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A car is typically considered totaled when the insurance company determines it will cost more to repair than the vehicle is worth. Beyond that, states have their own guidelines for when a car should be declared totaled. That guideline is called the “total loss threshold.”

Learn more about the different thresholds for totaled cars in each state, and what to do if your car is totaled in an accident.

What Is a Totaled Car?

A totaled car, according to insurance companies, costs more to repair than its current book value. An insurance company can also declare a car totaled when the vehicle may be unsafe to drive even after repairs are complete.

Not all damage is the result of a crash. Vehicles that are caught in a flood usually sustain so much damage that it’s common for a flooded car to be deemed a total loss.

What Insurance Covers When a Car Is Totaled

If your car has been damaged, you may wonder how much it’s worth. When an insurer considers a car to be totaled, they reimburse the owner for the “actual cash value,” or ACV. That is the amount the car was worth right before the crash or incident.

The ACV is not the same as what you paid for the car. That’s because the original purchase price is reduced over time by depreciation. The ACV is also typically less than what it will cost to replace the car, known as replacement value.

How Is a Totaled Car’s Value Determined?

As mentioned above, insurance online insurance companies evaluate totaled cars based on their condition and mileage just before the accident or incident. Other factors include make and model, age, and where you live.

What Is a Total Loss Threshold?

An insurance company may consider a car totaled even when repair costs are less than its ACV — sometimes quite a bit less. That’s because when a damaged car is assessed, the insurance adjuster is limited to a superficial visual inspection. It’s recognized that more damage is often uncovered during the repair process, as the mechanic takes a close look at hidden components. (By the way, some drivers might find this rundown of car insurance terms helpful.)

The total loss threshold is a set percentage of the ACV where a vehicle is still considered totaled. Each state sets its own percentage; the threshold for Alabama, for example, is 75%. Insurance companies may use a lower percentage, but they must meet the state’s minimum.

Total Loss Threshold by State

You can find your state’s total loss threshold in the table below. For states that use the “total loss formula,” the threshold is set as the vehicle’s fair market value less its salvage value.

Recommended: Insurance Tips for First-Time Drivers

Steps to Take When Your Car Is Totaled

After an accident, you probably know to call the police and then alert your insurance company as soon as possible. But then what? Here are the steps.

1. File a Claim

Filing a police report is not enough. You must contact your insurance company separately. Do so as soon after the accident as possible so they can begin working on your claim. You can also find out how much your insurance may go up after the accident if you’re found at fault.

If you’re without a vehicle, you may be interested in learning the cheapest way to rent a car.

2. Assess the Damage

Your insurance company may direct you to one of their approved body shops for a review of the vehicle and its damage. If you have your own trusted body shop, ask the insurer if you can take it there. As long as the estimate seems reasonable, then the insurer should accept it.

3. Know Your Car’s Fair Market Value

You can use sources like Kelley Blue Book (KBB.com) and Edmunds True Value (Edmunds.com) to look up your car’s value. Just enter the make, model, and year. (Users of SoFi’s Financial Insights app also have access to our Auto Tracker.)

Besides online research, you can work with a dealership to get an estimate. No matter which route you go, this is important information to have because it will give you an idea of how much your insurer may pay for your car.

4. Contact Your Lender

If you owe money on the totaled vehicle, let your lender know about the accident. Your insurer will either pay off the lender directly (if you receive enough funds to cover the balance) or write a check for you to forward to the lender. If you receive more for the totaled vehicle than you owe, then the balance beyond the loan amount goes to you.

If you have a gap insurance policy on the totaled car, that will pay off your lender if your insurance reimbursement doesn’t cover all that you owe on the vehicle.

5. Negotiate the Claim With the Insurer

Depending on who is at fault, you may or may not need to pay your insurance deductible. If your insurance assessment feels off, you may want to negotiate the ACV or the cost of repairs.

If your negotiations are fruitless, switching car insurance is always an option. You can also contact your state’s department for insurance for help.

6. Shop for a New Car

It can take two to four weeks to get a check. States usually provide time frames in which a claim should be processed. Your insurance company can also give you an estimate on their typical processing time.

Pros and Cons of Keeping a Totaled Car

Sometimes, a totaled car’s owner may want to hold onto it. This is known as an “owner-retainer option.” In this case, the insurance company will typically reimburse the owner the amount owed minus the salvage value.

