Of Counsel at Simpson Thacher &amp; Bartlett LLPSteve Cutler has extensive experience in the financial services industry. Most recently he has served in leadership positions at Simpson Thacher &amp; Bartlett LLP, including as the Global Head of the firm’s Government and Internal Investigation Practices. Prior to joining Simpson Thacher, Mr. Cutler was Vice Chairman of JPMorgan Chase &amp; Co., after serving as the company’s General Counsel for nine years, including during the 2008-2009 financial crisis. Earlier in his career, Mr. Cutler served as Director of the Securities and Exchange Commission’s Division of Enforcement.  Mr. Cutler also serves on the board of The Metropolitan Museum of Art, and previously served on the boards of the Financial Industry Regulatory Authority (FINRA) and the National Women’s Law Center. He received his B.A., summa cum laude, from Yale University and his J.D. from Yale Law School, where he was an editor of the Yale Law Journal.

Stephen Cutler

Leadership | Stephen Cutler

Sign In

There are many reasons to consider a joint personal loan, including sharing the payment obligations, securing better financing terms, and improving your odds of approval. So, if your credit history is holding you back from getting favorable interest rates and terms on your own, having a co-borrower could help you qualify for a personal loan.

There are many reasons to consider a joint personal loan, including sharing the payment obligations, securing better financing terms, and improving your odds of approval. If your credit history is impacting your ability to get favorable interest rates and terms, consider exploring all your options. One potential option is having a co-borrower, which might help you qualify for a personal loan.Here’s what you need to know to get a joint personal loan, how they work, and what to consider before applying.<h2>What is a joint personal loan?</h2>A <a href="/personal-loan">joint personal loan</a>, also sometimes called a joint-applicant loan, is a personal loan with two co-borrowers.When you and your co-applicant submit an application, the lender will review both incomes and credit histories to determine your eligibility and loan terms. This arrangement can be beneficial if two people want to share the loan funds and both have good credit.But the joint nature of the loan doesn’t stop there. If approved, both borrowers are fully responsible for paying back the debt. That is, even if a co-borrower was added to improve their chances of obtaining the loan and plans to pay back the debt on their own, both borrowers are responsible if the primary borrower misses a payment.Note that a joint loan with two borrowers can be different than a <a href="/personal-loan">co-signed loan</a>, depending on the lender.As with personal loans with just one borrower, you can generally use the funds for most purposes, such as <a href="/personal-loan">debt consolidation</a>, home improvements, vacation and wedding expenses, financial emergencies, and more.Some lenders may also have restrictions on how the funds can be used, prohibiting usage for educational, business, or investment purposes, for buying or exchanging cryptocurrency, or for engaging in illegal activities. Make sure to review the fine print before applying to understand whether the loan will meet your needs.<h2>Where to find joint personal loans</h2>Not all lenders that offer personal loans allow the applicant to add a co-borrower to their application, so it’s important to review your options to ensure that you can do what you want with a co-borrower.You can find joint <a href="/personal-loan">personal loans</a> at most banks and credit unions and with online lenders like LendingClub Bank, where you can check your rate without affecting your credit score. As with any financial decision, it’s important to shop around and compare multiple options to determine the right fit for you.<h2>How to apply for a joint personal loan</h2>Once you’ve settled on a lender, visit its website to get started. Here are some steps to help guide you through the process of getting a personal loan:<ol><li>Check your rate: If the lender has a prequalification feature, review your initial offer based on a soft credit check, which won’t impact your credit score. This may or may not match your final offer, but it can give you an idea of what you’re eligible for.</li><li>Start the application: When you start the application process, be sure to select the joint application, so you can add details for yourself and your co-applicant. You’ll typically need to provide your names, dates of birth, Social Security numbers, contact information, income and employment information, and more.</li><li>Provide documentation: In some cases, lenders may require additional documentation, such as pay stubs, tax documents, or bank statements, to verify the information in your application.</li><li>Review the loan terms: Depending on the lender, you should receive a credit decision within a few days. If you agree to the <a href="/personal-loan">loan terms</a>, you will proceed with entering into the agreement. Loan funds are typically disbursed within a week, but in some cases, it can be as little as a few hours after approval.</li><li>Start making payments: You should receive information from your lender about how to start making monthly payments. It’s generally best to set up automatic payments to avoid accidentally missing one.</li></ol><h2>Pros and cons of joint personal loans</h2>There are both advantages and disadvantages to applying for a <a href="/personal-loan">personal loan</a> with a co-borrower, and it’s crucial that you understand both to determine if it’s the right choice for you.<h3>Pros:</h3><ul><li>Could help with eligibility: If your credit history is relatively new or you’ve made some missteps with your credit in the past, adding a co-applicant to your loan can help improve your chances of getting approved for the financing you need.</li><li>Could improve your loan terms: Lenders will typically determine loan terms based on both applicants’ financial and credit situations, so adding a co-borrower could make it easier to qualify for better terms.</li><li>Could help you share the financial burden: If you’re borrowing money with another person, applying for a joint loan allows you to more easily share the loan funds and the monthly payments.</li><li>Could help both borrowers’ credit: As you make on-time payments, a joint personal loan can help improve both borrowers’ credit scores over time.</li></ul><h3>Cons:</h3><ul><li>Could damage the co-borrowers relationship: No matter what the agreement is for sharing payment responsibility, regardless of who uses the funds, both borrowers are equally responsible to the lender to timely repay the full amount of the loan. So if one co-borrower doesn’t meet their obligations with the loan, it could have a negative impact on the relationship.</li><li>Could damage both borrowers’ credit: The loan will show up on both borrowers’ credit reports, which means that if either borrower misses a payment, it could damage both credit histories and scores.</li><li>Payments could be complicated: If both borrowers agree to pay down the debt, they’ll need to come up with an arrangement to share payments, which could get complicated.</li><li>Could affect both borrowers’ debt-to-income ratios: The joint loan will show up on both borrowers’ credit reports, along with its balance and monthly payment. This could affect the debt-to-income ratio, or the percentage of gross monthly income that goes toward debt payments, for both borrowers, which could affect their ability to obtain credit in the future if they need it.</li></ul><h2>Joint personal loans FAQ</h2><h3>Joint personal loan vs. co-signed loan: What’s the difference?</h3>While they seem similar on the surface, there’s one key difference between a joint personal loan and a co-signed loan. With a co-signed loan, the co-signer is agreeing to pay back the loan if the primary borrower doesn’t, but they don’t have any claim on the loan funds or the items purchased with the funds.In contrast, a co-borrower on a joint personal loan has equal rights to the loan proceeds and anything those funds are used to buy.You may opt for a co-signed loan instead of a joint loan if you don’t want the co-signer to have any claim on the funds or the items or services you purchase with them. Alternatively, you may consider a joint loan if you both plan to use the funds together.<h3>Can you get a joint personal loan if one borrower has bad credit?</h3>Possibly. A borrower with a damaged credit history stands a better chance of qualifying and <a href="/personal-loan">obtaining loan approval</a> when applying together with a co-borrower who has a good credit history. However, it may make sense to leave a borrower with bad credit off a loan application if the other can get approved on their own.<h3>Can you apply for a joint personal loan with LendingClub Bank?</h3>Yes. You can apply for a joint <a href="/personal-loan">personal loan with a co-borrower</a> at LendingClub Bank. If you’re not sure you’ll qualify on your own, you might want to consider applying for a joint personal loan along with someone else, as long as they have a stronger credit profile that will improve your chances of approval.

Anytime the Federal Reserve decides to raise interest rates, it typically creates a ripple-effect throughout the economy. We take a look at some of the ways rising rates influence how you borrow and spend, and the impact rising rates can have on variable rate debt you may be carrying.

