov. And be advised: Not everybody will have an opportunity to purchase a subsidized HSA-compatible health insurance plan.

If you can afford to purchase health insurance and choose not to, you will be charged an individual shared responsibility payment, in the form of a tax penalty. There are a few qualified exemptions, outlined in the guide above, that allow you to avoid the fine. For example, if your employer-sponsored health plan costs more than 8.05 percent for individual coverage, you will not have to pay the fine (though you will not qualify for tax credits).

The fine for 2018 has not yet been released, and Congress has considered removing the individual mandate requirement for 2018. If it is removed, we will update this piece with the required information.

For the 2017 tax year, the individual mandate was calculated two ways:

  1. 2.5 percent of household income (up to the total annual premium for the national average price of the marketplace bronze plan)
    OR
  2. $695 per adult and $347.50 per child (up to $2,085)

You had to pay the greater of the two penalties.

Medicaid: A joint federal and state program that provides health coverage to low-income households, some pregnant women, some elderly Americans and people with disabilities. Medicaid provides a broad level of coverage including preventive care and hospital visits. Some states provide additional benefits as well.

If you were a foster child who “aged out” of foster care, you can continue to receive Medicaid coverage until age 26 with no income limitations.

Medicaid Expansion: Obamacare gives each state the choice to expand Medicaid coverage to people earning less than 138 percent of the federal poverty line. The primary goal of the ACA is reducing the number of uninsured people through both Medicaid and the health insurance marketplace. The Kaiser Family Foundation keeps track of expanded Medicaid coverage by state.

Medicare: Most people who are over age 65 and disabled people who have received Social Security Disability Insurance (SSDI) payment for 25 months in the United States will qualify for a Medicare Health Insurance Plan. Open enrollment for Medicare, which started Oct. 15, runs through Dec. 7. You can learn more about Medicare plans from the Medicare Plan Finder.

The amount you pay each month for your health insurance.

The highest amount you will pay for covered services in a year. In 2018, all health insurance plans sold through the Federal Health Exchange will have a out-of-pocket limits of $7,350 for an individual or $14,700 for a family plan.

You pay less for medical services if you use providers in the health plan’s network. You need a referral from your primary care doctor to see a specialist.

You pay less for medical services if you use the providers in your plan’s network. You may use out-of-network doctors, specialists or hospitals without a referral. However, there is an additional cost.

All health insurance plans purchased through the health care exchange cover some preventive care benefits without additional costs to you. These benefits include wellness visits, vaccines, contraception and more.

Most insurance plans have preferred pricing with a group of health care providers with whom they have contracted to provide services to members.

The federal subsidy for health insurance that helps eligible individuals or families with low or moderate income afford health insurance purchased through a health insurance marketplace.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: , , ,

Advertiser Disclosure

Mortgage

A Guide to Home Loans for Bad Credit

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Getting a mortgage with bad credit isn’t easy. Banks and credit unions became ultraconservative with mortgage lending following the 2008 housing market crash. However, these days, tighter lending standards don’t have to force you out of the mortgage market. If you have a stable income, you may qualify for a mortgage, even with bad credit. We’ll explain the best home loans for people with bad credit, offer tips for cleaning up your credit histories and point out scams to avoid.

Quick guide to checking your credit score

If you’re just starting to shop for home mortgages, it pays to know if banks think you have bad credit or not. Here’s how FICO, the main credit score provider in the U.S., breaks down credit scores:

  • 800-plus: Exceptional
  • 740-799: Very good
  • 670-739: Good
  • 580-699: Fair
  • 579 and lower: Poor

A credit score above 740 is optimal for finding the best mortgages, but you can often secure a mortgage with a much lower score. You might find an FHA mortgage with a credit score as low as 500 (albeit with a 10 percent down payment rather than 3.5 percent rate for scores above 580), but a credit score of around 650 gives you a decent chance of qualifying for a home mortgage. Getting a mortgage with a truly bad credit score will be difficult, and improving your credit to “fair” status could make it much easier.

Where can you check your credit score? Banks and credit unions use the FICO Scores 2, 4 and 5. These are not the same scores you will find through a free credit scoring site. Unfortunately, we haven’t found a free option for checking your FICO Scores 2, 4 and 5. The best option for checking these is checking them on MyFICO, which costs $59.85.

