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If you’re buying a car, it’s important to understand all the costs involved — including the finance charges — to make sure you’re getting the best deal. Finance charges on auto loans are the total cost of borrowing, including interest, fees, and any additional costs imposed by the lender over the life of the loan.

Read on to learn more about auto loan finance charges, how to calculate what you might pay, and ways to help minimize the cost.

What Are Finance Charges on Auto Loans?

A finance charge refers to an amount you pay to borrow money. When you get an auto loan, a finance charge is what you pay to borrow money to purchase the car.

Finance charges include interest and other types of fees that lenders impose. For example, the lender might charge a paperwork fee or an origination fee, or they might simply combine those types of fees and call it a finance charge. The charges might be separate from the interest on the loan, or they might be rolled into the cost of the loan. It largely depends on the lender and the terms of the loan.

In some cases, you may be able to minimize fees, or you may see offers to avoid origination fees, say. Read the fine print carefully to make sure you understand just what you are paying for and how.

Average Finance Charges for Auto Loans

The primary finance charge for most auto loans is interest. The interest rate you’ll be charged will generally be based on two factors:

•   Credit score: Those with higher credit scores often receive the lowest interest rates.

•   New or used car: Lenders impose higher interest rates on loans for used cars than they do on loans for new cars. Used car loans are seen as riskier since cars can depreciate rapidly and there may be condition issues with a pre-owned vehicle.

Here are some specifics according to Experian® as of the third quarter of 2024:

•   For those with the highest credit scores (known as super prime, or 781-850), a new car loan has an average interest rate of 5.08%, and a used car loan has an average interest rate of 7.41%.

•   For those with the lowest credit scores (deep subprime, or 300-500), the average rate for a new car loan is 15.43% and 21.55% for a used car loan.

It’s important to note that you won’t know your actual rate until you apply for a car loan, but these figures can give you a general idea.

Recommended: Does Financing a Car Build Credit?

Calculating Finance Charges on a Car Loan

It can be helpful to calculate the total finance charges on a car loan to get an idea of what you might have to pay. There’s a simple formula you can use to do this. First, gather all the information about the loan, including the loan amount, the annual percentage rate or APR, the length of the loan in months, and your daily balance.

Once you have the information, you can plug it into this finance charge formula:
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To calculate the finance charge, multiply the loan amount by the APR. Then, multiply the length of the loan in months by the loan’s average daily balance. Divide the first number by the second. Take that amount and add any additional fees you’re being charged to it. The resulting number is your total finance charge.

Can You Avoid Finance Charges on a Car Loan?

Unless you can pay for a car outright, there’s no way to completely avoid a finance charge on car loan. However, car manufacturers occasionally offer 0% APR financing as a promotion on specific models. Just be aware that these offers will often be available as an option vs. other discounts you might get.

While it’s difficult to avoid a financing charge altogether, there are ways to minimize the costs. First, and perhaps most obviously, do shop around for the lowest interest rate possible, which can help save you money. Your first offer isn’t necessarily the best you’ll find.

Another way to minimize financing charges is to refinance your car loan. When you refinance with a lower APR, you’ll pay less in interest if you get a lower rate or shorten your term. In addition, you can always make extra car payments or pay off your loan early, if possible, in order to minimize the interest charges.

Paying Finance Charges on a Car Loan

Some car loan finance charges are paid at the time of purchase, while others are a part of your monthly payment. The specifics depend on your lender, your loan, and the terms of the loan. When you receive your car loan statement, it will spell out the finance charges as well as the principal amount of the loan.

Recommended: Finance High Mileage Used Car

Do You Pay Finance Charges If You Are Refinancing a Car Loan?

When you refinance a car loan, you are paying off an existing loan and taking out another. And like all car loans, there is a cost to refinance a car. Some lenders charge fees, such as transaction and transfer fees, for refinancing.

However, you may be able to refinance for a lower interest rate and save money in interest overall. Find out what potential fees you might have to pay to see if refinancing at a lower interest rate is worth it for you.

The Takeaway

A finance charge on a car loan is the cost of borrowing money to buy the car. You’ll have to pay financing charges whether you’re taking out a new car loan or refinancing an existing car loan. By understanding what these charges are and how they are calculated, as well as shopping around for the best rate, you may be able to minimize these costs.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What are the finance charges on car loans?