Interest rate levels are a factor in the supply and demand of credit, generally rising or falling based on the Federal Reserve’s economic and monetary policies and inflation. Since interest rates influence how we borrow and spend, interest rate fluctuations directly impact our personal finances, especially when it comes to personal debt. We tend to borrow less when rates rise as debt becomes more expensive. Rising interest rates can also affect existing debt as well as new debt. Let’s look at some of the ways rising interest rates may affect various types of debt.<h2>What happens to your debt when interest rates rise?</h2>Anytime the Federal Reserve decides to raise interest rates, it typically creates a ripple-effect throughout the economy. One area where it’s usually felt most is on the personal debt you may be carrying. However, not all personal debt is affected by rising rates in the same way. Generally, certain types of existing fixed-rate debt may not be impacted in the same way as variable-rate debt in a rising rate environment.<h3>Fixed-rate debt</h3>Fixed interest rate debt—where the annual percentage rate (APR) is set for a predetermined length of time—generally remains unaffected by interest rate increases. Types of fixed-rate debt may include:<ul><li>Unsecured personal loans</li><li>Fixed-rate mortgages</li><li>Student loans</li><li>Auto loans</li></ul>Unless you plan to refinance your loan, your interest rate and monthly payment on fixed-rate debt remains stable, offering a form of protection from fluctuations in interest rates.When it comes to credit cards, the vast majority have variable interest rates (see more on them below), and cards with fixed rates are uncommon. If you happen to have a credit card with a fixed APR, even it may not be immune to a change in interest rate because card issuers are allowed to make a change in terms. For example, you may receive a notice 45 days in advance of your proposed rate increase. The notice gives you a chance to opt out of the change, but doing so could result in the issuer canceling your card. <h3>Variable rate debt</h3>Variable-rate debts fluctuate in response to market interest rates. When market interest rates increase, interest and payments on these debts typically also rise. Higher payments can put pressure on the rest of your budget, especially if you have multiple debts with variable interest rates, such as: <ul><li>Variable-rate credit cards</li><li>Adjustable-rate mortgages (ARMs)</li><li>Home-equity lines of credit (HELOCs) </li></ul>The variable rates on these types of loans—and the amount of their monthly payments—generally increase when the Federal Reserve raises interest rates.<h2>What to do when interest rates rise</h2>If you have one or more variable-rate debts, you may need a plan to prevent rising interest rates from throwing you off your budget or triggering a personal financial crisis. <h3>1. Prioritize paying down high-interest, variable-rate debt first. </h3>As interest rates rise, reducing your variable rate debt can help you save money on the increasing cost of borrowing that money and minimize your exposure to the effects of rising rates. This is especially so if you’re carrying, or revolving, multiple variable interest rate balances from one month to the nextConsider starting with your highest-interest, variable-rate debt first, such as credit card balances. Generally, credit card debt is one of the most expensive types of debt, and, in the long run, you’ll save money by prioritizing paying down these balances whether or not interest rates are expected to continue to rise.Next, take a look at other variable-rate debts you may be carrying. Since your interest rates aren’t locked in, or fixed, on these debts either, your borrowing cost could potentially continue to increase on these balances as well, costing you more over time. <h3>2. Manage your personal debt when interest rates rise.</h3>Methods for paying down multiple high-interest, variable-rate debt when rates are rising include debt consolidation and debt paydown acceleration. <ol><li>Credit card consolidation loan: Consolidating credit card debt generally involves using a <a href="/personal-loan/credit-card-consolidation-loan">fixed-rate unsecured personal loan</a> or home equity loan to pay off high-interest, variable-rate debt. While it may be difficult in a rising interest rate environment, consolidating into a new loan that offers a fixed rate that’s lower than the average interest rates on the debt you’re consolidating is what you’re aiming for. Locking in a fixed interest rate provides some protection against the possibility of future interest rate increases.</li><li>0% APR balance transfer credit card: Using a credit card balance transfer to combine multiple credit card balances onto a single credit card is another way to consolidate debt, however there are some risks. Taking advantage of a 0% promotional interest rate can offer you a chance to pay down the new balance with no interest at all for a certain length of time (from 6 months to one year or more). If you’re diligent about paying down your balance within the timeframe of the promotional period without taking on any new, additional debt, this approach can be effective and help you avoid interest accrual. However, you may become complacent and pay less each month than you should, or you may spend impulsively and accrue even more on your new or existing cards. And depending on the card you select, you may pay an initial balance transfer fee and any late payments could be grounds for early cancellation of promotional rates. If interest rates continue to increase over a long period of time, 0% APR offers may become hard to find.</li><li>Debt avalanche method: When interest rates are rising, if you can focus on putting more money toward paying down debt, it can help accelerate the speed at which you’re able to pay off your debt and potentially lower the total amount of interest you’ll pay over the term length of your loan. The <a href="https://www.lendingclub.com/resource-center/personal-finance/what-is-the-debt-avalanche-method-and-how-does-it-work">debt avalanche method speeds up the process of debt paydown</a> by showing you how to tackle your highest-interest-rate debts first so you can pay down your variable debt more quickly as rates are rising. </li></ol><h3>3. Sharpen your budget and reduce expenses.</h3>When thinking about what to do when interest rates rise, sticking to a budget can help. This is especially so if you have variable, high-interest-rate debt you want to start to pay down more aggressively. For example, following an <a href="https://www.lendingclub.com/resource-center/personal-finance/50-30-20-rule-the-easy-budget-method-that-works">easy budgeting method like the 50/30/20 rule</a> can help you learn how to track the flow of your money throughout the month while allocating a certain portion to savings and debt paydown. Start by itemizing your monthly spending, including bills and savings. Then compare the total to your monthly income. The idea is to have money left over at the end of every week or month that you can put toward paying down more of your debt. If your expenses are higher than your income, review your expenses and identify areas where you can reduce your spending. By reducing your spending, you can generate the extra cash you’ll need to accelerate pay down of your existing credit card and loan balances. Especially when interest rates are creeping up, having a solid budget in place make it a good time to adjust your spending and savings to target debt.<h3>4. Protect your credit score.</h3>Knowing what to do when interest rates rise means understanding the importance of maintaining a good credit score. While interest rates don’t directly affect your credit scores, they can influence other factors that do. For example, when you need to take out a loan, a higher credit score may help you access better loan terms and more favorable interest rates based on your credit history. Also, since credit card default rates tend to rise when interest rates go up as it becomes more challenging for borrowers to keep up with monthly payments, staying on top of your bills is critical for protecting your credit score.As the variable rate on credit cards rise with rising interest rates, more of your monthly payment goes toward interest, which may increase your balances as well as your credit utilization–the amount of credit you’re using—both of which can have a negative impact on your credit score. While paying down your credit card balance faster can lower both your balances and credit utilization rate, if you’re able to pay your balance in full each month, it can help you avoid interest payments and may lower your credit utilization ratio, reducing the impact on your credit score.<h2>Managing personal debt when interest rates rise FAQs</h2><h3>How do rising interest rates affect me? </h3>Your monthly debt payments could increase, especially if you have variable-rate debts. It may be harder to qualify for new loans—you may need to show higher income and credit scores.<h3>Who benefits when interest rates go up? </h3>Savers and investors generally benefit from rising interest rates. As savings account and CD rates go up, deposits earn more interest.<h3>Who gets hurt when interest rates rise? </h3>Generally, borrowers with variable interest rate debt are affected the most by a rising interest rate environment. This is because their monthly payments typically increase along with rising rates. New homebuyers may also have to adjust to paying market premiums, reducing their expectations about how much home they can afford (compromising on square footage, features, etc.), or delay home-buying plans altogether as the cost of buying a home often goes up with rising interest rates. With fewer homebuyers in the market, sellers generally also face more challenges in selling their homes at the prices they were hoping to receive.<h2>The bottom line</h2>What happens when interest rates rise largely depends on the type of debt you’re carrying. At the same time, depending on your personal financial situation, it can affect your decisions about borrowing and spending money. Certain types of existing debt can get more expensive as interest rates increase, particularly variable, high-interest rate debt such as any balances you may be carrying on one or more credit cards. Accelerating your debt paydown or <a href="https://www.lendingclub.com/personal-loan/credit-card-consolidation-loan">consolidating your credit card or other variable-rate debt</a> can limit your exposure to rising interest rates, potentially saving you on the cost of borrowing in the long run.While it’s more prudent to wait until interest rates fall or stop rising before taking on new debt, maintaining a good credit score by continuing to pay your monthly bills on time can help you get the most favorable rate if you do have to take out a new loan.

Whether you're completing a large home improvement project or paying down high-interest rate credit cards—a personal loan can give you the boost you need to reach your financial goals.

While it can be easy to qualify for short-term loans—even if you have a low credit score or limited income—many come with unfavorable rates and terms. The high fees and interest rates make it an expensive form of debt, and the short repayment terms can leave borrowers financially worse off. 