If you don’t want to pay for a credit score, consider using a free scoring site. But don’t put too much stock in the number it offers. It may overestimate your credit score (for mortgage shopping), especially if you’ve paid off debt in collections recently, and some free scores don’t use the 300-850 scale FICO often uses. Instead, focus on the information about what’s helping and hurting your credit score, if the tool offers those insights, and use that knowledge to make improvements where you can.

You can get a free credit score through our parent company LendingTree.

Home loan programs for people with bad credit

FHA loans

FHA Loan Details

Credit score required

500, but banks have minimum underwriting
standards

Down payment required

Credit score between 500-579: 10 percent
Credit score above 580: 3.5 percent

Upfront financing fee

1.75 percent, which can be financed

Mortgage insurance

0.45 to 1.05 percent

Mortgage limits

Generally, $275,665 for single-family units, but it
varies by location and you should check the limits in your area

Fine print

Mortgage insurance premiums are paid for the life of the loan,
except when putting 10 percent or more down. If your down payment is
less than 20 percent but 10 percent or more, you must have
mortgage insurance for 11 years.

Quick take

If you have bad credit, an FHA loan offers a more accessible mortgage. While credit standards vary by lender, you may qualify for the FHA loan with a credit score as low as 500. With a credit score above the 580 threshold, you may qualify for the 3.5 percent down payment.

Unfortunately, an FHA loan can be expensive because of mortgage insurance fees. In addition to paying ongoing mortgage premiums for the life of the loan, you’ll have to pay a 1.75 percent upfront financing fee.

Pros:

  • 3.5 percent down payments (for those above the 580 credit-score mark)
  • Credit scores as low a 500
  • Can buy up to four units

Cons:

  • 1.75 percent upfront mortgage premium
  • Ongoing mortgage insurance
  • Smaller loan limits

Where to get an FHA loan

You can use the comparison tool on LendingTree or Zillow to find offers from FHA-approved lenders in your area willing to work with people with bad credit. If an online search doesn’t yield the results you want, you may need to work directly with a mortgage broker who specializes in finding mortgages for people with bad credit. You can use a site like Find A Mortgage Broker or Angie’s List to find brokers in your community.

Be sure to check the National Multistate Lending System (NMLS) to see if your broker has had any regulatory action filed against them. Regulatory actions against the broker are red flags that indicate you may want to take your business elsewhere.

Fannie Mae HomeReady Mortgage

HomeReady Mortgage Details

Credit score required

A minimum requirement of 620 generally applies
to Fannie Mae products.

Down payment required

3 percent for credit scores above 680
(for single family homes). 25 percent for credit scores
between 620-680 (for single family homes).

Upfront financing fee

None

Mortgage insurance

0.125 to 3 percent

Mortgage limits

Generally, $424,100, though it varies by location

Fine print

You must earn less than the median income in
your ZIP code to qualify,
or buy a home in a low-income zip code.
You must take a homeowner’s education class to qualify for the mortgage,
mortgage insurance can be canceled when you reach a
loan-to-value ratio of 80 percent.

Quick take

If you’ve got a fair credit score but a big down payment, the Fannie Mae HomeReady mortgage is the best conventional mortgage for you. With a 620 credit score and a 25 percent down payment, you meet HomeReady eligibility requirements, and you’ll pay no mortgage insurance. Fannie Mae offers a 3 percent down payment option, but you need a credit score of at least 680.

HomeReady mortgages also allow for cosigners who won’t live at the address with you. That means a parent or grandparent with a high credit score could help you purchase the property by co-signing. If you can find a cosigner, you may qualify for the 3 percent down payment even if your credit score falls below 680.

Pros:

  • Can qualify with credit score as low as 620
  • A low 3 percent down payment if you have a 680 credit score
  • Down payment doesn’t have to come from personal funds
  • Mortgage insurance premiums are cancellable
  • Non-occupant cosigners are permitted

Cons:

  • Up to 25 percent down payment required in some instances
  • Not all lenders offer Fannie Mae HomeReady mortgages, so you might struggle to find a bank with this offering.

Where to get a Fannie Mae HomeReady mortgage

Fannie Mae doesn’t publish a list of lenders who offer the HomeReady mortgage, so you will need to work with your lender specifically to see if they offer it. Most major banks and credit unions will be approved to underwrite Fannie Mae mortgages, but the specific product offering will vary by bank.