The term finance charge is used to describe any cost you pay to borrow money. With a car loan, finance charges refer to the cost you pay for borrowing money to purchase the car. Finance charges include interest, fees, and any additional costs imposed by the lender over the life of the loan.

What is the average finance charge for an auto loan?

The average finance charge depends on the borrower’s credit score and whether the car is new or used. Lenders impose higher interest rates on loans for used cars than they do for new cars. For people with the highest credit scores, a car loan for a new car has an average rate of 11.38% as of May 2025. For those with the lowest credit scores, however, the average APR for a new car loan will be about 18.93%.

Are there any finance charges on refinanced car loans?

Yes, the finance charges that you’ll pay on a refinanced car loan are similar to those you pay when you first purchase a car. In addition, some lenders charge transaction and transfer fees, among others, for refinancing. You may be able to refinance for a lower interest rate and save money over the life of the loan. Just add up the costs to make sure refinancing is worth it for you.

Photo credit: iStock/Nastasic

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SOALR-Q225-017

You may have seen personal loans advertised as starting at a certain interest rate or annual percentage rate (APR). But when you check your personal loan interest rate, you may find that what is offered to you is significantly higher. Why is that?

The average personal loan interest rate is dependent on several factors, including the amount borrowed, credit history, and income, among others. Average interest rates for personal loans may also differ depending on the type of the loan. Here are some factors that may affect the personal loan interest rate you’re approved for.

Average Personal Loan Interest Rates By Credit Score

The APR for a personal loan is calculated by looking at several factors, including the requested amount, the applicant’s income history, and the reasons for borrowing. One of the biggest factors, however, is an applicant’s credit score. In general, the higher a borrower’s credit score, the lower the loan interest rate they will be offered.

Here’s a look at average personal loan interest rates for different credit scores as of May 2025.

Factors That Can Lower Personal Loan Interest Rates

One thing to know about how personal loans work is that your unique credit profile will likely affect the interest rate offered to you. Here’s a look at some ways you may be able to qualify for a lower personal loan interest rate.

Building Your Credit Score

Building your credit score can potentially be a way to qualify for a personal loan with better rates and terms. Some strategies that can help you positively impact your credit profile include:

•  Checking your credit report It’s a good idea to get copies of your credit reports (you have three; one each from Equifax®, TransUnion®, and Experian®) and make sure that your personal information — e.g., name, address, phone number, Social Security number — is correct in each one. Also look for any erroneous public record information, such as lawsuits or bankruptcies filed that you were not a part of and any errors or inaccuracies in the credit accounts section. You can dispute any errors with the credit reporting agency.

•  Lowering your credit utilization ratio Your credit utilization ratio — the amount of debt you have compared to the amount of credit available to you — plays a large part in credit score calculation. Paying down your debt will lower this ratio. Financial experts suggest keeping the ratio at 30% or lower (10% or lower is ideal).

•  Avoiding late payments Late payments can have a large and lasting impact on your credit score. If there are any late payments in your history, you may be able to minimize their impact by creating a record of on-time payments moving forward. Setting up autopay for debt payments is one way to make sure those payments are made regularly and on time.

Secured vs Unsecured Personal Loans

How a personal loan works depends on the type of personal loan you choose. As you research loan options, you may come across options for secured and unsecured personal loans.

What’s the difference between a secured and unsecured personal loan?

•  A secured personal loan requires the borrower to pledge collateral to guarantee the loan. This collateral is something of value that the borrower owns, such as a car, investments, or a savings account. If the borrower cannot or does not make the loan payments, then the lender can seize that collateral to recoup its losses.

•  An unsecured personal loan, also called a signature loan, is backed by the borrower’s estimated creditworthiness. If the borrower can’t pay back the loan, the lender can’t take any of their property or valuables to recoup its loss. The lender can, however, take other steps to recoup its loss, such as suing the borrower, which may affect the borrower’s credit score and future financial options.

Personal loans are commonly unsecured loans. However, some lenders offer secured personal loans, which can allow borrowers with fair credit to qualify for a loan or get a better rate than they otherwise would with an unsecured loan.

Income and Employment Status

Your income and employment status may affect the rate you’re offered on a personal loan. Lenders generally see borrowers with solid, steady income as lower risk and, therefore, offer them lower rates. If you’re a freelancer, independent contractor, or business owner, you might need additional paperwork to prove your income than you would if you work a W-2 job.