The owner can take the payout and repair the vehicle to a drivable condition, which will likely cost less than buying a replacement vehicle. The downside is that the owner gets less cash and will need to get car insurance for the old vehicle, which can become a more expensive proposition than simply taking the cash. The owner may also keep the car and not fix it — or partially fix it — assuming that it’s drivable.

The owner can then sell the vehicle, perhaps to a salvage yard or other drivers for parts. You may end up getting more money than the insurance company would pay out. However, this isn’t guaranteed. Instead, you can end up with less money and more work.

Recommended: How To Save on Car Maintenance Costs

Tips for What To Do if Your Car Is a Total Loss

These three tips can make the process easier.

•   Gather your loan paperwork (if applicable), car title, and maintenance receipts to have all the information you may need at hand.

•   Remove personal belongings, such as phone chargers and sunglasses, from the vehicle. In most states, you’ll need to give the state DMV your license plate. In some states, you can keep the plates and put them on your replacement car.

•   Consider whether donating the car is a good option. You may be able to claim a tax deduction for your good deed (keep your receipt), but you won’t get the funds you would from selling the car.

The Takeaway

A car is considered totaled when the insurance company determines it will cost more to repair than the vehicle is worth. However, insurance companies often pick a figure that’s considerably lower than the vehicle’s actual cash value, because more damage is typically found once repairs have begun. That amount is called the “total loss threshold.” The legal threshold varies by state, but is typically between 60% and 100 of a vehicle’s value.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

FAQ

What is the percentage before a car is considered totaled?

You’re referring to the “total loss threshold.” After an accident, if repairing a damaged car will cost close to its actual cash value — say, 75% or more — then the insurer may consider the car totaled. This threshold varies by state but is typically 60% to 100%.

What is the total loss threshold for GA?

Georgia is a Total Loss Formula state. That means that a car is considered totaled if the cost of repairs equals the vehicle’s fair market value minus its salvage value.

What is the threshold for totaling a car?

It depends upon the state where the accident occurs and your insurance policy. Most state thresholds are 60% to 100% of a car’s value. Insurance company thresholds may be lower, but by law cannot be higher.

Photo credit: iStock/Pakhnyushchyy

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
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SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q424-004

If you’re wondering whether financing a phone builds credit, the answer is that it depends. In some cases, financing a phone may help you build credit — but only if the financing company reports your payment activity to the credit bureaus.

Further, you’ll need to consistently make on-time payments if you’d like to build your credit. If your phone account ends up in collections, that will have the opposite effect on your credit. Here’s a closer look at how financing a phone can affect credit.

How Does Cell Phone Financing Work?

Think of cell phone financing much like taking out a loan. But instead of getting funding, you’re getting a cell phone that you will then pay off over time.

Some people may decide to go this route if they don’t have enough money saved to buy a new phone outright. Others may even choose to lease a new phone, which entails making monthly payments that allow for an easy upgrade to a newer phone on a more regular basis.

When financing a phone, you’ll most likely sign a contract outlining the value of the phone and the payment terms, such as the monthly amount due and the term length.

Cell Phone Financing Options

You can find different cell phone financing options, including through your wireless carrier, phone manufacturer, or a third-party company. Depending on which option you choose, you may undergo a hard credit inquiry when you apply for financing. This could temporarily affect your credit score, given new credit is one of the factors considered in determining your FICO® score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Wireless Carrier

When you purchase or lease a phone through your wireless carrier, you’ll most likely be presented with different payment options. If you’re purchasing a phone, you may be able to sign up for a monthly payment plan — sometimes without incurring interest. You may even be able to negotiate a discount if you’re a repeat customer or choose certain wireless plans.

For those who want to lease, your wireless carrier may offer options like the ability to periodically upgrade your phone by trading in your existing phone for a newer model. Or, you may be offered the choice of buying the phone after a certain amount of payments.

Whichever option you choose, know that sales tax may not be included in your monthly payment — you’ll need to pay that upfront. Plus, you may need to make a down payment depending on your credit profile. Those with good credit, as opposed to a bad or fair credit score, may secure more favorable terms.

Recommended: When Are Credit Card Payments Due?

Phone Manufacturer

Major phone manufacturers like Apple and Samsung typically have their own installment plans to purchase their phones. With these plans, you’re approved for a certain amount that you can use to finance a phone, which you’ll then pay off over time.

Like wireless carriers, some phone manufacturers have the option to upgrade to a newer model by offering credit for trading in your existing phone. In some cases, you may be charged interest, so it’s best to review the terms before committing to a plan.