Consider using an online mortgage comparison engine including LendingTree or Zillow to compare offers in your area. However, once you find lenders that will work with you, you’ll have to ask them about the HomeReady mortgage, especially if you want to use the 3 percent down or co-signing feature.

The Housing and Urban Development office of housing counseling may also help you connect with lenders who offer the HomeReady Mortgage.

VA loans

VA Loan Details

Credit score required

Credit standards set by lender

Down payment required

None

Upfront financing fee

1.25 to 3.3 percent, which can be financed

Mortgage insurance

None

Mortgage limits

Generally, $424,100, though it varies by location

Fine print

Must obtain a certificate of eligibility
(for military members and spouses)
before applying for a VA loan

Quick take

For people with a military background, the VA loan is a top mortgage option. The upfront financing fee can be hefty, but it’s a good deal if you plan to live in the house for several years. That said, not all VA lenders work with buyers with bad credit, so you may struggle to find a reputable lender in your area.

Pros:

  • No down payment required
  • No mortgage insurance
  • No firm credit minimums
  • Can buy up to four unit multi-family property.

Cons:

  • Upfront funding fee
  • Not all lenders issue VA loans to borrowers with bad credit
  • Must buy home with the intent to occupy for at least 12 months

Where to get a VA loan

To take out a VA loan, you must get a certificate of eligibility (COE) through the Veterans Administration eBenefits platform. Once you get the COE, you can use the Consumer Finance Protection Bureau’s interest rate data to learn about interest rates for VA loans.

To find a VA lender who works with bad-credit clients, you’ll probably want to work with a mortgage broker. You can find mortgage brokers online or through your state’s housing finance agency. Be sure that your broker has no regulatory action filed against them before you commit to working with them.

USDA loans

USDA Loan Details

Credit score required

As low as 580, but generally 640

Down payment required

None

Upfront financing fee

1 percent (can be financed)

Mortgage insurance

0.35 percent annually

Mortgage limits

No limits, but must meet standards of affordability based on moderate incomes

Fine print

You must meet income eligibility requirements,
and the property must be in a qualified rural area

Quick take

If you’re planning to buy in a rural area (and you may be surprised what qualifies, so check), a USDA loan offers a low cost, low money down loan. Technically, the absolute minimum credit score for this loan is 580, but most lenders won’t issue USDA loans to borrowers with scores below 640. USDA loans tend to be a better deal than FHA loans, but they may have higher costs compared to VA or conventional loans. If you’ve got fair credit, but you don’t have a big down payment, the USDA loan makes sense for you.

Pros:

  • No down payment
  • Only 1 percent upfront mortgage fee

Cons:

  • Ongoing financing fee cannot be canceled
  • Finding lenders who work with bad credit borrowers can be difficult
  • Must meet location and income criteria

Where to find USDA loans

If you meet the USDA eligibility requirements, you can start shopping for USDA loans through LendingTree, but you may not find many offers if you have a credit score below 640. If you can’t easily find a lender, you’ll want to work with an independent mortgage broker who will have insider access to multiple lenders in your city. You can find reputable brokers online through Find A Broker, Angie’s List or the Better Business Bureau (search for mortgage brokers, your city). Before committing to a broker, check that your broker has no regulatory action filed against them.

Manufactured home loans for bad credit

Manufactured homes are houses constructed off-site, transported and anchored to a permanent foundation at a new home site. On average, manufactured homes cost 80 percent less than site-built single family homes, but taking out a mortgage for a manufactured home can be expensive, even if you have good credit. According to the Consumer Financial Protection Bureau, almost 68 percent of all loans for manufactured home purchases were considered higher priced mortgages. On top of already high rates, bad credit will drive your interest rate even higher. However, thanks to the lower upfront price, people with bad credit may have an easier time finding home financing for manufactured homes than for site-built homes.

FHA Title I loans (Chattel loans)

FHA Title I Loan Details

Credit score required

No credit score minimums, but
must meet ability to pay criteria

Down payment required

5 percent down for credit scores above 500,
otherwise 10 percent down

Upfront financing fee

Up to 2.25 percent

Mortgage insurance

Up to 1 percent

Mortgage limits

  • Home only: $69,678

  • Lot only: $23,226

  • Home and lot: $92,904

Mortgage term limits

  • 20 years for home only

  • 20 years for single-section home and lot

  • 15 years for lot only

  • 25 years for a multi-section home and lot

Titling requirements

Manufactured homes can be titled as personal property.