If your income is irregular, having a creditworthy co-applicant may help you get approved for more favorable interest rates. Asking someone to be a co-applicant is a big commitment, though, and having a conversation about all that it entails can help alleviate any concerns of both parties.

Factors That May Increase Personal Loan Interest Rates

Lenders must assess how risky an unsecured loan might be and the likelihood of the loan being paid back. To do that, they look at the applicant’s credit history, employment status, and loan amount requested, among other factors. Here are some things that may lead a lender to think a loan is more risky — and potentially offer a higher rate to the borrower.

Credit Score

An applicant’s credit score is one factor that affects the personal loan interest rate they might be approved for. In general, the lower the applicant’s credit score (which indicates poor management of credit in the past), the higher the rate of interest they will be offered. Improving your credit over time may make it possible to qualify for a loan with a lower interest rate.

Debt-to-Income Ratio

Debt-to-income (DTI) ratio refers to how much debt someone has in relation to how much income they have. To calculate your DTI, you add up your monthly debts (including mortgage payments, car payments, and credit card payments) then divide that number by your gross monthly income and multiply by 100. DTI ratio is expressed as a percentage. In general, the higher your DTI ratio, the riskier you may seem to lenders. Each lender sets its own DTI ratio requirement.

Unemployment

A personal loan application will ask for proof of income, usually in the form of W2s or tax returns from prior years. The lender wants to know that a borrower has a steady source of income. If a loan applicant is unemployed, it may be harder — but not impossible — to have a loan approved.

Recent Bankruptcy

Bankruptcy will appear on an applicant’s credit report and stay there for seven to 10 years, typically making it challenging to be approved for a personal loan. Applying with a cosigner can make it easier to be approved for a personal loan after recent bankruptcy. But keep in mind that if you are unable to repay the loan, your cosigner would be responsible for the debt.

Is a Personal Loan the Right Choice for You?

Individual circumstances really determine whether a personal loan is the right choice for any one person.

•  A personal loan can be a good option for people who want to consolidate high-interest debt, like that of credit cards, to save money. For a debt consolidation loan to be successful, it’s important to discontinue using the credit cards to accumulate more debt.

•  Having a fixed interest rate and steady payment amount can be helpful when using a personal loan to cover a big purchase. A personal loan is installment debt with a payment end date, in contrast to the revolving debt of a credit card.

•  A personal loan is still debt and increases a person’s overall debt load, so it can be a good idea to have a sense of how you’ll repay it. Making late payments or failing to repay the loan can negatively affect your credit score.

A personal loan rate calculator can be a helpful tool to estimate your personal loan rate and will not affect your credit score. Your offered rate may vary slightly when you officially apply for a loan, but an estimate can give you a good benchmark for comparison.

Recommended: How to Apply for a Personal Loan

The Takeaway

Personal loan interest rates vary depending on an applicant’s financial circumstances but can also vary by lender, so it can make sense to shop around for rates. If your credit profile is not as strong as it could be, you may want to work on building your credit before applying for a personal loan. This can help increase your chances of loan approval, as well as your odds of getting approved for a loan with a favorable interest rate.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What is a good interest rate on a personal loan?

A good interest rate on a personal loan could be under the almost 14.00% average for those with superior credit as of May 2025. At that time, some of the lowest rates for personal loans began at around 7.99%.

Is 10.00% a good personal loan rate?

Yes. If you have good to very strong credit (720-plus), you could qualify for a 10.00% APR, which is considered a good personal loan interest rate. It is lower than the average personal loan rate for borrowers with excellent credit, which is 13.88% as of May 2025.

Is 12.00% a good personal loan rate?

Yes, a 12.00% APR is considered a good personal loan rate as of May 2025. You would probably need a very strong credit score (possibly 720 or higher) to qualify for this rate. It beats the average personal loan interest rate for excellent credit, which is 13.88%.

Which bank has the lowest interest rate on personal loans?

According to Forbes Advisor, the best low-interest personal loans are currently available from SoFi, Upgrade, LendingClub, PenFed, Happy Money, and U.S. Bank.

What is a personal loan interest rate?

A personal loan’s interest rate is the cost you pay each year to borrow money expressed as a percentage. The interest rate does not include fees charged for the loan. The annual percentage rate (APR) of a personal loan is the cost you pay each year to borrow money, including fees, expressed as a percentage. The higher the APR, the more you’ll pay over the life of the loan.

