SoFi, short for “Social Finance,” is an exciting new company based in Silicon Valley looking at new ways of tackling one of the biggest financial problems in the world today: student debt. Founded in 2011 by four alums from Stanford’s business school, the company helps people with good credit scores to refinance their student loan debt. This, in turn, allows debtors to pay off their loans faster, less painfully and have more money in their pocket when they’re doing it.
Well capitalized, SoFi is no fintech fly by night. As of October 2016, SoFi funded over $12 billion in loans for 175,000 members. A list of their investment funding would take up an entire article on its own, which is probably why SoFi is the first online lender to receive Moody’s coveted AAA rating.
SoFi doesn’t just limit itself to student loan refinancing. Over the last several years, SoFi has added a number of services to its portfolio, meaning that you can get basically whatever type of credit product or loan service it is that you’re looking for from SoFi. Among the services offered by SoFi include mortgages, personal loan, wealth management and parent loans.
Unless you live in Mississippi and Nevada, you will be able to take advantage of any of the attractive suite of loan services that SoFi has to offer you.
Perhaps uniquely in the world of loan services, SoFi offers a referral bonus. If you refer a friend or family member to SoFi they will thank you in the best way possible — with cold, hard cash. In fact, through SoFi’s referral program, you both get a cash bonus when they sign up to consolidate or refinance a student loan or a parent PLUS loan, to the tune of $300 for each referral. This and other perks and features of SoFi will have you running to sign up and tell your friends about it, too.
How Does SoFi Work?
So how are they doing it? What makes SoFi different from other lenders and loan refinancing services out there?
SoFi has a unique business model that’s disrupting the world of student loan refinancing and other credit products. Originally, their business model centered around alums helping alums. Alumni, when coupled with institutional investors, would come together and offer school-specific funding. The proposition was win-win: Investors received a return on their investment, while the borrowers would receive lending rates below what is typical for a student loan.
As the company moved into the broader financial services market, however, they chose to alter their approach slightly. Like all lending institutions, SoFi has their own secret sauce whereby they only offer loans to people who are considered very low risk. This lowered risk makes SoFi attractive to investors while also allowing them to offer some of the lowest interest rates in the industry.
SoFi’s proprietary underwriting model is different from most other lending companies. While SoFi will look at your credit history, they also examine your cash flow, resume and education level. Nothing is going to ever be as important as your proven ability to repay outstanding debts. However, SoFi’s broader approach means they might be able to offer you a more attractive rate than your current lender, even if you have a less-than-perfect credit rating.
The good news for student loan debtors is that SoFi handles refinancing for both private and federal student loans. In fact, SoFi are one of the few lenders to offer consolidation for both types of student loans.
Who Is SoFi Right For?
SoFi is hardly an elite club, but it does have more stringent lending criteria than most lenders. In general, you’re going to need to have at least a 660 credit score, though most people borrowing from SoFi have credit scores over 700. Again, this is part of what allows SoFi to keep their rates low across the board — a very low level of risk. What’s more, SoFi wants to see an above-average level of income in those it will be lending to. In practice, that means that the median income of one of their borrowers is $106,000 per year. SoFi will also take a look at your monthly expenses and see how they stack up to your monthly income.
On the flip side of things, SoFi doesn’t require an extensive credit history to get a loan through them. In fact, they have no requirements when it comes to how long you’ve been using credit.
One of the most interesting things about SoFi is that it orients itself toward those looking for professional advancement. To that end, they arrange networking events such as happy hours so that new professionals can network with others in their field. SoFi also offers access to career counseling and guidance. What’s more, if you lose your job while you are repaying a loan you got with SoFi, they will put your repayments on hold (though they’ll still be accumulating interest) while they help you find a new job. Wealth advisors will help you to plan for your financial future. Try getting your current student loan underwriters to do that for you.
How Much Are We Talking About In Terms of Savings?
SoFi is very proud of what it’s able to offer in terms of savings for its members. The average person looking to refinance their student loans through SoFi is going to save $288 every month and $22,359 over the life of the entire loan. That’s big savings, both on the micro and on the macro level.
All this is great, but what are their terms? SoFi will lend you between $5,000 and $100,000. You then repay that over a term of between three and seven years. Funds arrive within ten days. APRs come in both variable and fixed rates, ranging between 5 percent and 15 percent. There is no origination fee and no prepayment fee. Late payments come with a 15-day grace period and will cost you $5 or 4 percent of the payment, whichever is lower. There is no fee to process checks. A quick online pre-application will let you know what kind of rate you can expect from SoFi. Best of all, the application is free, allowing you to check out what SoFi has to offer you in terms of rates with precisely zero risk to you.
After filling out the application, SoFi will provide you with a number of different loan products and services that you’re pre-approved for. You can even sign any relevant documents right online, saving you the trouble of having to print everything out and scan it back into your computer.
Again, SoFi might be known for their student loan refinancing services, but they have more than that to offer. If you fit the profile of a SoFi customer more generally, you definitely need to check out what they have on offer if you’re in the market for a mortgage. Because of their methods for underwriting, you might qualify for significantly better mortgage products than you might through a traditional lender. What’s more, SoFi offers loans with a mere 10 percent down, including on jumbo loans, making them attractive options for people with solid credit and cash flow, but not a ton in the way of savings. When you pay 10 percent down, you won’t be paying for mortgage insurance like you will with most other lenders. Perhaps best of all, there are no origination fees, application fees or other lender-associated fees with a SoFi mortgage. SoFi even lets you compete with all-cash offers, helping you to get more house for less money.