Recommended: What Is a Charge Card?

Third-Party Companies

Some electronics stores offer financing for cell phones if you open a store credit card and use it to purchase a phone. You may be able to make interest-free monthly payments if you pay for the phone in full within a certain period of time.

Recommended: How to Avoid Interest On a Credit Card

Buy Now, Pay Later

Many retailers offer buy now, pay later options. Some don’t charge interest as long as you meet their payment terms. However, there can be fairly high late fees, so check the terms and conditions before proceeding.

Cell Phone Financing Options That Build Credit

Not all cell phone financing options help you build credit. That’s because not all companies that provide financing will report your payment activity to the major credit bureaus. As such, that information won’t get added to your credit report.

That being said, there are ways that financing a phone can help you build or establish credit. This includes the following:

•   Financing through a phone manufacturer: Major phone manufacturers have their own branded credit cards or financing accounts on which they will report your activity to the credit bureaus. As long as you keep making on-time payments, this can help to build your score. To ensure your payment activity will affect your credit, it’s best to check with the manufacturer.

•   Financing through a third-party company: Many stores offer branded credit cards that you can use to finance your phone. This is another way that financing a phone can build credit, since the company will generally report your payment information to the major credit bureaus.

Recommended: Effect Paying Off Debt Has on Your Credit Score

Cell Phone Financing Options That Don’t Build Credit

In most cases, financing a phone through your wireless carrier won’t help you build your credit. That’s because these companies most likely won’t report your payment activity to the credit bureaus. If your payment activity does not appear on your credit report, it won’t have an effect on your credit.

For similar reasons, buy now, pay later plans also usually don’t help you build credit.

Should You Finance Your Phone to Build Credit?

Financing a cell phone in order to build credit is best for those who are able to consistently make on-time payments. That way, this positive payment activity will get reported to the credit bureaus and help to build your score.

However, if you’re unsure whether you’ll be able to do so, it may make sense to find an alternative way to build credit. Even one missed payment could negatively affect your credit and land you in more debt than you’d originally anticipated.

Is Financing a Cell Phone Worth It?

Financing a phone can come with some advantages, such as freeing up cash you can use to fund other financial goals. If you can get financing with zero interest and know you’ll be able to pay off your phone in full within the agreed-upon terms, then it may be worth considering if you want to have more cash available to you. If your financing plan doesn’t have a prepayment penalty, it can even give you the flexibility to pay off the phone early if you want.

However, if you need to pay interest or you believe that you won’t be able to pay off the phone within the zero-interest period, you’ll need to carefully consider the financial repercussions. Interest charges can add up, so look at your budget to see whether you can truly afford the phone you want.

If not, it may be worth holding onto your phone until you can save up for a new one or choosing to finance a phone that costs less.

Other Ways to Build Credit

Financing a phone isn’t the only way to build credit. Some of your other options include using a credit card responsibly and taking out a personal loan.

Using a Credit Card Responsibly

Using a credit card responsibly can help you build credit. Because payment history is the biggest factor in what affects your credit score, making timely payments on your credit card balance can go a long way toward building your credit score.

Plus, if you pay for your cell phone with whichever type of credit card you have, you might secure cell phone insurance coverage. See if your card offers that as a perk.

Recommended: Tips for Using a Credit Card Responsibly

Taking Out a Personal Loan

Getting a personal loan is another way to potentially build credit. How personal loans can build credit score is through on-time payments you make on the loan, since lenders will report your activity to at least one credit bureau.

Before taking out a loan, however, check the terms carefully. You’ll want to look at what interest rate you’ll be charged and what your monthly payment amount will be.

The Takeaway

Financing a phone can help you build credit, as long as the financing company reports your payment activity to credit bureaus. You will need to check with the lender to learn what their policy is. If they don’t report to the major credit bureaus, you may want to consider other ways to finance your cell phone and help build your credit.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Do cell phone financing options report to credit bureaus?

Some financing providers report payment activity to the credit bureaus, while others don’t. For instance, wireless carriers most likely won’t report payments on cell phone financing, whereas phone manufactures and some electronics stores do.

Does upgrading your phone affect your credit score?

Upgrading your phone may affect your credit score if the financing company needs to conduct a hard credit inquiry before approving you for a phone. A hard credit inquiry typically lowers your credit score slightly for a brief period of time.

How long does a phone bill stay on your credit report?

Active accounts can stay on your credit report for as long as the account is open and being reported to the credit bureaus. If you have a charged-off account — meaning your creditor has tried to collect payment from you and failed — that information may remain on your credit report for seven years.

