A personal loan can be a relatively low-interest way to access a lump sum of cash, which is usually paid back in monthly payments. This kind of unsecured installment loan can be used for a variety of purposes, from paying off high-interest credit card debt to funding a home renovation.
Here, you’ll learn the full story on one popular option, a $10,000 personal loan.
Key Points
• A personal loan can provide a low-interest lump sum, which borrowers can use for various purposes, including debt consolidation and home renovations.
• Monthly payments for personal loans depend on factors like the loan amount, interest rate, and repayment term, with fixed or variable rates available.
• Typical requirements for qualifying include a credit score of at least 640, a steady income, and an active checking account, although options exist for those with lower scores.
• Fees, such as origination fees, can increase the overall cost of a personal loan, and borrowers should calculate the annual percentage rate (APR) for clarity on expenses.
• Fast processing times for personal loans are common, with many lenders offering same-day or next-day funding after approval, provided applicants have the necessary documentation.
Reasons to Get a $10,000 Personal Loan
Many prospective borrowers are attracted to personal loans because of the freedom and flexibility that they offer compared to some alternatives. Reasons to get a $10,000 loan might include the following:
• To pay off an unforeseen expense, such as costly car repairs or a major medical bill. (A borrower might use a lesser sum, like a $5,000 personal loan, in some situations.)
• To consolidate other debts. For example, assume you have a $10,000 balance between two credit cards, each having an interest rate of over 20%. You might be able to secure a $10,000 personal loan with a significantly lower interest rate to pay off that debt.
• To pay for a home renovation.
• To start a side hustle.
• Any other need for a cash infusion.
💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.
$10,000 Personal Loan Terms
Depending on the lender, the repayment periods typically range from 12 months to 84 months.
You can shop around for a personal loan with terms that allow for affordable monthly payments. Keep in mind that a longer term likely means you will pay more interest over the life of the loan.
When calculating the overall costs of a personal loan, consider such factors as the principal amount borrowed, interest rate, fees, and the loan term. You might use an online personal loan calculator to help you tally up costs.
$10,000 Personal Loan Monthly Payments
Personal loans are typically repaid over a multi-year term through monthly payments. The cost of the monthly payments is influenced by the interest rate that applies to the specific loan. Interest rates are essentially the fees charged by the lender for providing the loan.
The lowest interest rates are typically offered to consumers with a good to excellent credit history and may also be influenced based on other factors including their current income. Generally speaking, lenders may increase their interest rates if they think an applicant presents higher risk for timely repayment.
The following chart shows the impact that interest rates have on the monthly payment and also how choosing a longer-term loan can increase the overall cost of the loan.
Principal
Interest Rate
Loan Term
Monthly Payment
Total Interest Paid
$ 10,000
6.0%
24 months
$ 443.21
$ 636.95
$ 10,000
10.0%
24 months
$ 461.45
$ 1,074.78
$ 10,000
6.0%
48 months
$ 234.85
$ 1,272.81
$ 10,000
10.0%
48 months
$ 253.63
$ 2,174.04
Personal loan interest rates are generally fixed, which means the monthly payment will remain the same. Variable-rate personal loans are offered by some lenders, and payments will be influenced by market conditions.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
$10,000 Personal Loan Fees
In addition to interest, some lenders charge origination fees that will also increase the overall cost of the loan.
The combination of the interest rate and any applicable fees is the annual percentage rate (APR) of the loan. Calculating the APR is necessary for determining the true cost of the loan. Recent Federal Reserve data shows the average APR of a 24-month personal loan to be 12.17%.
It’s important for applicants to closely review the terms of any potential loan agreement. For example, a lender may charge a late fee when payments are not received on time, and some may have prepayment penalties that apply if a borrower pays off the loan ahead of schedule.
What Credit Score Do You Need To Get a $10,000 Personal Loan?
Your credit score is a three-digit number that a lender checks to assess your creditworthiness. The most popular credit scoring systems (like FICO® Score) usually range from 300 to 850. Your credit score is calculated largely based on your credit history because past consumer behavior tends to predict the future.
There’s no single credit score needed for getting a personal loan. Keep in mind that $10k loan represents an average personal loan amount (the current average is $11,548). Rates may vary depending on the size of your loan.
Can You Get a $10,000 Personal Loan With Bad Credit?
In general, you need a credit score of 640 to qualify for a personal loan. If you have bad credit (say, in the lower “poor” or “very poor” range), you might still be able to secure a loan, but potentially at a higher interest rate.
How Long Does It Take to Get a $10,000 Personal Loan?
Personal loans are known for offering fast processing — or funding — times, particularly among online lenders. Many lenders today offer same-day or next-day funding of personal loans after approval. Applicants should be properly prepared with the documentation necessary to confirm their identity, address, and income, as well as current bank statements.