While it can be easy to qualify for short-term loans — even with a low credit score or limited income — many come with unfavorable rates and terms. If you need to borrow money, short-term loans should likely be considered as a last resort. In this guide, we’ll take a closer look at what short-term loans are, how they work, and their pros and cons.[1]  <h2>What are short-term loans and how do they work?</h2>Short-term loans are a type of loan that must be repaid in a short time – often within a year or less. Short-term loans are typically used by people with <a href="https://www.lendingclub.com/resource-center/personal-finance/how-to-understand-your-credit-score">poor credit</a> that need access to money fast. Because their credit requirements are lower, short-term loans often charge a <a href="https://www.lendingclub.com/resource-center/personal-loan/apr-vs-interest-rate-whats-the-difference">higher interest rate</a> and may come with other fees and penalties. The high fees and interest rates make short-term loans an expensive form of debt that often leave borrowers financially worse off.[1]  <h2>Why do people get short-term loans? </h2>Short-term loans are often used by borrowers who need access to cash quickly, but don’t have a strong enough credit history to qualify for other types of loans, such as personal loans. Short-term loans are typically used to help cover unexpected expenses, like a medical emergency or car repair. Or they may be used to pay for important bills such as rent or utilities.[1]  <h2>4 common types of short-term loans</h2>Short-term loans vary widely. Here are some of the most common types of loans: <h3>1. Payday loans </h3>Payday loans are one of the most well-known types of short-term loans. Payday loans are sometimes referred to as cash advances, check advances, deferred deposits, or deferred presentment loans. Many payday loans require a stable income, but do not require good credit. You’ll often receive the funds, minus any fees, the same day you request the loan. In exchange, you give the lender a post-dated check for the full amount or permission to take a direct debit from your bank account on a predetermined date.[2]  <h3>2. Auto title loans </h3>Also known as car title loans, auto title loans may be another option for a short-term loan if you have poor credit. Since you need to offer your car as collateral, the lender may not require a credit check. As with payday loans, you may also receive the funds, minus any applicable fees, the same day, but failure to meet repayment terms can mean forfeiting your car.[3]   <h3>3. Pawn loans </h3>Pawn shop loans are another type of short-term secured loan. As with an auto title loan, you must provide collateral on the loan, in this case by handing over a personal possession. When you do so, you receive a loan for an amount based on the item’s value. To reclaim your property, you’ll need to pay the loan  back quickly. Otherwise, the pawn shop can take and sell your item.[1]  <h3>4. Short-term personal loans </h3>Some lenders offer short-term personal loans with quick repayment schedules and high-interest rates. Rather than making a single lump-sum repayment, as you do with a payday, auto-title, or pawn loans, you make weekly, bi-weekly, or monthly payments on a predetermined schedule. These high-rate, short-term personal loans shouldn’t be confused with other types of personal loans, which typically have longer repayment terms and lower interest rates.[1] <h2>Are there any benefits of short-term loans?</h2>Short-term loans are generally easy to qualify for and may be a good option for people with less-than-perfect credit. When applying for a short-term loan, lenders typically consider your creditworthiness and repayment history. However, not all lenders run a credit check or require a certain credit score to qualify. Short-term loans often also have quick turnaround times and low loan limits — which can make them convenient if you need to borrow cash in a pinch.[1]   <h2>Short-term loan disadvantages</h2>If you’re considering short-term loans, it’s important to understand some of their key disadvantages before accepting one. Keep in mind that interest rates, fees, and repayment terms vary widely, depending on the type of loan. So it’s important to check the fine print to be sure you fully understand the terms and total cost of your short-term loan. <h3>High interest rate  </h3>Lenders often charge higher than average interest rates on short-term loans. Rates vary greatly between the different types of short-term loans. For instance, payday loans typically charge a fee of $15 per every $100 borrowed, which equates to an annual percentage rate (APR) of nearly 400% for a two-week loan. Before taking out a short-term loan, be sure you understand the total cost of the loan.[1][2]  <h3>Can be difficult to repay </h3>Short-term loans generally need to be repaid quickly — some faster than others. While you may have a few months to pay back a short-term personal loan, other types of short-term loans have significantly shorter payment schedules. For example, most payday loans need to be repaid within two to four weeks. While many payday loans let you extend or “re-up” the loan, you may pay a fee and continue accruing interest. This puts many borrowers into a “debt trap” — continually renewing their payday loans to cover the interest and fees.[1][2]   <h3>Lots of fees  </h3>Short-term loans often come with fees that aren’t common with traditional loans. For example, if you can’t pay your payday loan back on time, you may be charged a fee to re-up the loan. Pawn shop loans not only require you to hand over a personal possession in exchange for a loan based on the item’s value, but also charge interest, fees to set up the loan, and fees to store your items. With an auto title loan, you’re required to put your car title up as collateral. If you default on the loan, the lender can seize your vehicle.[1]  <h2>Short-term loan alternatives</h2>If you lack good credit and need to borrow cash, it may seem like short-term loans are your only option. They can be costly and can lead to a cycle of debt. Before you run that risk, consider these alternatives:  <ul><li>Ask friends and family. While borrowing money from your inner circle can get complicated, it’s worth considering if you only need a small amount of cash to make ends meet or cover an unexpected expense.   </li><li>Consider a cosigner. Applying with a <a href="https://www.lendingclub.com/resource-center/personal-loan/personal-loans-with-a-cosigner-vs-co-borrower">co-borrower</a> who has a good credit history can help boost your chances of qualifying for a traditional loan or credit card. </li><li>Try a paycheck advance app. Some paycheck advance apps provide an advance on your paycheck, often with little to no fees.[4]  </li><li>Use a credit card. Interest rates tend to be high for purchases and higher still for cash advances, but they are generally still lower than payday loan rates.  </li><li>Talk to your creditors. If you’re behind on your bills, check with current lenders and credit card issuers to find out if you qualify for a hardship protection plan to pause or lower your monthly payments temporarily.  </li></ul><h2>The bottom line</h2>Sometimes a short-term loan may be your only option — especially if you need to cover an emergency expense or pay an important bill. Keep in mind that many <a href="https://www.lendingclub.com/resource-center/personal-loan/what-is-a-personal-loan-how-to-apply-in-3-simple-steps">personal loans</a> don’t require perfect credit and offer fast funding and longer, less costly repayment terms. With LendingClub Bank, you can check your loan rates without impacting your credit score in only a few minutes. So before resorting to a short-term loan, it may be worth checking to see if you qualify.[1]  <hr/><ol><li><a href="https://www.consumerfinance.gov/about-us/blog/making-ends-meet-series-consumer-use-payday-auto-title-pawn-loans/">Consumer Financial Protection Bureau</a>. “Making Ends Meet series: Consumer use of payday, auto title, and pawn loans.” </li><li><a href="https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/">Consumer Financial Protection Bureau</a>. “What is a payday loan?” </li><li><a href="https://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf">Consumer Financial Protection Bureau</a>. “Single-Payment Vehicle Title Lending.” </li><li><a href="https://www.consumerreports.org/hidden-costs/paycheck-advance-apps-benefits-and-dangers-a6358016504/">Consumer Financial Protection Bureau</a>. “The Benefits and Dangers of Paycheck Advance Apps.” </li></ol>

If you're planning on consolidating debt or making a big purchase like buying a home or new car, chances are you'll need financing to help reach your goals. Understanding the true cost of a loan is key to getting the best deal possible—and most often that starts with shopping APRs and interest rates across different lenders.