Photo credit: iStock/Delmaine Donson

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOCC-Q424-005

For many homeowners who need cash in short order, a second mortgage in the form of a home equity loan or home equity line of credit is a go-to answer. A second mortgage can help you fund everything from home improvements to credit card debt payoff, and for some, a HELOC serves as a security blanket.

You can probably think of many things you could use a home equity loan or HELOC for, especially when the rate and terms may be more attractive than those of a cash-out refinance or personal loan.

Just know that you’ll need to have sufficient equity in your home to pull off a second mortgage.

What Is a Second Mortgage?

A second mortgage is one typically taken out after your first mortgage. Less commonly, a first and second mortgage may be taken out at the same time in the form of a “piggyback loan.”

Your house serves as collateral.

An “open-end” second mortgage is a revolving line of credit that allows you to withdraw money and pay it back as needed, up to an approved limit, over time.

A “closed-end” second mortgage is a loan disbursed in a lump sum.

It’s not called a second mortgage just because you probably took it out in that order. The term also refers to the fact that if you can’t make your mortgage payments and your home is sold as a result, the proceeds will go toward paying off your first home mortgage loan and then toward any second mortgage and other liens (if anything is left).

How Does a Second Mortgage Work?

A home equity line of credit (HELOC) and a home equity loan, the two main types of second mortgages, work differently but have a shared purpose: to allow homeowners to borrow against their home equity without having to refinance their first mortgage.

Rates

HELOCs may have lower starting interest rates than home equity loans, although HELOC rates are usually variable — fluctuating over time.

Home equity loans have fixed interest rates.

In general, the choice between a fixed- vs variable-rate loan has no one universal winner.

Costs

Home equity loans and HELOCs come with closing costs and fees of about 2% to 5% of the loan amount, but if you do your research, you may be able to find a lender that will waive some or all of the closing costs.

Some lenders offer a “no-closing-cost HELOC,” but it will usually come with a higher interest rate.

Example of a Second Mortgage

Let’s say you buy a house for $400,000. You make a 20% down payment of $80,000 and borrow $320,000. Over time you whittle the balance to $250,000.

You apply for a second mortgage. A new appraisal puts the value of the home at $525,000.

The current market value of your home, minus anything owed, is your home equity. In this case, it’s $275,000.

So how much home equity can you tap? Often 85%, although some lenders allow more.

Assuming borrowing 85% of your equity, that could give you a home equity loan or credit line of nearly $234,000.

After closing on your loan, the lender will file a lien against your property. This second mortgage will have separate monthly payments.

Types of Second Mortgages

To qualify for a second mortgage, in addition to seeing if you meet a certain home equity threshold, lenders may review your credit score, credit history, employment history, and debt-to-income ratio when determining your rate and loan amount.

Here are details about the two main forms of a second mortgage.

Home Equity Loan

A home equity loan is issued in a lump sum with a fixed interest rate.

Terms may range from five to 30 years.

Recommended: Exploring the Different Types of Home Equity Loans

Home Equity Line of Credit

A HELOC is a revolving line of credit with a maximum borrowing limit.

You can borrow against the credit limit as many times as you want during the draw period, which is often 10 years. The repayment period is usually 20.

Most HELOCs have a variable interest rate. They typically come with yearly and lifetime rate caps.

Second Mortgage vs Refinance: What’s the Difference?

A mortgage refinance involves taking out a home loan that replaces your existing mortgage. Equity-rich homeowners may choose a cash-out refinance, taking out a mortgage for a larger amount than the existing mortgage and receiving the difference in cash.

Taking on a second mortgage leaves your first mortgage intact. It is a separate loan.

To determine your eligibility for refinancing, lenders look at the loan-to-value ratio, in part. Most lenders favor an LTV of 80% or less. (Current loan balance / current appraised value x 100 = LTV)

Even though the rate for a refinance might be lower than that of a home equity loan or HELOC, refinancing means you’re taking out a new loan, so you face mortgage refinancing costs of 2% to 5% of the new loan amount on average.

Homeowners who have a low mortgage rate will not benefit from a mortgage refinance when the going interest rate exceeds theirs.

Pros and Cons of a Second Mortgage

Taking out a second mortgage is a big decision, and it can be helpful to know the advantages and potential downsides before diving in.