Fine print

Manufactured homes must be situated on a lot that meets
FHA property standards (such as hookups for water and electricity,
and foundation anchors) that is owned or leased by the primary
mortgage holder. Manufactured home must be at least 400 square feet.

Quick take

The FHA Title I loan is an obvious choice for people with bad credit looking to buy a manufactured home, but you need to do your research before you commit to this loan. According to the CFPB, Chattel loans had 1.5 percent higher APRs than standard mortgages. These loans also come with expensive mortgage insurance fees that can be passed on to you.

However the Chattel loan makes sense if you’re buying a used manufactured home or if you plan to rent the lot where your home sits.

Pros:

  • No credit standards
  • Flexible terms for land ownership
  • Can title home as personal property

Cons:

  • Maximum loan is $92,904
  • Some lender restrictions
  • 5-10 percent down payment requirement
  • Must be a fixed term mortgage

Where to find Chattel loans

Chattel loans are a niche product that few banks and credit unions offer. Half of all Chattel loans are issued by five banks: 21st Mortgage, Vanderbilt Mortgage, Triad Financial Services, U.S. Bank, and Credit Human (formerly San Antonio Federal Credit Union), according to a 2014 report from the CFPB. You can also find local lenders through the Manufactured Housing Association’s lender search.

FHA loan

FHA Loans Details for Manufactured Homes

Credit score required

500 (varies by bank)

Down payment required

Credit score between 500-579: 10 percent
Credit score above 580: 3.5 percent

Upfront financing fee

1.75 percent, which can be financed

Mortgage insurance

0.45-1.05 percent

Mortgage limits

Generally $275,665

Titling requirements

Manufactured homes must be titled as real
property and you must own the lot.

Fine print

All manufactured homes must meet standards set by the
FHA including foundation anchors, water and electrical hookups and more.

Quick take

A standard FHA loan makes sense if you’re planning to buy a manufactured home and land. While credit standards vary by lender, you may be able to qualify for the FHA loan with a credit score as low as 500. If you can raise your credit score to 580, you may even qualify for the 3.5 percent down payment.

This loan isn’t as easy to get as the Chattel loan, but some people with bad credit may qualify. If you want to use an FHA loan for a manufactured home, work with your loan officer closely, so your financing is in place before your home is completed.

Pros:

  • 3.5 percent down payments
  • Credit scores as low a 500
  • Up to $275,665 in financing

Cons:

  • 1.75 percent upfront mortgage premium
  • Must pay ongoing mortgage insurance
  • Must buy owner-occupied home

Where to get an FHA loan

The Manufactured Housing Association’s lender search will also provide a list of lenders who may offer FHA loans for manufactured homes in your state. If that list doesn’t provide the results you need, work with a HUD office of housing counseling center to learn about lenders who offer FHA loans for manufactured homes.

USDA

USDA Loan Details for Manufactured Homes

Credit score required

580 and below is considered a no-go;
generally 640 and up

Down payment required

None

Upfront financing fee

1 percent, which can be financed

Mortgage insurance

0.35 percent annually

Mortgage limits

No limits, but must meet standards of
affordability based on moderate incomes

Titling requirements

Home must be titled and taxed as real estate

Fine print

You must own the lot where your home is located and meet
income eligibility requirements and the property must be
in a qualified rural area

Quick take

If you’re purchasing a new manufactured home in a rural area, the USDA loan may make sense for you. The manufactured home must be new, and you have to own the site where the home is located. However, with the lowest acceptable credit score being at the 580 threshold, USDA loans aren’t suited for bad-credit borrowers. Improving your credit to “fair” could be the difference between rejection and approval..

Pros:

  • As low as no money down
  • Low financing fees
  • Competitive interest rates

Cons:

  • Higher credit underwriting standards
  • Must own lot
  • Must buy new manufactured home

Where to get a USDA loan

If you meet the USDA eligibility requirements, connect with the HUD office of housing counseling in your state. If the USDA loan is a good fit for you, staffers there will help you find lenders who work with USDA borrowers that want in on manufactured homes.