Requirements for a $10,000 Personal Loan
Requirements will vary across lenders. However, qualifying for a $10,000 personal loan typically requires a credit score that exceeds 640, an active checking account, and a steady, verifiable income, among other factors.
Top $10,000 Personal Loan Lenders
Lender
Minimum Credit Score
APR Range
Loan Amounts
SoFi
None
8.99% to 25.81%
$5,000 to $100,000
LightStream
660
8.49% to 25.49%
$5,000 to $100,000
Upstart
None
6.40% to 35.99%
$1,000 to $50,000
Discover
660
7.99% to 24.99%
$2,500 to $40,000
Upgrade
560
8.49% to 35.99%
$1,000 to $50,000
The Takeaway
If you’re considering a personal loan, it’s a good idea to take the time to compare the various options available and make sure you understand the terms and costs of a loan. A $10,000 personal loan is close to the average amount borrowed currently, which indicates that these loans are typically accessible. Those with less-than-perfect credit are likely to encounter significantly fewer choices and higher interest rates and fees.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
What is the monthly payment on a $10,000 personal loan?
The monthly payment on a $10,000 personal loan will fluctuate based on your credit score, the loan’s interest rate and fees, and the term of the loan, among other factors.
Do I need at least a 620 credit score to get a $10,000 loan?
There is no formal minimum credit score needed for getting a personal loan. Different minimums may apply across the various institutions that offer personal loans in the $10,000 range. Those with a 640 or higher credit score are likely to find a number of options for a $10,000 personal loan; those with higher scores may have more options as well as more favorable terms.
How long will it take to get a $10,000 loan?
Fast-funding options including same-day and next-day loans are common for 10,000 dollar loans. As long as you are prepared with some basic documentation that verifies your identity, address, and income, rapid approval and funding may be available.
Photo credit: iStock/Edwin Tan
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.
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 .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
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.
Credit cards and personal lines of credit both allow you to borrow money over time until you hit a credit limit. You typically pay back what you owe on a monthly basis, paying interest on your balance.
Each method has its pros and cons (for example, while a line of credit may have a lower interest rate, it likely won’t offer rewards and may be tougher to qualify for). Here, you’ll learn the ins and outs of a personal line of credit vs. a credit card so you can decide which is right for you.
What Is a Personal Line of Credit?
A personal line of credit operates under the same concept as a credit card, with slight differences. It’s a type of revolving credit that allows you to borrow a set amount, which is typically based on your income. Here are details to know:
• The majority of personal lines of credit are unsecured, meaning there’s no collateral at risk if you default on payments. However, you can obtain a secured personal line of credit at some institutions if you put down a deposit. This deposit will be used to pay your balance due if you default on payments, but it can also help you achieve a lower interest rate. Personal loans secured by a deposit are typically used as a method for building credit.
• A home equity line of credit (or HELOC) is similar to a secured personal line of credit in that your house acts as the collateral in the loan. You’re borrowing against the equity in your home. If you default on payments, your house could be foreclosed on to make up the difference.
💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.
How Does a Personal Line of Credit Work?
Get acquainted with how a personal line of credit works:
• As with any other credit transaction, personal lines of credit are reported to the three major credit bureaus. You will have to provide details about your financial standings in order to qualify for a personal line of credit. Typically, this comes in the form of demonstrating your income, in addition to other requirements.
• The interest rate for a personal line of credit usually fluctuates with the market conditions, such as the prime rate. You may also have to pay a fee each time you use your personal line of credit.
• Some banking institutions may require you to have a checking account established with them before offering you a personal line of credit. This is critical for using your personal line of credit, since the money can be transferred to a linked checking account. (In some cases, you might receive funds via a payment card (similar to a debit card) or use special checks to move the funds.
• Personal lines of credit contain what’s called a “draw period.” During this predetermined amount of time, you can use your available credit as you please, as long as you don’t go over the limit.
• Once the draw period reaches its end, you may be required to either pay your remaining balance in full or pay it off by a certain date after that.
What Is a Credit Card?
Is a credit card a line of credit? Not exactly. A credit card is a type of unsecured revolving credit that includes a credit limit. This limit is determined by your financial situation, which requires a hard credit check. There are credit cards for practically all types of credit scores, from poor all the way up to excellent.
Many credit cards offer rewards in the form of cash back or travel rewards. You may also receive a bonus for signing up for a new account, either as rewards or as an interest-free, introductory financing period. Also, a credit card can offer cardholder benefits such as purchase protection or travel insurance.
How Does a Credit Card Work?
Your personal bank or other financial institutions may offer their own credit cards, but you don’t have to belong to a particular bank or lender in order to qualify for a credit card. After you’ve applied for a credit card and been approved, the lender will likely set a credit limit.