There are four categories of mortgages offered by SoFi: First, the traditional 30-year mortgage, requiring at least 10 percent down. A 15-year mortgage is basically the same product, allowing you to pay off your mortgage in less time. Each of these offers a fixed rate for the mortgage, meaning that you won’t have to worry about your rates suddenly spiking. SoFi also offers a 7/1 adjustable rate mortgage. You lock in at the lowest rate for the first seven years. After that, rates adjust annually. Again, this mortgage product requires at least a 10-percent down payment, but does not require any mortgage insurance you have to pay for. A variation on this product is the 7/1 ARM Interest-Only. With this product, you spend 10 years paying for the interest on the loan, then the next 30 paying off the loan’s principal. The first three of these mortgage loan products are available for people looking to refinance their mortgage, while the Interest-Only loan is not.
None of SoFi’s mortgage products come with pre-payment penalties, allowing you to pay off your mortgage sooner rather than later without having to pay extra for the privilege.
Personal Loans From SoFi
Personal loans are another service offered by SoFi. Personal loans come with fixed interest rates between 5.70 APR and 14.24 APR. These loans can be used for just about anything, from paying off your existing credit card debt to investing in larger purchases than you can afford in one lump sum.
SoFi’s personal loan terms are competitive when compared to their primary competitors. Both their lowest personal loan APR and their highest personal loan APR are lower than Lending Club and Discover Personal Loan, to say nothing of how they compare to getting a “loan” from your credit cards. What’s more, they require no loan origination fee. Terms are available in three, five or seven years and instant pre-approval is available through a soft credit check. Personal loans are available between $5,000 and $100,000, meaning that SoFi has a loan available for whatever your needs are. Finally, SoFi are the only major personal loan lender to come with unemployment protection where they will halt your payments (but not the interest on those payments) if you happen to get laid off. SoFi will even help you to find a new job.
Students aren’t the only ones who can get some relief from their student loan debt with SoFi. Parent loans with SoFi start at a fixed rate of 4.125 percent and a variable rate of 3.115 percent. As with other SoFi loan products and services, there are no origination fees when you get a parent loan. Nor will your credit score take a hit for pre-approval — all credit checks done for pre-approval are soft credit checks.
The best part about getting a parent loan through SoFi is that you allow your child to focus on what is most important — getting an education. When it comes to paying back student loans, you won’t have much to worry about either, with low interest rates, flexible repayment terms and round-the-clock customer service.
What’s more, SoFi offers consolidation and refinancing loans for parents who are paying off PLUS loans, but looking for a better deal. For these types of consolidation loans, the variable interest rates start at 2.365 percent, while fixed rates start at 3.375 percent. As usual, there are no pre-payment fees or origination fees, so there’s nothing to worry about when it comes to paying things off early or borrowing the amount of money that you need.
SoFi’s Entrepreneur Plan
Another unique perk offered by SoFi is their entrepreneur plan. SoFi doesn’t think that student loans should be the reason you don’t pursue your entrepreneurial dream. Alumni of their program include Funding Circle, Meldium, Tot Squat, Strike Brewing Company, ManUP Health and many, many others.
The program is somewhat competitive, with SoFi taking between eight and 12 entrepreneurs every quarter. SoFi expects that you already have some investors or, at the very least, have been accepted into an incubator program. Many of the entrepreneurs are already in the seed round of funding, securing funding of more than $300,000. No equity is taken for participation in the program. No office space is provided, however, SoFi allows people in this program to meet investors at their offices.
In addition to student loan repayment deferrment, SoFi offers mentorship, access to investors and an unparalleled peer network.
Investing With SoFi
Yet another advantage offered by SoFi over more traditional lenders is wealth management for lenders. You shouldn’t have to delay planning for your future because of student loans. To that end, SoFi will help you with smart investing. Your first $10,000 enrolled in the program is totally free. After that, you’ll only be paying $5 per month for every $100,000 you invest. These are highly competitive rates offered by SoFi, even when compared to the traditional fees charged by robo-investors. Live advisors are on hand to help you with advice tailored to your specific financial needs and goals. Investing occurs through a variety of index funds and is automatically rebalanced, providing you with the optimum return on investment, as well as the most tax-advantaged investment strategy possible.
As you can see, SoFi seeks to cultivate a long-term financial relationship with their members, helping you to get out of debt sooner, live your dreams more fully and sock more money away toward your retirement sooner rather than later.
Is SoFi Safe and Secure?
The short answer is yes. They allow you to limit to some degree the information they will share about you with affiliates. As far as sharing your information with non-affiliates, SoFi doesn’t do this, so there’s nothing to worry about that. The company employs 256-bit SSL encryption to keep your information safe and secure while you apply for credit services through them. This is the absolute standard when it comes to encryption technology, so go ahead and look for the right loan service or product for you without worrying about your sensitive financial information falling into the wrong hands.
Is SoFi the Best Loan Refinancing and Borrowing Option?
In many ways, the answer to this question is an unambiguous, straightforward yes, provided that you fit the profile of a SoFi client more generally. Those with a credit score over 660 with student loans or other financial service needs are doing themselves a disservice if they don’t, at the very least, check to see what products and services SoFi offers that might be right for your needs.
As stated above, SoFi wants a long-term relationship with you, not just a one off. That alone makes them unique in the world of fintech.