Pros of a Second Mortgage

Relatively low interest rate. A second mortgage may come with a lower interest rate than debt not secured by collateral, such as credit cards and personal loans. And if rates are on the rise, a cash-out refinance becomes less appetizing.

Access to money for a big expense. People may take out a second mortgage to get the cash needed to pay for a major expense, from home renovations to medical bills.

Mortgage insurance avoidance via piggyback. A homebuyer may take out a first and second mortgage simultaneously to avoid having to pay private mortgage insurance (PMI).

People generally have to pay PMI when they buy a home and make a down payment on a conventional loan of less than 20% of the home’s value.

A piggyback loan, or second mortgage, can be issued at the same time as the initial home loan and allow a buyer to meet the 20% threshold and avoid paying PMI.

Cons of a Second Mortgage

Potential closing costs and fees. Closing costs come with a home equity loan or HELOC, but some lenders will reduce or waive them if you meet certain conditions. With a HELOC, for example, some lenders will skip closing costs if you keep the credit line open for three years. It’s a good idea to scrutinize lender offers for fees and penalties and compare the APR vs. interest rate.

Rates. Second mortgages may have higher interest rates than first mortgage loans. And the adjustable interest rate of a HELOC means the rate you start out with can increase — or decrease — over time, making payments unpredictable and possibly difficult to afford.

Risk. If your monthly payments become unaffordable, there’s a lot on the line with a second mortgage: You could lose your home.

Must qualify. Taking out a second mortgage isn’t a breeze just because you already have a mortgage. You’ll probably have to jump through similar qualifying hoops in terms of home appraisal and documentation.

Common Reasons to Get a Second Mortgage

Typical uses of second mortgages include the following:

•   Paying off high-interest credit card debt

•   Financing home improvements

•   Making a down payment on a vacation home or investment property

•   As a security measure in uncertain times

•   Funding a blow-out wedding or other big event

•   Covering college costs

Can you use the proceeds for anything? In general, yes, but each lender gets to set its own guidelines. Some lenders, for example, don’t allow second mortgage funds to be used to start a business.

The Takeaway

What’s the point of a second mortgage? A HELOC or home equity loan can provide qualifying homeowners with cash fairly quickly and at a relatively decent rate. If you prefer not to have a second mortgage, you may want to explore a cash-out refinance, which is another way to put some of your home equity to use.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Does a second mortgage hurt your credit?

Shopping for a second mortgage can cause a small dip in an applicant’s credit score, but the score will probably rebound within a year if you make on-time mortgage payments.

How much can you borrow on a second mortgage?

Most lenders will allow you to take about 85% of your home’s equity in a second mortgage. Some allow more.

How long does it take to get a second mortgage?

Applying for and obtaining a HELOC or home equity loan takes an average of two to six weeks.

What are alternatives to getting a second mortgage?

A personal loan is one alternative to a second mortgage. A cash-out refinance is another.

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As artificial intelligence (AI) has become more and more prevalent, people are finding increasingly innovative ways to use the power of AI in their daily lives. That includes personal finance: AI is now being used in tools that can help with budgeting by tracking earnings, spending, and saving; noticing patterns; and finding ways to help users manage their money better.

AI budgeting tools may help some people create and stick to a budget. Learn more about how this kind of financial help might benefit you, but remember that AI is only one of many tools available. Ultimately, you are in charge of your budget and your financial future.

What Are AI Budgeting Tools?

An AI budgeting tool can mean several different things. Many existing budgeting apps have started using artificial intelligence (AI) to enhance their offerings. This can include helping users to automatically categorize transactions or manage cash flow. AI can also use predictive analysis to help you see the path you are on for hitting certain financial goals, such as saving for a down payment on a house perhaps or eliminating credit card debt.

How AI Enhances Traditional Budgeting Methods

There are many different components of a budget, and AI tools can help with many of them. AI can look at your past spending history, analyze it, and provide insights on your upcoming monthly cash flow. AI can also give you personalized recommendations on how your spending compares to other people in similar situations. That can help you identify areas where you can improve your monthly savings.

Recommended: How to Make Money From Home

Key Benefits of AI Budgeting Tools

There are also many different ways to make a budget, and an AI budget maker can help with the process. Here are four of the top benefits of AI budgeting tools:

•  Real-time tracking — You can connect your bank accounts, credit card, and other financial accounts, allowing AI to analyze your spending. This can give you real-time insights into how your money is coming and going.