If you&#39;re planning on <a href="https://www.lendingclub.com/resource-center/personal-loan/how-many-times-can-you-consolidate-debt">consolidating debt</a> or making a big purchase, like buying a home or new car, you may be loan shopping. Understanding the true cost of a loan is key to getting the best deal possible — and most often starts with shopping interest rates and annual percentage rates (APRs) across different lenders.[1] To comply with the federal <a href="https://www.ftc.gov/legal-library/browse/statutes/truth-lending-act">Truth in Lending Act</a> (TILA), lenders are required to disclose actual and potential charges associated with a loan to prospective borrowers, including interest rate and APR. Knowing the difference can help you find the best rate and fit for your needs and budget.[1]  <h2>What is interest rate? </h2>An <a href="https://www.lendingclub.com/resource-center/personal-loan/how-to-get-a-good-personal-loan-interest-rate">interest rate</a> is the cost charged to borrow money until the balance is paid in full. Interest rates are shown as a percentage of the principal loan amount. You can expect to pay interest on <a href="https://www.lendingclub.com/resource-center/personal-loan/what-is-an-installment-loan">installment loans</a> like personal loans, auto loans, student loans, or mortgages. Interest also applies to revolving credit, such as credit cards.[1]   You can think of an interest rate as the primary price of borrowing money. Like other prices, interest rates rise and fall over time under a variety of economic influences. A major factor in the U.S. is the policy of the <a href="https://www.federalreserve.gov/releases/g19/current/">Federal Reserve</a> (Fed) and its control of the federal funds rate — the interest rate banks charge each other for overnight loans. When the federal funds rate fluctuates, <a href="https://www.lendingclub.com/glossary/f/fixed-interest-rate">fixed-rate loans</a> won’t change. But variable rates, which are common in credit cards, generally rise and fall.[1][2] <h2>What is APR (annual percentage rate)? </h2>APR, or annual percentage rate, represents the true cost of borrowing money on different types of installment loans — like mortgages, auto loans, personal loans, or student loans. <a href="https://www.lendingclub.com/glossary/r/revolving-credit">Revolving credit</a>, like credit cards and home equity lines of credit (HELOC) also have an APR.[1] [3] APR is expressed as a percentage and includes the total cost of fees and interest that you&#39;ll pay yearly on a loan. The composition of a given loan’s APR depends on the type of loan. For example, a mortgage APR includes the loan’s interest rate, plus any origination fees and closing costs. In some cases, a mortgage APR may also include mortgage points, when applicable. The APR on a personal loan, however, typically only includes the loan’s interest rate, plus any origination fees and closing costs.[1] By factoring in those fees along with the interest rate, APR allows you to compare loan terms more transparently than you can by comparing interest rates alone.[1]  With revolving credit, however, interest rate and APR are the same, so you can use either one when comparing card offers.[3] <h2>Interest rates vs APR: What’s the difference? </h2>It’s important to consider both interest rates and APR when shopping around for <a href="https://www.lendingclub.com/resource-center/personal-loan/what-is-an-installment-loan">installment loans</a>, such as personal loans and mortgages, or <a href="https://www.lendingclub.com/glossary/r/revolving-credit">revolving credit</a>, like credit cards. While the rates may seem similar, it’s a good idea to note the key differences between these two types of rates. [1]  Here’s a closer look at how APR and interest rates compare:  <table><tr><td>Interest Rate </td><td>Annual Percentage Rate (APR) </td></tr><tr><td>Percentage of the principal loan amount that the lender charges for the use of its money[1]  </td><td>Total cost of a loan over the course of 12 months[1]  </td></tr><tr><td>Only includes the interest charged on the principal loan amount[1]    </td><td>Interest rate plus additional loan charges, like origination fees, annual fees, and points[1]  </td></tr><tr><td>Expressed as a percentage[1]  </td><td>Expressed as a percentage[1]  </td></tr><tr><td>Acts as the primary price of loans and credit, reflecting market rates, plus the lender’s pricing policies[1][2][4] </td><td>Best used to understand the total cost of an installment loan, especially when comparing loan offers between lenders[1][5] </td></tr></table><h2>How are interest rates and APR calculated? </h2>Interest rates and APR are calculated in similar ways, using different factors. But calculating these rates also varies, depending on the type of loan.  <h3>How interest rates are calculated </h3>In general, interest rates are calculated as a percentage of the total loan amount, also known as the principal. For example, with personal loans or student loans, interest is often applied to the principal balance only. For instance, a $20,000 loan (60 month term) and with 15% interest rate will cost you around $8500 in interest over the life of the loan. Interest on credit cards, however, is applied to the total balance owed, plus any existing <a href="https://www.lendingclub.com/glossary/a/accrued-interest">interest you’ve accrued</a>. This is referred to as <a href="https://www.lendingclub.com/resource-center/personal-loan/compound-interest-vs-simple-interest-whats-the-difference">compound interest</a>.  <h3>How is APR calculated?  </h3>APR on a loan with simple interest is calculated using a <a href="https://www.lendingclub.com/glossary/a/annual-percentage-rate-apr">special </a><a href="https://www.lendingclub.com/glossary/a/annual-percentage-rate-apr">formula</a> that takes into account factors, including the principal, interest rate, fees, length of  the loan term. For example, the APR on an $18,000 loan with a 14% interest rate and 6% origination fee ($1080) repaid over four years is about 16%.   APR calculations can be complicated (and they’re even trickier when compound interest is involved), so it&#39;s often a good idea to use an APR calculator or ask your lender to break down the calculations for you. <h2>Can you lower your interest rate and APR? </h2>Factors that affect your interest rate and APR, include the rates set by the Fed, fees charged by the lender, the loan amount, and repayment term. When determining rates, lenders also consider your credit, repayment history, and <a href="https://www.lendingclub.com/resource-center/personal-loan/what-is-debt-to-income-ratio-how-to-improve-it">debt-to-income ratio</a>. People with good credit generally qualify for better rates than those with less-than-perfect credit histories.[1][2] Shopping around with different lenders can help you find the lowest rate. Just be sure to compare APR, rather than interest rates, to get a complete picture of what you can expect to pay for the total life of the loan. If you’re already locked into a loan, it’s unlikely you’ll be able to lower your interest rate or APR.[5]  But you may be able to save some money by making extra payments or <a href="https://www.lendingclub.com/resource-center/personal-loan/the-pros-and-cons-of-paying-off-a-personal-loan-early">paying the loan off early</a>. Before changing your payment schedule, it’s a good idea to check with your lender to make sure payments can go to the principal and double check that you won’t be hit with any penalty fees.   If your credit score has improved, <a href="https://www.lendingclub.com/resource-center/personal-loan/when-and-how-to-refinance-a-personal-loan">refinancing your existing loan</a> may be an option. With a new loan you may be able to secure a lower interest rate and APR. Before you opt to refinance, it’s important to compare refinance rates and fees.  <h2>The bottom line </h2>Interest rates and APR are both rates that can help you understand the cost of borrowing money when you take out a loan. Though these two terms are often used interchangeably , they’re actually quite different.[1] Remember, a loan’s interest rate only offers a partial view of the cost of borrowing, while APR gives you the total cost of the loan over time. Understanding these two different rates and how they’re calculated can help provide a clear picture of how much taking out a loan is going to cost you.[1]  <hr/><ol><li> <a href="https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-loan-interest-rate-and-the-apr-en-733/">Consumer Financial Protection Bureau</a>. “What is the difference between a loan interest rate and the APR?” </li><li><a href="https://www.federalreserve.gov/releases/g19/current/">Board of Governors of the Federal Reserve System</a>. “Consumer Credit - G.19.” </li><li><a href="https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-card-interest-rate-what-does-apr-mean-en-44/">Consumer Financial Protection Bureau</a>. “What is a credit card interest rate? What does APR mean?” </li><li><a href="https://www.occ.treas.gov/topics/consumers-and-communities/consumer-protection/truth-in-lending/index-truth-in-lending.html#:~:text=Share%20This%20Page%3A,for%20certain%20types%20of%20loans.">Office of the Comptroller of Currency</a>. “Truth in Lending.” </li><li><a href="https://www.consumerfinance.gov/ask-cfpb/my-payday-lender-said-my-loan-would-cost-15-percent-but-my-loan-documents-say-the-annual-percentage-rate-apr-is-almost-400-percent-what-is-an-apr-on-a-payday-loan-and-how-should-i-use-it-en-1625/">Consumer Financial Protection Bureau</a>. “My payday lender said my loan would cost 15 percent but my loan documents say the annual percentage rate (APR) is almost 400 percent. What is an APR on a payday loan and how should I use it?”  </li></ol>

Related Resource Center

From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.

From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a <a href="/member-benefits/stackit/install?utm_source=Internal&utm_medium=Blog&utm_campaignid=stackit_launch">new browser extension</a> that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.<h2>Limited Time Offer to Double Your Cash Back Through 12/31/22</h2>Stackit is a free, new cash back and rewards program available to personal loan members that’s easy to download and install. Eligible members can activate their favorite offers with one click to start saving while stacking cash back offers with existing loyalty program rewards at eligible stores.“We’re relentless when it comes to giving customers more, and Stackit is a perfect example of this,” said Amber Carroll, SVP of Membership and Lifecycle Marketing. “Stackit appears as you shop so it’s easier to activate. You can redeem your cash back for gift cards from hundreds of online stores. And you can continue accumulating loyalty points from merchants and rewards from credit cards while we stack coupon savings and cash back earnings on top of all of it,” she said. “Stackit demonstrates our promise to help members make smart money moves that are both easy and rewarding.”To celebrate the new Stackit rewards program, LendingClub is offering its personal loan members double the cash back on eligible purchases made now through the end of the year. To start earning and stacking rewards, eligible members can simply <a href="/member-benefits/stackit/install?utm_source=Internal&utm_medium=Blog&utm_campaignid=stackit_launch">add the new Stackit Extension</a> to their browsers—doubling their earnings for a limited time through 12/31/22.* Cash back can be redeemed for e-gift cards through the Earnings Dashboard.<h2>New Name, Better Rewards</h2>Earlier this year, LendingClub soft-launched its exclusive member rewards program as a separate Chrome browser extension test that was made available to a small subset of customers. Drawing from these learnings,Stackit is LendingClub Bank’s new and improved rewards program featuring a new extension, expanded browser availability, and enhanced account integration that is rolling out to a wider member audience beginning in November.Currently, any LendingClub personal loan member can download and start using the new Stackit browser extension. (Users of the old LendingClub Chrome Extension can continue earning cash back through 11/30/22; any amount remaining in users’ accounts after 11/30 will automatically be paid out via PayPal. Members are advised to add the new Stackit Extension to continue earning cash back and rewards, including double cash back, on future purchases.) In addition to Chrome,Stackit expands browser availability to Safari and Edge, and enables members to view recent transactions and cash back earnings inside their LendingClub account instead of a third-party site. Planned rollouts to LendingClub members with Auto, Deposit, and other accounts beyond personal loans are expected, however, timing is still under consideration.*Double Cash Back Offer on eligible transactions expires 12/31/22. See <a href="/legal/terms-of-use">Terms of Use</a> for full details. Offer is subject to change without notice.Stackit is a non-deposit product offered by LendingClub Bank.

Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals. 

Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals. However, recent <a href="https://www.fdic.gov/analysis/household-survey/">FDIC research</a> shows approximately 7.1 million Americans are “unbanked,” meaning they do not have a basic checking or <a href="/personal-savings">savings account</a>.<h2>Being Unbanked Increases Costs for Families</h2>Reasons for being unbanked (and underbanked) vary from not having enough money to meet a minimum balance and high or unpredictable fees, to having a history of credit, ID, or banking problems, and/or a general distrust of financial institutions.As a result, this drives unbanked individuals to expensive, alternative financial outlets—such as check cashers, payday lenders, and pawn shops that charge high fees for financial products and services—to manage their money. Such fringe financial “solutions” hold people back from making meaningful financial progress, many of whom are living on low incomes and, likely, already struggling to make ends meet. Without a <a href="/personal-checking/rewards-checking">checking account</a>, these families wind up overpaying for basic financial transactions, making it difficult for them to build savings and assets over time.<h2>More Rewarding Banking for More People</h2>In light of this, we’re proud to share that recent improvements to LendingClub Bank’s <a href="/personal-checking/rewards-checking">award-winning Rewards Checking</a> has earned us official certification by the national Cities for Financial Empowerment Fund as meeting the BankOn National Standards for trust and affordability for consumer transactional accounts.Key features of our award-winning Rewards Checking account include:<h3>Low Minimum Opening Balance</h3><ul><li>Access Rewards Checking with an opening deposit of only $25</li><li>Freedom from Fees Save more of your hard-earned money with no overdraft, monthly maintenance, and incoming wire transfer fees1</li></ul><h3>Unlimited Cash Back</h3><ul><li>Earn <a href="/personal-checking/rewards-checking">unlimited 1% cash back</a> on Qualified (signature-based) Purchases when using your Rewards Checking debit card2</li></ul><h3>Free ATM Access</h3><ul><li>Enjoy <a href="/help/checking-accounts-faq/how-do-i-earn-atm-rebates-on-my-checking">ATM access with no LendingClub ATM fees</a>, plus get unlimited ATM fee rebates on fees charged by other banks3</li></ul><h3>Get Your Paycheck Early</h3><ul><li>Set up direct deposit into your account and you could be eligible to receive your money up to 2 days earlier4</li></ul><h3>Earn Interest</h3><ul><li>Earn an APY that’s more than the national average with account balances of at least $2,5005</li></ul><h3>FDIC Insurance</h3><ul><li>Rest easy knowing your deposits are FDIC-insured up to the maximum amount allowed—$250,000 per depositor for each ownership category</li></ul><h3>Best Online Experience</h3><ul><li>Based on our easy-to-use mobile app and award-winning <a href="/personal-checking/rewards-checking">online checking account</a>, NerdWallet named us Best Bank or Credit Union for Online Experience</li></ul><h2>What Our Members Say</h2>It’s important knowing we’re offering products and services that are helping to improve the financial lives and stability of all Americans, including unbanked and underbanked individuals and families, in every community across the United States.Here’s what some of our members have to say about their Rewards Checking experience with LendingCLub Bank:“I never knew how much money I was losing with my old bank whenever I used an ATM. [LendingClub Bank] reimburses fees from ATM’s and now I look forward to getting the cash back every month.”Robin, a LendingClub Bank Member“The rewards checking account with cash back every month has helped me ditch my credit card and debt.”Lauren, a LendingClub Bank MemberRead more member reviews.<h2>Your Financial Well-Being Matters to Us</h2>At LendingClub Bank, making <a href="/personal-checking/rewards-checking">checking accounts</a> more rewarding for more people is an example of our belief that financial well-being should be attainable for everyone—not just for those who can afford it. Everything we do is centered around empowering our members to meet their personal financial goals by enabling access to a broad range of financial products, services, and educational resources, all designed to help them pay less when borrowing and earn more when saving. Testimonials reflect the real-life experiences of individuals who used our products; however, individual results may vary.<hr/><h4>Terms and Conditions</h4>Accounts subject to approval. $25 minimum opening deposit required. See Product Terms &amp; Conditions for additional details.1. Miscellaneous fees may apply. View Product Terms &amp; Conditions for complete details.2. The Debit Card Rewards Program (“Cash Back Rewards”) provides 1.00% cash-back on all Qualified Purchases using a debit card tied to an Eligible Account.Eligible Accounts are: Rewards Checking accounts that meet the following requirements for the calendar month in review:1). Maintain an average monthly balance of at least $2,500.00; or 2). Receives at least $2,500.00 in Qualifying Direct Deposits.Qualifying Direct Deposits are defined as: Recurring Automated Clearing House (ACH) credits, including payroll, pension or government payments (such as Social Security) made by your employer, or an outside agency. We may require documentation to verify that credits are Qualifying Direct Deposits. Qualifying Direct Deposits do not include peer to peer payments or ACH transfers (funds transfers) from your external accounts.Qualified Purchases are defined as: Signature-based purchases made using the debit card tied to an Eligible Account. These are “credit” purchases that can be made in stores and online. To make a signature-based purchase, select “credit” rather than debit at point-of-sale kiosks. The “credit” option is most often pre-selected when making purchases online using a debit card. Online subscription payments may not be considered signature-based purchases. The payment transaction type (signature-based or other) is ultimately decided by the merchant and is based on how the transaction is transmitted at the time of processing. Qualified Purchases do not include: (1) any goods or services purchased that are returned or otherwise credited to your Eligible Account; (2) unlawful purchases; or (3) purchases of currency, cash or cash equivalents (including, without limitation, currency from the U.S. Mint, Travelers Checks, gift cards, cryptocurrency, casino chips, peer to peer payments, prepaid debit cards, account openings, loan payments, or other cash equivalents). We may report the value of Cash Back Rewards to the IRS as required by law. Any client whose tax status would require us to impose tax withholding of any sort will not be eligible for Cash Back Rewards. Accounts are reviewed after the end of each month. Any earned Cash Back Rewards will be credited to your account on or before the 10th calendar day of the next calendar month. The Eligible Account must be open and active at the time the Cash Back Reward is credited.3. LendingClub does not charge a fee for using another bank’s ATM. Plus, get unlimited automatic ATM surcharge rebates for ATM fees other banks charge you. ATM surcharge rebates apply to cash withdrawals from a Rewards Checking account. ATM fees will be rebated at the end of each statement cycle. Excludes international exchange fees. LendingClub makes its best effort to identify those ATM fees eligible for rebate. In the event that you have not received a rebate for a fee you believe is eligible, please contact Customer Service at 800.242.0272. LendingClub reserves the right to modify or discontinue the ATM surcharge rebate program at any time. Out-of-network ATM fees cost $2.50 on average — source: CNBC as of 01/26/2022. If someone were to use an out-of-network ATM 6 times per month at an average fee of $2.50 per withdrawal, they would spend $180 in ATM fees in 12 months.4. Any account features that enable you to receive direct deposits, or that enable direct deposit funds to be made available to you early, are contingent upon and subject to the payor’s support of such features. 5. Annual Percentage Yield (APY) accurate as of 8/1/2022. Rate tiers are as follows: 0.00% APY applies to balances of $0.00–$2,499.99, 0.10% APY applies to the entire balance on balances of $2,500.00–$99,999.99, and 0.15% APY applies to the entire balance of $100,000.00 or more. Rates are variable and are subject to change, at the discretion of the bank and without notice, at any time after an account is opened. Fees may reduce earnings.

Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.

Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.As the leading digital marketplace bank in the U.S. built on the belief that innovative, creative solutions deliver more value and a better experience, we’re always looking for new ways to provide more. In early 2021, LendingClub became a bank holding company operating a national bank, allowing us to expand our products and level the playing field for everyone.  “Every day we help members leverage their money so they can earn more when saving and pay less when borrowing,” said Amber Carroll, Senior Vice President of Membership &amp; Lifecycle Marketing at LendingClub. “We&#39;re working to redefine banking, which means ensuring our interests are well aligned with those of our members and introducing new ways to better serve their needs.” Since the beginning of the pandemic, how we work, live, and manage our finances has evolved in ways most of us would never have imagined. Increasingly, more Americans across varying credit profiles are struggling to stretch their dollars between paychecks. According to a recent survey from LendingClub and PYMNTS, even among workers earning more than $100,000 per year nearly half are living paycheck to paycheck.  At LendingClub, we’re inspired every day by our members who continue to strive for financial well-being during these unprecedented times—such as by consolidating their credit card debt into a single, more manageable payment, refinancing their auto loan to free up room in their budget, or taking advantage of a CD or high-yield savings account to invest in their future. The Club is working hard to help members reach their goals and we’re incredibly proud to help simplify their path. As one of member recently shared: “This is the third time I have utilized LendingClub&#39;s great rates and lending plans to assist with home repairs and debt consolidation. Their application and payment processes are quick and simple to use. I have saved so much time and money using this funding!” — Christine, a member from Texas We believe everyone deserves a better financial future. If you’re ready to improve your financial well-being and are not already a member of the Club, we can help. From banking smarter with your <a href="/personal-deposits/online-banking">personal checking and savings</a>, to working toward larger financial goals—like <a href="/personal-loan">consolidating debt</a>, <a href="/auto-refinancing">refinancing an auto loan</a>, or making home improvements—you can easily check your rate for a personal loan in minutes, with no impact to your credit score. Thanks again to all of our members for helping us achieve this incredible milestone.

