Adoption Loans: Is it a Good Idea to Fund an Adoption with a Personal Loan?

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Adopting a child can be costly: In 2015 and 2016, the average U.S. newborn adoption cost was about $37,000. It’s easy to see why some families take out a loan to help cover adoption costs. Thankfully, there are many options to consider when it comes to funding your adoption, including personal loans.

Should You Use a Personal Loan to Pay for an Adoption?

A personal loan can be a good choice to fund your adoption, but the higher interest rates make them more expensive than other potential funding options. While personal loan interest rates range from 5% to 36%, even a person with excellent credit may only get a rate between 10% and 12%. The term on a personal loan typically ranges from one to seven years. Paying interest rates above 10% over long periods of time can be detrimental to your finances, especially when you’re just starting a family and have other new expenses to keep up with. Of course, personal loans can fund your remaining adoption expenses while you wait for other funding to come through. For example, an adoption grant or interest-free loan may take time to come through. In this case, a personal loan could be a good option, as long as you won't be penalized for paying off the loan early.

Where to Get Adoption Loans

If you’ve decided a personal loan is the right type of loan for your adoption expenses, you have quite a few options. You can look for personal loan products both in your local community and online. Consider multiple lenders to make sure you’re getting the best deal for your situation. Check with your bank or credit union along with other financial institutions in your area. Ask about personal loans and adoption-specific loans and what interest rates you would qualify for based on your credit score. After you’ve researched your local area, check online for lenders or banks that offer personal loans. In addition to online banks, you’ll want to consider peer-to-peer lenders, like LendingClub, and online personal loan companies, such as Avant and Upstart.

Alternative Ways to Fund an Adoption

There are alternative ways to fund an adoption outside of personal loans. Here are a few other possibilities to consider.

Adoption tax credit: Taxpayers can claim a nonrefundable federal adoption tax credit in the year the adoption is finalized. In 2017, the credit was worth up to $13,570 per child, which means you’ll need to pay at least $13,570 in taxes during the year to be able to claim the whole tax credit. If you owe less than $13,750 in taxes and have $13,570 of qualified adoption expenses, the credit would wipe out your tax bill, but you wouldn’t get a refund for expenses above the amount of tax you owe. The tax credit requires you to follow specific guidelines and has additional limitations, so it’s best to work with a tax professional to get an idea of how large of an adoption tax credit you may qualify for.

Interest-free adoption loan: Some organizations offer interest-free adoption loans to help families fund part of their adoption costs. While these loans may not cover all of your expenses, borrowing some of the necessary funds at a 0% interest rate could still save you quite a bit of money. Most of the organizations that offer these loans are religious in nature, such as Pathways for Little Feet, a Christian 501(c)(3) organization.

Save in advance: If you’re able to save in advance for all of your adoption expenses, you’ll be able to handle the cost without taking out a loan. If possible, save enough for the adoption and for additional expenses you'll incur after the adoption, and have an emergency fund fully stocked. We recommend new parents plan to fund at least part of the adoption with savings to avoid significant debt.

Grants: Many organizations offer grants to help fund adoptions, such as the Gift of Adoption Fund. Look both online and within your local community to see if you might qualify for grants. While a grant may not cover 100% of your adoption-related expenses, it is money that doesn’t need to be repaid. Grants are generally difficult to qualify for, so you’ll need to prepare a strong application with a compelling personal statement about why you want to adopt. Some organizations may have eligibility criteria regarding religion or marital status.

Fundraising: Consider sharing your story on a fundraising platform like GoFundMe, where others can donate to help you fund your adoption expenses. Some of these platforms charge a fee, up to 5% of the amount raised, so you may want to shop around to find the platform where you’d keep the largest portion of your donations. Platforms that do not charge a fee include GoFundMe and YouCaring.

Home equity loan or lines of credit: A home equity loan or line of credit can offer a lower interest rate than most personal loans because it is secured by your home. That said, the bank can foreclose on your home if you default on the loan. Consider whether a home equity loan is something you can afford well into the future as your expenses grow with a child or if you have an unexpected emergency such as a job loss.

Credit card: If you just need a short-term loan until other funding comes through, consider applying for a credit card with an introductory 0% annual percentage rate (APR) on purchases. Some of these introductory periods last as long as 18 months, giving you plenty of time to save up money or wait for other funding to come through.

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