• When you make a purchase with a credit card, it constitutes a loan. At the end of each billing cycle you’ll receive a statement. You can usually avoid interest charges by paying your statement balance in full.
• If you choose to pay a lesser amount, you’ll incur interest charges. Credit cards typically charge high interest, so it’s important to stay on top of the amount you owe, which can increase quickly.
• If you don’t make a payment by the statement due date, you will likely also incur a late payment fee. Interest charges and fees are added to the account balance, and interest will accrue on this new total.
• If you miss payments by 60 days typically, you could be assessed a higher penalty APR.
Now that you know a bit more about each of these options, you know that the answer to “Is a line of credit the same as a credit card?” is no. Now, take a closer look at the difference between a line of credit and a credit card.
Similarities
Both personal lines of credit and credit cards are types of revolving credit. This means you can borrow up to a certain amount as it suits you, as long as you pay the balance back down in order to make room for future purchases.
Both personal lines of credit and credit cards also report your balance and payment history to the three major consumer credit bureaus.
Differences
Here’s a quick summary of the main differences between personal lines of credit and credit cards.
Features
Personal Line of Credit
Credit Card
Interest rate
Typically lower than credit cards
Typically higher than personal lines of credit
Borrowing limit
Often up to $50,000 or more
Typically, $28,000 but varies
Rewards
None
Many cards offer cash back or travel rewards
Fees
Annual fee, late payment fees, fees for drawing on account
Annual fees, balance transfer fees, late payment fees and penalty APRs, overdraft fees
Application process
Can be lengthy
Usually very simple
Grace period
No
Yes
Other benefits
Good for emergency and/or unexpected expenses
Many cards offer travel insurance, purchase protection, and other benefits.
💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why credit card consolidation loans are so popular.
Pros and Cons of Personal Lines of Credit
There are times when a personal line of credit can make life much simpler. However, you may have to accept certain tradeoffs.
Pros
Cons
Lower fees for a cash advance
Potential fees for usage
High borrowing limits
Preset credit lifespan
Lowwe interest rates
No spending rewards or perks
Funds can be used at your discretion
No interest-free grace period
You only pay interest on what you borrow
Annual fee
Pros and Cons of Credit Cards
Credit cards are a powerful financial tool you can use to wisely manage your spending. Knowing the terms of the game, however, is just as important as learning how to be responsible with credit cards.
Pros
Cons
Many cards offer rewards for spending
Some cards have annual fees
Can be used for retail purchases
Typically high interest rates
One for practically every credit score
Hefty fees for cash advances
Useful tool in establishing and/or rebuilding credit
Besides personal lines of credit and credit cards, there are a few other types of financial products you can use to access credit.
Personal Loans
It may be easy to get personal loans vs. lines of credit confused, but it’s crucial to know the difference. For example, a personal line of credit is a potential amount that can be borrowed. Personal loans, however, are a lump sum of money that you receive shortly after your approval. Here’s how this kind of loan typically:
• Obtaining either a secured or unsecured personal loan requires a credit check. The potential amount you may be able to borrow ranges from $1,000 all the way up to $40,000 or more.
• Some personal loans are taken out for a specific purpose, such as a home renovation, a personal line of credit can often be used for whatever reason crops up. For example, you may want to go with a personal loan instead of a line of credit if you need to make home renovations.
• A personal loan rate calculator can be used to see what terms you may be able to expect. While these calculators may not give you the exact terms you’ll receive if you do obtain a personal loan, they can be a great starting place.
Auto Loan
Many people don’t have thousands of dollars sitting around to help pay towards a new car, so they use auto loans. An auto loan is a kind of personal loan that’s secured by the title of the vehicle.
If the borrower fails to pay the loan, the vehicle can be repossessed. And the name of the lender typically appears on the title of the car, so the loan must be paid off before the car can be sold.
Mortgage
A mortgage, or home loan, is a loan that’s secured by a real estate property. Because of the inherent value of real estate, a home mortgage can often have a lower interest rate than other types of secured loans. Most home mortgages are installment loans that have a fixed repayment period, such as 30 years or 15 years.
A home equity loan or a home equity line of credit is a second mortgage taken out against the existing equity in a property. Because of their low interest rates these are sometimes used instead of unsecured personal loans.
Student Loans
Student loans can allow students to fund their education; you may not need to start paying those loans off until you’ve graduated.
Federal student aid can help pay for college-related costs as well. The Free Application for Federal Student Aid (FAFSA®) is one way to determine how much and what type of federal student aid students and parents might qualify for. Some individual colleges also use the FAFSA in determining eligibility for their own financial aid programs.
Private student loans are another option, both for loans and to refinance federal loans. In terms of the latter, however, there are two important considerations:
• If you refinance federal student loans with private loans, you forfeit the federal benefits and protections, such as forgiveness.