In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 

In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. During the webinar, Anuj Nayar, our Financial Health Officer, discussed:<ul><li>Our journey to get to where we are today </li><li>Lessons learned from our 15-year history as a fintech pioneer</li><li>How we’re leveraging our digital marketplace bank to further our mission to help Americans on their path towards financial health</li><li>We recently reported Q4 2021 and year-end earnings</li><li>New data on the financial health of U.S. consumers from our latest Paycheck-to-Paycheck report</li></ul>A historic milestone, as one of the first fintech company to acquire a national bank we’ve paved the way for other fintechs to follow suit. With 15 years under our belt, more than 3.9 million members, and over $70 billion in loan originations, the marriage of LendingClub’s marketplace fintech business with all the benefits of being a bank is fundamentally changing the nature of our business and influencing change across the banking industry as a whole. We’re also creating something new for our members -- a bank that puts the customer at the center of what we do. <a href="https://vimeo.com/686043451">Check out the video below to learn more.</a>

LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  

LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  This includes our yacht loan business. Yacht loans are simply not in line with our mission to help everyday Americans on their path to financial health and we plan to grow our auto refinance business to take its place.  During the review, we also thoroughly examined relationships and operating activities for the fintech partners. As a result of our review, we are asking certain partners to modify their activities and/or operations to match expectations and contractual commitments, and we have begun exiting certain partners. As part of the ongoing dialogue with these partners, we have discussed transition plans or operational changes that could impact the services available to these partners and their customers.   As a pioneer in this space, we have a unique perspective. We operated for 15 years as a fintech with a partner bank model and now we operate as a fintech, a bank, and a partner bank. We work hard at LendingClub to maintain and build a robust, secure, compliant and scalable enterprise. We are guided by our core values, our extensive experience, our deep data set and technology investments, and governed by strong controls, to deliver on behalf of our members, communities, shareholders, partners, and team members.  These business model changes will have no material effects on our business operations and we plan to report more details when we issue our Full Year 2021 and Q4 earnings in a few weeks. Scott Sanborn CEO  LendingClub<hr/>Safe Harbor StatementSome of the statements above, including statements regarding  the effect on our business operations as a result of the business model changes, are &quot;forward-looking statements.&quot; The words &quot;anticipate,&quot; &quot;believe,&quot; &quot;estimate,&quot; &quot;expect,&quot; &quot;intend,&quot; &quot;may,&quot; &quot;outlook,&quot; &quot;plan,&quot; &quot;predict,&quot; &quot;project,&quot; &quot;will,&quot; &quot;would&quot; and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Factors that could cause actual results to differ materially from those contemplated by these forward-looking statements include those factors set forth in the section titled &quot;Risk Factors&quot; in LendingClub&#39;s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, each as filed with the Securities and Exchange Commission, as well as in LendingClub&#39;s future filings made with the Securities and Exchange Commission. LendingClub may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. LendingClub does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Related Impact

{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.

A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.<h2>What is Revolving Credit?</h2>Revolving credit is a type of credit that lets you borrow money as needed up to an amount called your credit limit. Borrowing reduces your available credit, and repayment replenishes your credit limit (minus the interest and fees charged). Revolving credit does not have a fixed number of payments. This differs from installment credit which lets you borrow a lump sum and pay it back over a set number of fixed monthly payments.<h2>How Does a Revolving Line of Credit Work?</h2>It helps to think of a revolving line of credit as a renewable source of funds within a set credit limit. The lender sets the credit limit upon application approval. You can use as much of your credit limit as you need, paying interest only on the money you borrow. As you repay what you’ve borrowed (plus interest and fees), your available credit replenishes, and you can continue borrowing against your revolving line up to the credit limit.<h3>Types of Revolving Credit</h3>The most common revolving credit products are lines of credit and credit cards.Lines of credit come in different forms, including home equity lines of credit (HELOCs), personal lines of credit, and business lines of credit. Credit lines are typically issued by banks and credit unions, and generally you can draw on your line using special checks, ATM, telephone, and online banking. You’ll only pay interest on the money borrowed from your line of credit. Some lines of credit may be limited in how the funds can be used, such as only for balance transfers from credit cards.Credit cards are revolving credit accounts that, unlike lines of credit, require you make a purchase or cash advance to access your credit line. While card issuers reserve the right to change your credit limit, you can access your available credit as long as your account is in good standing. When you make purchases on a credit card, you can repay the balance in full by the end of your billing cycle to avoid interest charges and fees. If you don’t pay your outstanding balance in full,the balance “revolves,” or rolls over, to the next month and will accrue interest until paid in full. Note: Both lines of credit and credit cards can be secured or unsecured. Secured accounts require collateral; unsecured accounts do not. For example, a HELOC uses your home as collateral. Credit cards are typically unsecured, but some secured cards require cash deposits as collateral.<h3>Why is Revolving Credit Important?</h3>Revolving credit offers greater borrowing flexibility than installment credit. For instance, if you get a $10,000 installment loan for a home remodeling project, you typically receive all the money at once and must start repaying on the entire loan balance immediately plus interest on that amount—even if you don’t use the funds right away. If you need more money, you’ll have to apply for a new loan.On the other hand, if you get a line of credit or credit card with a $10,000 limit, you can draw on it as needed—say, $1,000 in January, $2,000 in April and $1,500 in June­—and interest will accrue only on the amounts you borrow. As you pay back what you’ve borrowed, your available credit is restored up to your credit limit, so you can make future purchases without needing to apply for additional credit.Since it doesn’t require fixed monthly payments, revolving credit can also offer greater payment flexibility than installment loans. If money is tight in a particular month, you have the option of only making the minimum payment on a revolving account, potentially making it easier to meet other financial obligations.Revolving credit can also serve as a financial cushion. Even if you never use it, it’s there in case you need quick access to small amounts of cash in an emergency.<h3>What Are the Risks of Revolving Credit?</h3>Revolving credit has some drawbacks you should be aware of.Collateral risk: If you fail to make payments on a secured revolving credit account, you could lose your collateral. With a secured credit card, that loss could be a few hundred dollars. With a HELOC, you stand to lose your home.High interest rates: Revolving credit typically has higher interest rates than installment credit. Interest rates for most credit cards and many lines of credit are also variable, meaning they can change over time based on economic conditions.Excessive debt: If you only make the minimum payment on a credit card, you could accumulate a large balance. Credit card interest is typically compounded, meaning interest accrues on both the balance of your purchases and on previously applied interest. Compound interest can cause your balance to snowball until it’s difficult to pay down.<h3>How Does Revolving Credit Affect Your Credit Score?</h3>Revolving credit could help your credit score in several ways.<ul><li>On-time payments: Making revolving credit payments on time could boost your credit, since timely payments are a major factor in your FICO® Score.</li><li>Responsible credit utilization: Keeping your revolving credit balance below 30% of your credit limit could increase your credit score. Ideally, you would pay your credit card balances in full each month.</li><li>Diverse credit mix: A variety of accounts, including installment credit and revolving credit, could show lenders you can successfully manage different types of debt.</li></ul>Revolving credit could also have negative impacts on your credit score when not managed responsibly. Late payments: Missing payments could have a significant negative impact on your credit score. Setting up auto-payments on your revolving credit accounts can help ensure you never miss a due date.Excessive credit utilization: Consistently carrying balances that exceed 30% of your available credit limit can reduce your credit score. Hard inquiry: When you apply for revolving credit, creditors perform a credit check called a hard inquiry, which could cause a small, temporary dip in your credit score.

{noun} The total annual cost to borrow money, including fees, expressed as a percentage.