VA loans

VA Loan Details for Manufactured Homes

Credit score required

Credit score standards set by lender

Down payment required

None

Upfront financing fee

1.25-3.3 percent depending on your military status,
home buying experience and down payment.
This fee can be financed.

Mortgage insurance

None

Mortgage limits

$424,100

Titling requirements

The house must be titled as real property,
and you must own the lot where the house is located.

Fine print

Must obtain a certificate of eligibility
(for military members and spouses) before applying for a VA loan.

Quick take

The VA loan offers a down payment of 0 percent (even for manufactured homes) as long as you own (or will buy) the lot where the home is located. The drawback to the VA loan is that most lenders set their credit score standards in the 600-range, which means that people with bad credit might not qualify. On top of that, not every VA lender offers loans for manufactured homes. Those two factors mean the you may struggle to find a lender in your area who will work with you.

If you find the lender, the VA loan is a great choice, but if you can’t, consider an FHA loan instead.

Pros:

  • No down payment required
  • No mortgage insurance
  • No firm credit minimums

Cons:

  • Upfront funding fee
  • Not all lenders offer VA loans for manufactured housing
  • Must buy home with the intent to occupy for at least 12 months
  • Must own lot

Where to get a VA loan

To take out a VA loan, you must get a certificate of eligibility (COE) through the Veterans Administration eBenefits platform. Once you get this, find an independent mortgage broker who specializes in VA loans for manufactured homes or VA loans for people with bad credit. These brokers work with multiple banks and can help you find better deals than you might find on your own. Before committing to a particular broker, check for regulatory action filed against them. You don’t want to work with a broker who fails to meet the standards set by your state.

Conventional mortgages

Conventional Mortgage Details for Manufactured Homes

Credit score required

620

Down payment required

5 percent (10 percent for people with insufficient
credit for traditional scoring)

Upfront financing fee

None

Mortgage insurance

0.5 percent annually

Mortgage limits

Generally, $424,100

Titling requirements

Must own land, and home must
be titled as real property.

Fine print

You’ll have to pay mortgage insurance until your
home reaches at least an 80 percent loan-to-value ratio.

Quick take

If you’ve got a 20 percent down payment and at least a 620 credit score, and your home meets underwriting standards, the conventional mortgage is the best choice for you. This loan has competitive interest rates and no mortgage insurance for people with a loan-to-value ratio of at least 80 percent. Your home must be at least 600 square feet and meet HUD standards for manufactured homes, and you must own your lot. However, you can use this loan to purchase an existing manufactured home (built after 1976) if it is permanently affixed to an approved foundation.

Another advantage to this loan is that they do accept borrowers with thin credit files, provided they don’t have derogatory marks on their credit file.

Where to find conventional mortgages

Before you start shopping, you can use the Consumer Finance Protection Bureau’s interest rate data to learn about interest rates in your state. Compare real offers from local lenders using LendingTree, or work with your state’s housing finance agency to find reputable lenders in your area.

Other common financing deals

Aside from those mortgages, manufactured home buyers with bad credit might consider two other options. First, you might consider a retail installment contract. A retail installment contract is issued by the manufacturer (or installer) or your home. If you’re working directly with the manufacturer to take out a loan, you should take the time to understand upfront and ongoing fees, APR and what happens if you miss a payment. The Manufactured Housing Institute provides detailed information on buying and living in manufactured houses and on how to find manufacturers and lenders who can help you finance a manufactured home.

Borrowers with bad credit might also consider owner-held financing option. Owner-held financing is a readily available form of credit, but it is risky. Before signing a lease to own agreement, find a real estate lawyer who can help you uncover title issues and explain the loan. To learn more, you can either find a lawyer through your employer (who may offer legal benefits), the American Bar Association or by contacting HUD office of housing counseling in your state.

Clean up your credit before mortgage shopping

In 2016, the average new home cost $372,500, but that’s before paying interest. According to Informa Market Research, the average interest rate for a person with a credit score between 620 and 639 is 5.115 percent, but a person with a score of at least 760 gets a 3.527 percent rate. Does just a point and a half translate to much cost difference? Absolutely. If both people finance $298,000 on a new home, then the person with great credit will pay $1,343 per month. The person with lesser credit will pay $278 more, $1,621 per month. That translates to more than $100,000 more over the life of the loan.