What is the interest rate on a $40,000 loan?

The interest rate on a $40,000 personal loan will depend on the lender, the loan’s term, and the creditworthiness of the borrower. The APR can range anywhere from the single digits to 35.99% or possibly higher.

What is a good interest rate for an unsecured personal loan?

A good interest rate for an unsecured personal loan can range anywhere from 7.99% to 13.88% as of May 2025. However, you will likely need to have excellent credit to qualify.

Photo credit: iStock/alexsl

SOPL-Q225-088

Is your bedroom cluttered, depressing, and lacking warmth and coziness? If so, perhaps it’s time for a bedroom remodel, an awakening of a room that can range from paint to structural changes.

If you’re a homeowner looking to spice up or calm down your bedroom, know that bedroom remodels can have a return on investment of 20% to 45%, according to Angi, the home improvement site, as of mid-2025.

The steps you can take to renovate rooms aren’t too onerous and can often be done without the help of a contractor or other professional. Let’s take a look at the cost to remodel a bedroom, bedroom remodel ideas, and how to pay for a bedroom remodel.

How Much Does It Cost to Remodel a Bedroom?

The typical bedroom costs $20,000 as of mid-2025, according to Angi. However, the amount of money you put into a bedroom remodel depends on what you’re trying to achieve. Do you simply want to change up your décor, including your bed, bedside tables, and desk? Or do you want to paint the room a different color and add some window treatments?

You may also be looking at more extensive changes, such as ripping up carpeting and putting in new flooring, installing new windows, or building custom cabinetry in your closet.

The good news is that most bedroom remodels are less costly than renovations that entail taking down walls, rewiring electrical systems, and installing pipes, though some bedroom remodels may call for these types of tasks.

With a bedroom remodel, you’re less likely to be doing major construction that requires hiring licensed professionals like a carpenter, plumber, or general contractor. And even if you have to rely on the services of a vendor, there are likely other aspects of the project you can tackle yourself.

Recommended: The Top Home Improvements to Increase Your Home’s Value

Simple Bedroom Remodel Ideas

Decluttering is a tried-and-true way to visually open up a room. That means organizing books and magazines, laundry or piles of clothes, and furniture. Here are some other ways.

Painting

What color will turn your current space into your dream bedroom? Some of the major brands and independent companies offer online color consultations. And then, if you feel up to the task, you can avoid hiring a painter by painting your walls yourself.

You’ll want to take stock of the current trim and match a color to it. You’ll also want to consider how the room changes color depending on the time of day. Sometimes a room that looks white in the evening can take on a yellowish tint during the light of day.

You’ll want to make sure you have all the equipment you need to get the work done efficiently and well. This includes paintbrushes, a paint roller and pan, rags, sandpaper, and drop cloths.

The great thing about paint is, if you feel you’ve done a poor job in spots, you can always paint over it.

Flooring

What you do with your floors is going to depend largely on personal taste. Your choices include wall-to-wall carpeting, wood or wood-engineered flooring with or without area rugs, and tile or ceramic flooring, which works best in humid climates.

You’ll want to think about how your flooring will complement the rest of the room, including furniture. You’ll also want to take your comfort into consideration. Carpeting, for example, muffles sound, while wood flooring does not.

Some people don’t like walking barefoot on anything besides carpet, for example, while others prefer the look of bare floors.

Cost may also come into play here as wood flooring is generally more expensive than carpeting, $6 to $25 per square foot. Carpeting typically runs $3.50 to $11 a square foot, HomeAdvisor notes.

Furnishings

While some homeowners may want to keep the bedroom furniture they’re currently using, others choose to sell or donate what they have and start over.

If you’re in the latter group, you’ll want to consider the paint and flooring you’ve chosen when looking for a new bed and headboard, bedside tables, desk, and dresser.

Looking online for bedroom remodel ideas can be a low-cost way to design your bedroom décor, with many blogs and websites linking to online retailers for easy purchase.

Social media sites like Houzz and Pinterest have scores of photos and boards delineated by room, color, and style to help you brainstorm.

If your budget allows, this might be an area to bring in the help of an interior designer. An interior designer may be able to see things you don’t, such as whether you need a large desk for working from home, a bench at the end of the bed for sitting, or a changing table if you plan to grow your family in the near future.