<h2>What is Annual Percentage Rate (APR)?</h2>Annual percentage rate (APR) is the cost of borrowing money on an annual basis. APR is expressed as a percentage, to make it easier to compare the cost of credit. APR and interest rate are sometimes used interchangeably, however, APR and interest rate are different. APR includes both interest plus fees applied over the course of a loan. Because APR is a more complete measure of the cost of credit, it is usually higher than the interest rate.<h2>How is Annual Percentage Rate Calculated?</h2>To calculate APR on a loan, you’ll need to know a few other numbers first:Interest: The total interest charges paid over the life of the loan, also known as the cost of borrowing money.Fees: Review the terms and conditions of the loan to find the fees that apply to your loan. Fees vary by loan type and lender. Principal: The original loan amount.Days in the Loan Term (n): Since APR measures the annual cost of borrowing money, multiply 365 (days) by the number of years in the loan term. For loan terms under one year, use the number of days.The formula to calculate APR is: <img src="//images.ctfassets.net/orqped9h4wgz/6cJEgR4ftSGoIaSuKLlek6/a3ce252e07839182be4e7550cd09e08a/Formula-Calculate-APR.png" alt=""/>The steps to calculate APR are:<ol><li>Find the interest charges</li><li>Add the fees</li><li>Divide the sum by the principal balance</li><li>Divide by the number of days in the loan’s term</li><li>Multiply by 365</li><li>Multiply by 100</li></ol><h3>Credit Card APRs</h3>Credit card APRs do not reflect fees and since a credit card has no set loan amount or fixed repayment term, its APR is simply its interest rate.Under the Truth in Lending Act, passed in 1968, lenders and other financial institutions must disclose APR when offering credit. <h2>Why is Annual Percentage Rate Important?</h2>Knowing the annual percentage rate helps you understand the true cost of borrowing. For example, all lenders are required to disclose APR, which makes it easier to compare loans from different banks and make a more informed borrowing decision.<h2>Are There Different Types of APRs?</h2>There are different categories of APRs depending on the type of financial product.<h3>Credit Card APRs</h3>Credit cards have several APRs that may apply to different transactions or account activities.<ul><li>Purchase APR: The rate you pay for purchases. </li><li>Balance transfer APR: The rate applied if you use a card to pay down balances on other credit cards or loans. </li><li>Cash advance APR: The rate charged on ATM withdrawals or cash-equivalent transactions, like money-order purchases. </li><li>Introductory APR: A promotional interest rate for a limited period of time that is lower than the card&#39;s regular APR, sometimes as low as 0 percent APR.</li><li>Penalty APR: A higher-than-normal rate that results from violating a card’s terms of service. </li></ul><h2>What’s the Difference Between Fixed and Variable APRs?</h2>APRs can be fixed or variable. A fixed APR remains unchanged for the life of your loan. A variable APR fluctuates in sync with a published market index, like the U.S. Prime Rate. <h3>Adjustable-Rate Mortgages</h3>Home loans with variable interest rates are called adjustable-rate mortgages (ARMs). With an ARM, your APR is fixed for an initial term (typically one, three, or five years, but sometimes as long as 10 years), then resets every six or 12 months, based on market rates. <h2>What Affects APR?</h2>The APR you&#39;re offered depends on a few factors: <ul><li>Whether a loan or line of credit is secured or unsecured</li><li>Current economic conditions</li><li>Your credit history</li></ul>Lenders may also consider your income and assets, down payment, and where you live when determining your APR.<h2>How Do You Get a Good APR?</h2>Getting the best APR on a loan or credit card typically requires shopping around. Start by prequalifying with multiple lenders. Prequalifying is a quick process where you provide some basic information about your income and borrowing goal. Then, lenders respond with a preliminary, non-binding estimate of the loan amount and APR. This is typically done through a soft credit check, which doesn’t impact your credit.Then, compare the preliminary offers and submit a full application to your lender of choice. With your detailed financial information and a hard credit inquiry, which will impact your credit, lenders can make a formal loan offer that includes your APR, fees, and repayment terms. If you’re unhappy with the terms you’re offered (or if lenders decline your applications), your credit history might be the culprit. If this is the case, you can work to pay down your existing debts and bring late payments current, which can improve your credit score and chances for approval over time.

{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 

<h2>What Is Accrued Interest? </h2>Accrued interest is the amount of unpaid interest that has accumulated as of a specific date, either on a loan or credit card you’re repaying or on an interest-bearing account or investment.   Accrued interest can be owed or earned. For example, with a loan or credit card, it’s the amount of interest (payment you owe) that has been incurred since you made your last payment. With an interest-bearing account or an investment, such as a bond, it&#39;s the interest (income you earned) that has accumulated since the last time you received a payment from the financial institution or bond issuer. <h2>How Does Accrued Interest Work? </h2>The way accrued interest works depends on several factors, including the type of account, the balance or principal, the interest rate, timing, and whether you are borrowing money (such as with credit cards, auto loans, and personal loans), or earning money (such as with interest-bearing checking or savings accounts).  <h2>Accrued Interest on Loans </h2>Personal loans, auto loans, and other types of debt charge interest to their borrowers. Most lenders use the simple interest method of accounting, which means that interest that accrues each day is based only on the principal balance of the loan and doesn&#39;t compound on previously accrued interest. For example, on a personal loan, the interest on your debt accumulates daily based on your current loan balance and interest rate. When you make a loan payment, a portion of your total payment amount goes toward the interest that has accrued since your last payment and the remainder goes toward paying down the principal balance of your loan. If you have a fixed interest rate, the daily interest amount will go down over time as your principal amount owed decreases with on time payments. With variable rate loans, the amount of interest that accumulates can fluctuate along with the loan&#39;s interest rate, however there&#39;s generally a downward trend with timely payments.   <h2>Accrued Interest on Bank Accounts </h2>Generally, with interest-bearing deposit accounts, such as a high-yield checking or savings account, interest typically accumulates daily and is paid out monthly. The amount of interest that accrues is based on your balance and the account&#39;s annual percentage yield or APY (which may adjust higher or lower as rates rise or fall) and compounding interest. The higher the APY and your balance, the more you&#39;ll earn. Also, most banks and savings institutions will compound the interest you earn, usually daily. This means that the interest that accrues each day is based not only on your principal account balance but also on the interest that has accumulated since the last payment.  For example, let&#39;s say you have a $10,000 balance in a savings account with an interest rate of 5%. On the first day, your balance earns $1.37 in interest, and that gets added to your interest-earning principal—compounded—at the end of the day. That happens every day. By the end of the year, your principal will have grown to $10,512.67—$500 in interest on your principal balance, and $12.67 from the interest earned on your interest.   Calculation for daily interest rate: 0.05 / 365 = 0.000136986  Calculation for first day’s interest: 0.000136986 x 10000 = 1.36986  While your interest rate is 5% compounded daily; your total return including compounding, or <a href="https://blog.lendingclub.com/apr-vs-apy-whats-the-difference">annual percentage yield</a>,  is 5.1267%. Compounding interest increases your savings over time, especially in a rising interest rate environment. <h2>Accrued Interest on Bonds </h2>If you&#39;re investing in bonds, interest is typically paid out every six months, and the amount that accrues between payments depends on the face value of the bond and its interest rate. This calculation is known as yield to maturity. Interest on bonds does not compound; that is, you don’t earn interest on your interest. <h2>How Accrued Interest Affects Borrowers </h2>If you borrow money, understanding accrued interest gives you an idea of how your loan&#39;s costs are incurred. As you make your regular monthly payments, for instance, the amount of interest that accumulates over time decreases. And if you make additional principal payments on top of your regular payments, you can reduce how much interest accrues even more.   Keep in mind that, if you make an extra payment on a loan the lender may use some of that money to pay off the interest that has accrued since your last regular payment unless you specify otherwise. You can request that the lender put the full amount of your additional payment toward the principal balance, saving you more money on interest in the long run. Understanding how accrued interest works is particularly important if you have student loans. While college students aren&#39;t typically required to make monthly payments while they&#39;re still in school, interest accrues from the moment the loans are disbursed.  For borrowers with federal subsidized loans, the federal government will typically pay interest that accrues while they&#39;re in school and during future deferment periods. If you have unsubsidized loans or private student loans, all the interest that accumulates while you&#39;re in school (and during periods of deferment or forbearance) is added to your balance once repayment begins.  If you want to avoid a growing balance, consider making interest-only payments while you&#39;re still in school. <h2>How Accrued Interest Benefits Savers </h2>If you have an interest-bearing deposit account, look into how often (daily, weekly, monthly, quarterly, semi-annually, annually) your financial institution compounds the interest that accrues in your account. The more frequently interest is compounded (e.g., daily vs. quarterly) makes it possible for you to earn more interest more quickly. And if you&#39;ve invested in bonds, understanding how accrued interest works can help ensure that you get the money you&#39;ve earned, especially if you sell the bond between scheduled interest payments. For example, if you sell a bond three months after your last payment, you won&#39;t receive the amount of interest that accrued during that time. Because the buyer will receive the full semi-annual (every six months) interest payment despite only owning the bond for three months, they should pay you the amount that has accrued since your last payment on top of the price of the bond. <h2>How Is Accrued Interest Calculated? </h2>On loans, lenders generally calculate interest on a daily basis using either a 360-day or 365-day year. The lender will divide the loan&#39;s interest rate by one of those numbers to determine your daily interest rate, which it then applies to your balance. On interest-bearing deposit accounts, interest generally accrues daily. Depending on how often your financial institution compounds interest, the amount that accrues each day may be calculated based on the principal balance plus previously accrued interest. <h2>What Is an Example of Accrued Interest?  </h2>Let&#39;s say you have a personal loan with a $20,000 principal balance and a 12% interest rate. To calculate the amount of interest that accrues every day, you&#39;ll do the following equation: Calculation for daily interest rate: 0.12 / 365 = 0.000328767123288 Calculation for daily accrued interest: 0.000328767123288 x $20,000 = $6.58   In other words, you&#39;ll have $6.58 in daily accrued interest. Over 30 days, that amounts to $197.40.