Tips to improve your credit score

To repair your credit before taking out a mortgage, and qualify for better terms and more options, start with these three simple steps:

  1. Pay all your current debt accounts on time, each month.
  2. Reduce your credit card utilization by paying down your credit card debt.
  3. Stop applying for credit six months before mortgage shopping.

These three factors alone account for 75 percent of your credit score.

As you take care of those items, you’ll want to check your credit report from the three major credit bureaus through AnnualCreditReport.com.

You want to be sure that you recognize all the information on your credit report, and that there are no duplicate entries. Dispute any errors or duplicates. For further guidance, use the Federal Trade Commission’s free guide to disputing errors on your credit report. If you believe you’ve been a victim of identity theft, follow the Federal Trade Commission’s advice on identity theft recovery.

Disputing errors on your credit report may prevent a bank from issuing you a mortgage, so start disputes at least 90 days in advance of applying for a mortgage. While the credit bureaus should clean up the errors within 30 days, the process sometimes takes longer

Getting a mortgage after bankruptcy or foreclosure

Bankruptcy stays on your credit report for up to seven or 10 years, depending on the type, and foreclosures stay on your credit report for up to seven years, but you don’t have to wait that long to take out a mortgage. If you take steps to improve your credit, you can qualify for some mortgages one to four years after your bankruptcy is dismissed, or two to four years following foreclosure.

 

Conventional

FHA

VA

USDA

Chapter 7

Four years from discharge or dismissal (except in extenuating circumstances)

Two years (or one year in extenuating circumstances)

Generally, two years (though it is not a disqualifying standard)

Generally, three years

Chapter 11

Four years from discharge or dismissal (except in extenuating circumstances)

Must meet credit standards

Generally, two years

Must meet credit standards

Chapter 13

Two years after discharge or four years after dismissal

Two years (or one year in extenuating circumstances)

One year of payments

Generally, one year

Foreclosure

Seven years, except if foreclosure was discharged in bankruptcy (then use bankruptcy limits)

Three years except in extenuating circumstances

Generally two years

Generally, three years

Even if you can get a new mortgage just a year or two after bankruptcy or foreclosure, it makes sense to wait longer in most cases. By waiting around three or four years, the damage of the bankruptcy and foreclosure fades, and you’ll have that extra time to revive your credit score.

To get your credit in shape after bankruptcy or foreclosure, you’ll want to continue to make bankruptcy payments as agreed and consider opening a secured credit card to rehabilitate your damaged credit. Use the credit card for daily expenses, and pay it off in full each month.

Improve your shot at approval even if you have bad credit

If you’ve got bad or fair credit, and you don’t have a lot of time to improve it, you can still take out a mortgage in some cases. These are a few things that can help you get approved with a low credit score.

  • Choose a house well within your budget. If you’ve got a strong income and a low monthly payment, the bank may be more likely to approve your loan.
  • Come up with a larger down payment. While the median down payment is just 5 percent, a person with bad credit may need quite a bit more (up to 25 percent) to get a loan.
  • Work with your loan officer: Give them paperwork in a timely manner, and follow their instructions regarding credit repair, collection repayments and debt repayments. If you’re close to gaining approval, the loan officer can help you take the last few steps to meet the bank or government’s underwriting criteria. Loan officers may take advantage of manual underwriting provisions for FHA, VA, USDA and conventional loans, but that requires more information and participation from you.
  • Ask for rapid rescoring if you’re disputing errors on your credit report, or paying down credit card debt.

Rapid rescoring

A rapid rescore is a method for “re-checking” your credit score on an accelerated time scale. Banks usually only check your credit score once when they’re considering your for a loan, but they may pay a fee to see a new score if you’ve paid down debt or removed negative information from your report, according to Experian. The bank will use the new information to recalculate your credit score to see if you qualify for a loan.

Should I keep renting?

A bad credit score by itself shouldn’t stop you from buying a home. You’ll pay more in interest costs over the life of the loan, but you’ll also start building equity sooner. Plus, a few years of paying on a mortgage will help you raise your credit score, so you can refinance later on.

However, a bad credit score can be a symptom of a bad financial situation. If you’re struggling to pay your bills on time, buying a house isn’t usually a good idea. During financial stress, a new mortgage bill is more likely to be a curse than a blessing.