On a tight budget? Many people find cheap furniture online, at flea markets, and from freecycle resources. Refinishing it, painting it, or otherwise freshening it up can be a fun, affordable, hands-on way to update a bedroom.

More Extensive, and Expensive, Bedroom Remodels

While bedroom remodels are typically less wide-ranging than those of a kitchen or bathroom remodel, you may opt for larger changes that can drive up your cost.

These include altering the function and structural design of a room, which may require the use of a professional.

Structural Changes

If you own a home or are looking to buy a property, the lack of an ensuite bathroom might be a big deal. Maybe you’d like to be able to pad into the bathroom in the middle of the night without tiptoeing through the hallway.

Depending on the layout of the bedroom and the rooms near it, this may necessitate turning a closet into a bathroom or building a door through a wall that conjoins your bedroom with that hallway bathroom.

Either way, you’re probably looking at hiring a plumber, carpenter, electrician, and contractor. While this type of remodeling affords you more options than sticking with your current footprint, it comes with added costs to be aware of.

Lighting and Fans

Adding recessed lights requires the work of a licensed electrician, who may have to work around obstacles like heating ducts, and will charge for both installing and wiring each light.

Ceiling fans, while pretty and useful, will likely also require hiring a professional installer to burrow through your ceiling, connect to electricity, and complete the necessary patchwork afterward.

Recommended: Guide to Buying, Selling, and Updating Your Home

Paying for It

Creating a budget and payment plan is key, no matter the size of your bedroom remodel. Some changes are so small that homeowners can pay upfront.

Those with more extensive remodels might use a home equity loan or home improvement loan. These allow you to tap into the value of your home and use the funds to finance your bedroom remodel. They typically have comparatively low interest rates, since they are secured loans with your property as collateral, but obtaining them can take a little while.

Another option would be a home improvement loan. These are a kind of personal loan, which allows you to obtain a lump sum of cash and then pay it back over time with interest. This is usually a fixed-rate personal loan, and the term extends from one to seven years in most cases.

Recommended: Personal Loan Calculator

The Takeaway

A bedroom remodel currently costs $20,000 on average. This price reflects more than just a coat of paint and a new lighting fixture, so it is possible to do the job on a tighter budget and transform your space into a dream bedroom. It could also improve the value of your home. To pay for a bedroom renovation, you might use savings, consider tapping your home equity, or take out a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How much is the typical bedroom remodel?

The average bedroom remodel costs about $20,000 as of 2025, but it’s possible to spend much less or more, depending on the scope of your project.

How long does it take to renovate a bedroom?

Depending on the extent of the work you are doing, it could take a weekend, several weeks, or even months, if structural changes are part of the plan. It’s a highly individual process.

How can you finance a bedroom remodel?

To finance a bedroom remodel, you might dip into your savings, tap home equity, or take out a personal loan. Credit cards should typically be your last resort due to their high interest rates.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q225-086

Convertible bonds are a type of corporate debt security that provide fixed-income payments like a bond, but can be converted to common shares of stock. As such, they’re often referred to as “hybrid securities.”

Most convertible bonds give investors a choice. They can hold the bond until maturity, or convert it to stock at certain times during the life of the bond. This structure protects investors if the price of the stock falls below the level when the convertible bond was issued, because the investor can choose to simply hold onto the bond and collect the interest.

How Do Convertible Bonds Work?

Companies will often choose to issue convertible bonds to raise capital in order to not alienate their existing shareholders. That’s because shareholders may be uneasy when a company issues new shares, as it can drive down the price of existing shares, often through a process called stock dilution.

Convertible bonds are also attractive to issue for companies because the coupon — or interest payment — tends to be lower than for regular bonds. This can be helpful for companies who are looking to borrow money more cheaply.

What Are the Conversion Ratio and Price?

Every convertible bond has its own conversion ratio. For instance, a bond with a conversion ratio of 3:1 ratio would allow the holder of one bond to convert that security into three shares of the company’s common stock.

Every convertible bond also comes with its own conversion share price, which is set when the conversion ratio is decided. That information can be found in the bond indenture of convertible bonds.

Convertible bonds can come with a wide range of terms. For instance, with mandatory convertible bonds, investors must convert these bonds at a pre-set price conversion ratio.