•  Automated categorization — Along with tracking your spending in real time, AI can categorize your spending, which can be helpful if you, say, think in terms of a 50/30/20 budget rule. In this case, that means keeping your needs to 50% of your take-home pay and wants to 30%, while saving accounts for the remaining 20%.

•  Personalized insights — In addition to categorizing your spending and tracking your ongoing cash flow, AI can help with personalized insights about your spending. As the AI assistant learns about your spending, it can provide you with actionable information to help you improve your budget. This can be a valuable way to see if certain behaviors (such as getting take-out meals) are shifting and blowing your budget.

•  Predictive analysis — One of the biggest benefits of using an AI budget creator is that it can help predict events before they happen. This might include when you’re at risk of going over budget in a particular category or when you might need to deposit or transfer additional money to not overdraft your account.

In these ways, AI can add both tracking and insights to your financial oversight, allowing you to make the most of your money and help it grow.

Popular AI Budgeting Tools in the Market

Many budgeting and personal finance websites and apps are starting to include AI budgeting tools as part of their platform. Your bank may offer such tools as well. Just as there are various types of budgets, there are an array of apps to choose among. Here are a few apps that include some level of AI in their offerings:

•  Buddy: With the goal of financial peace of mind, this app aims to help you budget, lower bills, increase savings, and otherwise maximize your money. It offers both a free and a premium paid version.

•  Cleo: Using chatbots, emojis, and gifs to bond with users, Cleo offers a range of tools to take control of your money, including budgets, saving strategies, and credit-building options. Cleo is free, with an array of paid subscription options to access more features.

•  Copilot Money: This app uses AI as it tracks your spending, budgeting, investments, and net worth. This is a paid subscription app but often offers the first month for free.

•  Rocket Money: This app focuses on saving you money by identifying and dropping unwanted subscriptions; it can also help your wallet thanks to its tracking tools. The basic version is free; paid premium versions are available.

•  YNAB: Short for “you need a budget,” YNAB is based on the envelope system, a budgeting method in which every dollar has a job and is assigned to a specific spending or saving category. YNAB is a paid subscription service, but it often offers a free trial up front.

It may be a good idea to experiment with a few different apps to find one that has the features that you’re looking for at a price that you’re comfortable with. When it comes to living on a budget, some of these tools may suit your lifestyle and financial needs better than others.

Privacy and Security Considerations

It’s important to be thoughtful about sharing your personal data as you consider these apps. One common mistake when budgeting can be sharing your sensitive financial information with the wrong (or too many) people. While AI and other tools can help you with your budget, understand that once you share your financial information with any company or service, you have given up some control over your data.

The vast majority of popular companies have industry-standard security and privacy policies, but that doesn’t mean that they are immune to security breaches that can lead to bank fraud. Opting into multi-factor authentication (MFA) is often a smart move.

Make sure you read the privacy policies and terms and conditions of any service that you use, so you understand how your data is being used and stored. Make sure that you are comfortable with these privacy and security considerations before sharing your financial data with any company.

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The Takeaway

Artificial Intelligence (AI) is increasingly being used in personal finance, including budgeting apps. These tools can help you with money management by providing personalized insights, real-time tracking, automated categorization, and predictive analysis. Some of these apps are free, often with paid premium features, and others charge a subscription fee. While AI may not be able to completely replace or automate your budget, using it as a tool may help you strengthen your overall financial picture.

In addition to third-party budgeting apps, consider what SoFi offers to help you manage your money better.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How accurate are AI budgeting predictions?

AI budgeting predictions are only as good as the programming of the AI as well as the data that is fed into it. If you only have a few weeks of financial transaction data, an AI tool may not be able to give you particularly useful information. On the other hand, if you have months or years of financial information to input into an AI, it may be able to provide you with useful tips for living on a budget

Can AI budgeting tools replace financial advisors?

There are an array of budgeting methods, and AI can help with many of them. However, AI budgeting tools operate very differently vs. financial advisors. At this point, they are a form of technology that are unlikely to offer the insights of a finance professional. A financial advisor is someone you can forge an ongoing personal relationship with. You can plan your longer-term strategic goals and discuss any changes and obstacles you encounter along the road. AI budgeting tools may be better suited for helping you with your day-to-day budget.

Are AI budgeting tools suitable for all income levels?

AI budgeting tools can be used for people of all income levels. It’s important to understand that these tools, like budgeting itself, are only a technique that can help give you perspective on and guidelines for your money. You are still in charge of your budget and overall financial picture, and it can be a good idea to use AI as well as other tools to help you improve your finances.

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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