Watch out for these scams targeting people with poor credit

Financial scammers are always on the prowl for desperate people who might become their next victims. These are a few pitfalls that all homebuyers need to avoid as they shop for homes and mortgages.

Mortgage closing scams

Mortgage closing scams are pernicious schemes that involve falsifying wiring instructions, the FTC warns. In a mortgage closing scam, a hacker poses as a title closing agent. He or she may email you fraudulent information about where to wire the money, or claim that there’s been a last-minute change to the details.

Closing for a home is an incredibly busy time, especially if you’ve struggled to qualify for the mortgage in the first place. To prevent mortgage closing scams, ask your title agent to send the wire information in an encrypted email. You can also request a call with the details.

Anyone who has been a victim of a mortgage closing scam should report it to the FBI immediately, and log a complaint in the FBI’s Internet Crime Complaint Center.

Complex lease-to-own deals

Owner financing isn’t necessarily a scam, but it can be complex. Many owner financing deals don’t put the title into your name until you’ve paid off the entire loan, and some deals require balloon payments after a few years, the FTC warns. If you can’t cover the balloon payment, you lose every cent of equity you’ve paid.

Even worse than difficult loan terms are situations when the owner can’t legally issue a first-lien loan. If the owner has used the house to secure any other loan, then the bank has a first-lien position on the loan.

Don’t sign an owner financing agreement until a lawyer explain the details of the loan to you. You must take steps to protect yourself from owner fraud if you want to own the house in the end.

Hard money loan scams

Hard money loans are real estate loans for investors interested in flipping a property. Hard money loans come with high interest rates, hefty down payments and short payback periods. Most of the time, hard money lenders evaluate project quality rather than investor credit when issuing loans.

If you’re considering a hard money loan at all, you should have plans to flip a property for a profit. If you can’t earn a profit on the house, then a hard money loan doesn’t make sense.

If you are considering a hard money loan because you can’t find traditional financing, be careful. There’s little oversight of hard money loans, so it’s important you know what you’re getting into with these products. You can check out this guide to hard money loans if you want to learn more.

FAQs

If a bank turns you down for a mortgage, you can ask for an explanation. When you ask, the lender has 30 days to prepare an answer in writing, as required by the Equal Credit Opportunity Act and the Fair Credit Reporting Act. A few common responses include:

  • We don’t think you can afford the payment (for instance, you’ll have to high of a debt-to-income ratio).
  • Your credit score’s too low.
  • You have an insufficient down payment.

Anyone struggling to find a mortgage should consider working with a licensed mortgage broker in his/her county. Mortgage brokers work with multiple local banks and credit unions, and they can often help if a banker cannot.

The best credit score to get a mortgage is any score above a 740, but most people with credit scores above 620 will qualify for some mortgages. And yes, it’s possible to qualify for a mortgage if you have a score of 500-620.

Yes. If you took out a loan when you had bad credit, you may qualify for a much better rate by improving your credit after just one to two years of on-time payments on all your lines of credit, according to research from VantageScore Solutions. However, if your bad credit score is the result of foreclosure or bankruptcy, your credit score may not fully recover for seven to ten years, so don’t count on a massive rate drop right away if those are the reasons for your bad credit score.

Given how much easier it is to qualify for a mortgage and how much you can save when you have good credit, waiting to buy often makes sense.

VA loans don’t require a down payment, and they have no firm credit minimums, but you’ll still need to meet a bank’s underwriting standards (which could be as high as a 640 credit score). If you have a credit score of 580-640 and you meet other qualifying standards, you may qualify for a no-money-down USDA home loan..

Outside these options, the only no-money-down mortgages for people with bad credit include owner-held mortgages or rent-to-own deals. Do your homework.

Not all mortgages allow cosigners, but a cosigner could help you qualify. Asking someone to cosign essentially means asking that person to pay your mortgage if you’re ever unwilling or unable to pay the bill. We generally don’t recommend becoming a cosigner unless you plan to live in the house.

An adjustable-rate mortgage makes a lot of sense if you have bad credit and you are confident you can improve your credit score within seven years before your interest rate adjusts (in the case of a 7/1 ARM). If your credit improves, you may be able refinance at a lower, fixed rate before the interest rate adjustment takes place. However, this option is risky. You may be stuck with higher interest rates if your credit doesn’t improve or if interest rates rise by the time you need to refinance.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS: , , ,