A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.

A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.<h2>What Is a Charge-Off?  </h2>A charge-off on your credit report indicates the financial institution or creditor has written the account off as a loss and has stopped attempting to collect on a debt that you owe. However, a charge-off does not mean your debt is forgiven—it may be transferred to a collection agency or sold to a debt buyer. As long as the debt remains outstanding, you&#39;re still responsible to pay it. <h2>How Does a Charge-Off Work? </h2>When you miss a payment on a loan or credit card or have a bank account with a negative balance, the creditor or financial institution will attempt to collect the amount you owe. At some point, the creditor may determine the debt is uncollectible and decide to charge it off. This means the creditor has written off the remaining balance as a loss.  At this point, the creditor will report the account as “Charged Off” to the credit reporting agencies which will appear on your credit reports along with the account balance. If the charge-off is legitimate and you can&#39;t convince the creditor to remove it, a charge-off can remain on your credit reports for up to seven years after your first missed payment. Once a creditor has charged off a debt, they may decide to sell it to a debt buyer or transfer it to a debt collection agency for pennies on the dollar. If this happens, your account will be closed, interest will stop accruing on your balance, and your credit report will reflect that the account was &quot;Charged Off.&quot; However, you will still be liable for paying off the debt to the debt collection agency. Additionally, the collection agency may report a collection account for the same debt, further impacting your credit score. <h2>Will a Charge-Off Impact Your Credit Score? </h2>Your payment history is the most influential factor in your FICO credit score. Missing just one payment could have a significant negative impact on your credit score. If a debt balance remains unpaid long enough for the creditor to stop attempting to collect payment, the worsening delinquency and subsequent charge-off could have a long-term  and far reaching impact to your credit score.  For example, a low credit score and history of nonpayment may make it more difficult to get approved for credit in the future. It may also impact your ability to get approved for a residential lease or to qualify for lower interest rates on auto or homeowners insurance.  <h3>How Can You Repair a Charge-Off? </h3>The best way to repair a charge-off is to prevent it from happening. If you start missing payments, don&#39;t ignore the situation. Contact your lender and ask if there’s anything that can be done to help you avoid a charge-off situation. In the event your debt is charged off, as long as there is a balance, you’re still responsible for repayment which is why you should consider ways to pay off the debt as soon as possible to avoid having it go to collections. Even if you cannot pay off the debt in full, you may want to consider negotiating a payment settlement with the creditor for less than what you owe or, if necessary, having the debt discharged in bankruptcy.  In some cases, you may be able to negotiate with the lender to remove the charge-off from your credit report in exchange for full payment—a process known as “pay for delete.” Even if you can&#39;t get it removed, paying off the balance could potentially reduce the impact to your credit score.  If the creditor does sell the debt to a collection agency, you&#39;ll face more attempts to collect the amount you owe. Some debt collectors may even resort to lawsuits to force collection through a court order. <h3>How Can You Limit Charge-Off Damage? </h3>The timeframe for when a creditor decides to charge-off an account ranges from 120 to 180 days from your initial delinquency date. You&#39;ll typically receive letters and phone calls reminding you of the past-due payment, urging you to get caught up. Don&#39;t ignore the creditor—this is the best time to talk to the lender to see if you can avoid a charge-off. If you&#39;ve had an account charged off recently, contact the creditor as quickly as possible to verify the accuracy of the account details and look for opportunities to pay off some or all of the debt to avoid transfer to a collection account and further damage to your credit score. In some cases, a charge-off could be reported in error. If this happens, it could damage your credit score, so you should act quickly to dispute the negative item with the credit reporting agencies. As long as the dispute isn&#39;t frivolous, the credit bureaus are required to investigate it and remove or update the information if it&#39;s found to be innacurate.   To contact the credit bureaus:  <ul><li><a href="https://www.equifax.com/personal/credit-report-services/credit-dispute/">Equifax</a> </li><li><a href="https://www.experian.com/contact/personal-services-contacts.html">Experian</a> </li><li><a href="https://www.transunion.com/credit-disputes/dispute-your-credit">TransUnion</a> </li></ul>If the creditor decides to charge-off your account, it&#39;ll only report only to the credit reporting agencies that it normally reports to. For many lenders, it&#39;s all three, but some lenders may only report to one or two of the major credit bureaus.

{noun} An interest rate that remains the same for a set time, usually for the life of the loan.

An interest rate that remains the same for a set time, usually for the life of the loan.<h2>What Is a Fixed Interest Rate?</h2>A fixed interest rate is an interest rate that remains the same for a set time, usually for the life of the loan. With fixed-rate financing, borrowers can enjoy payment stability and avoid the risk of a variable interest rate—which may increase substantially over time, especially in rising interest rate environments.<h2>How Do Fixed Interest Rates Work?</h2>When you take out a loan with a fixed interest rate, your loan terms will define the fixed rate period.Generally, for financial products like fixed rate mortgages and personal loans, your interest rate will remain the same throughout your loan term, as will your monthly payment amounts.For financial products such as adjustable rate mortgages, the interest is variable, which means it can change periodically. Often, an adjustable rate mortgage (ARM) will have an initial period where the rate is fixed. After the fixed period, your interest rate may stay the same or it may adjust based on prevailing interest rates at the time.<h2>What Is the Difference Between Fixed and Variable Interest Rates?</h2>Fixed interest rates generally won’t change—either for the life of your loan or during a predetermined fixed period. In contrast, variable interest rates fluctuate based on market conditions and may change at any time.<h3>What Benefits Do Fixed Interest Rates Offer?</h3> Having a fixed rate loan offers several benefits for your finances.<ul><li>Financial Predictability. A fixed interest rate makes it easier to plan your finances since your monthly payments don’t fluctuate over the fixed period, usually the life of the loan. Such predictable payments can help you more easily manage your budget and alleviate stress.</li><li>Eliminate Interest Rate Risk. With a fixed interest rate, you don&#39;t have to worry if interest rates start to increase in a volatile economy. Compared to loans with variable rates, a fixed-rate loan with a lower interest rate could save you money in a rising interest rate environment.</li><li>Potentially Lower Borrowing Costs. With fixed-rate loans, you’ll know your total borrowing costs—including interest and fees—before you sign your loan documents. With variable-rate loans, it’s difficult to calculate your total borrowing costs since your interest rate may change substantially over time.</li></ul><h3>What Are the Drawbacks to Fixed Interest Rates?</h3>While a fixed interest rate can help you plan your finances for the long term, there are a few drawbacks to consider.<ul><li>Potentially Higher Rates. Adjustable-rate financial products often have lower interest rates for an initial, introductory fixed period which may temporarily lower your cost to borrow. Fixed-rate products don’t offer such “teaser” rates.</li><li>Risk in Decreasing Interest Rate Environments. If interest rates start going down, you may end up paying more to borrow on a higher interest rate than if you took out a new loan.</li><li>Refinancing Costs. Even if you decide to refinance to get a lower rate, refinancing costs may outweigh the savings you may realize, and the process can be time-consuming. It’s important to compare the total cost of borrowing of your existing versus a potentially new loan before making a decision.</li></ul><h2>What Can You Do to Get a Good Fixed Interest Rate?</h2>Generally, having a high credit score and a demonstrated track record of responsible debt management can help you land a lower fixed interest rate. In contrast, if you have a low credit score and a spotty history of on-time payments, the lender may view you as a higher-risk borrower and may not offer you the best fixed interest rate they have available.<h2>Can You Switch from a Variable Interest Rate to a Fixed Interest Rate?</h2>In most cases, you can&#39;t switch from a variable to a fixed interest rate on an existing loan. While you may be able to refinance your loan—either with your current lender or a new one—and move to a fixed-rate loan that way, it’s important to consider how well you would be able to cope with economic uncertainty. A low variable rates may be tempting initially, but should economic conditions sour and rates begin to rise rapidly, it may be difficult to find a good fixed rate when you want one. Or you may experience an unexpected obstacle, like job loss, that could make refinancing into a fixed interest rate loan difficult.<h3>Are Credit Card Interest Rates Fixed?</h3>Generally, credit card interest rates are variable, not fixed.<h3>Are Student Loan Interest Rates Fixed?</h3>It depends on the type of student loan. Student loans like Perkins Loans and PLUS Loans have fixed interest rates. Many other direct federal student loans—both subsidized and unsubsidized—have fixed rates as well.

Stephen Cutler

WHAT WE OFFER

RESOURCES

LEGAL

ABOUT US

ACCOUNT

Powered by the LC^TM platform

Stephen Cutler

WHAT WE OFFER

RESOURCES

LEGAL

ABOUT US

ACCOUNT

Powered by the LCTM platform

Powered by the LC^TM platform