There are also reverse convertible bonds, which give the company — not the investor or bondholder — the choice of when to convert the bond to equity shares, or to keep the bond in place until maturity.

But it also allows the investor to convert the bond to stock in the case where they’d make money by converting the bond to shares of stock when the share price is higher than the value of the bond, plus the remaining interest payments.

In general, these options are not available when investing online.

How Big Is the Convertible Bond Market?

As of 2024, the size of the U.S. convertible bond market was estimated to be about $270 to $280 billion. Securities have been issued by hundreds of companies. But note that these numbers are miniscule compared to the U.S. equity market, which has trillions in value and thousands of stocks.

The total size of the convertible bond market does expand and contract, though, often with the cycling of the economy. In 2024, the total convertible bond issuance reached nearly $88 billion, versus $55 billion in 2023, and $29 billion in 2022. This may reflect the higher interest-rate environment, and companies’ desire to minimize debt payments.

Recommended: How Does the Bond Market Work?

Reasons to Invest in Convertible Bonds

Why have investors turned to convertible bonds? One reason is that convertible bonds can offer a degree of downside protection from the bond component during stock volatility. The companies behind convertibles are obligated to pay back the principal and interest.

Meanwhile, these securities can also offer attractive upside, since if the stock market looks like it’ll be rising, investors have the option to convert their bonds into shares. Traditionally, when stocks win big, convertibles can deliver solid returns and outpace the yields offered by the broader bond market.

For example, in 2024, the U.S. convertibles market returned 11.4%, outpacing the performance of all major fixed-income indices. And over the 10-year period ending December 31, 2024, convertible bonds have delivered a higher yield than equities, according to data by Bloomberg.

Recommended: Stock Market Basics

Downsides of Convertible Bonds

One of the biggest disadvantages of convertible bonds is that they usually come with a lower interest payment than what the company would offer on an ordinary bond. As noted, the chance to save on debt service is a big reason that companies issue convertibles. So, for investors who are primarily interested in income, convertibles may not be the best fit.

There are also risks. Different companies issue convertible debt for different reasons, and they’re not always optimal for investors. Under certain conditions, convertible financing can lead to “death spiral financing.”

What Is Death Spiral Debt?

The death spiral is when convertible bonds drive the creation of an increasing number of shares of stock, which drives down the price of all the shares on the market. The death spiral tends to occur when a convertible bond allows investors to convert to a specific value paid in shares, rather than a fixed number of shares.

This can happen when a bond’s face value is lower than the convertible value in shares. That can lead to a mass conversion to stock, followed by quick sales, which drives the price down further.

Those sales, along with the dilution of the share price can, in turn, cause more bondholders to convert, given that the lower share price will grant them yet more shares at conversion.

How to Invest in Convertible Bonds

Most convertibles are sold through private placements to institutional investors, so retail or individual investors may find it difficult to buy them.

But individual investors who want to jump into the convertibles market can turn to a host of mutual funds and exchange-traded funds (ETFs) to choose from. But because convertibles, as hybrid securities, are each so individual when it comes to their pricing, yields, structure and terms, each manager approaches them differently. And it can pay to research the fund closely before investing.

For investors, one major advantage of professionally managed convertible bonds funds is that the managers of those funds know how to optimize features like embedded options, which many investors could overlook. Managers of larger funds can also trade in the convertible markets at lower costs and influence the structure and price of new deals to their advantage.

The Takeaway

Convertible bonds are debt securities that can be converted to common stock shares. These hybrid securities offer interest payments, along with the chance to convert bonds into shares of common stock.

While convertible bonds are complex instruments that may not be suitable for all investors, they can offer diversification, particularly during volatile periods in the equity market. Investors can gain exposure to convertible bonds by putting money into mutual funds or ETFs that specialize in them.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

Why would an investor choose convertible bonds?

Convertible bonds offer downside protection for an investor’s principal, and also offer the potential to see equity gains as well.

What is the difference between a corporate bond and a convertible bond?

The main difference is that a corporate bond pays a fixed rate of interest that’s typically higher than a convertible bond coupon. But a regular corporate bond doesn’t offer access to an equity upside the way a convertible bond can.

Can a convertible bond be converted into cash?

Yes. First, in some cases a convertible bond may offer the option to convert to cash value rather than a pre-set number of company shares. Then, there is always the option to redeem the bond at maturity for its cash value.