Normally I would wait to cover this in the mid-month debt article, but I felt that this needed a more complex review. They offer almost every financial tool you could think of: checking and savings, investing, loans, crypto, and credit checks. They even have different referral links for people to earn more money: SoFi Invest Referral Link, SoFi Checking Referral Link, and SoFi Personal Loans Referral Link.

Now, anyone who wants to dig deeper into my old posts can tell that I like to minimize interest payments. I have a strong dislike of debt, but I also understand how leverage works. Debt is an extraordinarily useful tool, but it can cause untold problems if used incorrectly.

Every so often, I’ll get an email offering me personal loans at amazing rates. I occasionally will dip into these offers to see if they are advantageous. Last week, SoFi was advantageous.

It showed me a $40,000 loan with a 6.06% APY. This rate basically including the origination fee that took $1,600 off the top and then accumulates 3.84% interest over three years, lowered to 3.59% interest due to auto-pay. The total interest at minimum payments will be around $4,016. Since my HELOC has been at a 10% interest rate, this was a very clear winner, but why did I take out $40,000 instead of $15,000 to pay off the HELOC?

Over three years, the HELOC interest alone on the $12,500 would have been $2,182. So already we save that, but my Robinhood Savings account is at 4.25% interest. I have moved $25,000 of the loan into the savings account. If I never use it to pay down the loan, it will make $3,325 in interest over three years. Roughly $900 of that would be owed on taxes, but between the HELOC and the interest we’re at $5,507 minus $4,016 minus $900. That puts us $2,591 ahead. Twenty-five hundred dollars because we put a large chunk of a loan in a HYSA. This math only works because we took out a 10% debt.

If the entire $38,400 was put into the savings account for three years, it would earn $5,050 in interest costing around $1,515 in taxes, which puts us at $3,535 in pocket or $500 below the cost of the loan.

The key part of this consolidation is the removal of the 10% interest rate. Once that is paid down, as long as the remainder of the loan sits in the savings account, I end up ahead. If the HYSA lowers its rate, then I can simply pay down the entire remaining balance out of the savings account.

The last fun math part is if I pay of the HELOC portion first, which would take 14 months of payments, and then use the $25,000 in the savings account to pay down the remaining 22 payments, which only generates $2,298 in interest, losing $1,027. However, it means the loan is paying itself off, allowing the previously utilized paycheck money to be invested into much higher-return items. After taxes, this amount is barely worth considering. While the money does allow me to over take the loan interest rate, it’s not actually worth it in the long term over using freed up money in actual investments. Which means once I reach $25,000 remaining on the loan, it is in my best interest to simply pay it off. This is mostly due to a 22% income tax, plus 2.75% state tax, and 2.75% city tax making me account for 27.5% of this interest as tax money.

TL;DR: Investing loan money can be a temporarily positive scenario, but consolidating high interest to low interest will almost always help as long as you are disciplined in your budget.

~~Miniwing~~
Investor, Stoic, Parent