• If you refinance for an extended term, you may pay more interest over the life of the loan.
• For these reasons, think carefully about whether private student loans suit your situation.
The Takeaway
Personal lines of credit are similar to credit cards in that they are both generally unsecured loans issued based on your personal creditworthiness. By understanding how a credit card differs from a personal line of credit, you can choose the loan that best fits your needs or decide to access cash through an alternative method.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Here’s a list of the most common questions associated with personal lines of credit and credit cards.
Is a personal line of credit the same as a credit card?
Personal lines of credit and credit cards are similar but not the same. A credit card is a form of payment accepted by merchants and a kind of revolving loan. A personal line of credit is a revolving loan, and the funds are typically transferred to the borrower’s personal bank account before they are used for purchases. Credit cards can also have numerous benefits not offered by a personal line of credit but the interest rate may be higher.
Are there additional risks to lines of credit vs credit cards?
Both personal lines of credit and credit cards require you to pay back what you owe, whether it’s on a monthly basis or at the end of the draw period, in the case of a line of credit. Making late payments or missing payments can negatively affect your credit score and incur fees.
Do personal lines of credit affect your credit score?
Yes, personal lines of credit, just like credit cards, are subject to reporting to the major credit bureaus. If you make late payments or miss payments, your credit score can be negatively affected. However, personal lines of credit can also be used to build your credit if you make your payments on time and use your credit responsibly.
Photo credit: iStock/Deepak Sethi
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.
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 .
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
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.
Whether it’s a cozy micro-cabin or a rambling Colonial, your home is probably the single largest purchase you’ll ever make and your biggest physical asset. An investment like that is worth protecting.
That’s where homeowners insurance comes in; it gives you peace of mind that if you were to have major damage or get robbed, there would be funds to repair and restore your home. But what happens when you think it’s time to change your policy?
Here’s what you need to know about switching your homeowners insurance policy, as well as a step-by-step guide to getting it done as quickly as possible and with a minimum of hassles.
Can I Switch Homeowners Insurance at Any Time?
Good news: yes! No matter the reason, you’re allowed to change your homeowner’s insurance at any time. This is good, since shopping around for the right policy can save you a lot of money in some instances.
If you’re shopping for a new home as we speak, it can be a good idea to start looking at insurance before you sign the purchase agreement. And if you’re an existing homeowner looking to save money or simply find a new policy, you absolutely can do so whenever you like. But it’s important to follow the steps in order to ensure you don’t accidentally have a lapse in coverage.
💡 Quick Tip: Homeowners insurance covers three basic categories: the building itself, the belongings inside, and your liability if someone gets hurt on your property.
When Should I Change My Homeowners Insurance?
There are certain events that should also trigger a review of your insurance, including paying off your mortgage (your rates may well go down) and adding a pool (your rates may go up). Also, you may find you are offered deals if you bundle your homeowners insurance with, say, your car insurance; that might be a savings you want to consider.
You never know what options might be available out there to help you save some money. And since homeowners insurance can easily cost more than $1,800 per year, it can be well worth shopping around.
How Often Should I Change My Homeowners Insurance?
You’re really the only person who can answer this one, but in general, it’s a good idea to at least review your coverage annually.
However, it does take time and effort. Sometimes, a cheaper policy means less coverage, so it’s not always a good deal. Be sure you’re able to thoroughly review all the fine print and make sure you know what you’re getting.
Ready to change your homeowners insurance? Follow these steps in order to ensure you don’t accidentally sustain a loss in coverage!
Step One: Check the Terms and Conditions of Your Existing Policy
The first step toward changing your homeowners insurance policy is ensuring that you actually want to change it in the first place!
Take a look at your existing policy and see what your coverage is like, and be sure to look closely to see if there are any specific terms about early termination. While you always have the right to change your homeowners insurance policy, there could be a fee involved. In many instances, you may have to wait a bit to receive a prorated refund for unused coverage.
Step Two: Think about Your Coverage Needs
Once you have a handle on what your current insurance covers, you can start shopping for new insurance in an informed way. You probably don’t want to “save money” by accidentally purchasing a less comprehensive plan. But do think about how your coverage needs may have shifted since you last purchased homeowners insurance.
For example, the value of your home may have changed (lucky you if your once “up and coming” neighborhood is not officially a hot market). Or perhaps you’ve added on additional structures or outbuildings and need to bump up your policy to cover those.
Step Three: Research Different Insurance Companies
Now comes the labor-intensive part: looking around at other available insurance policies to see what’s on offer. Keep your current premiums and deductibles in mind as you shop around. Saving money is likely one of the main objectives of this exercise, though sometimes, higher costs are worth it for better coverage.
Make sure you are carefully comparing coverage limits, deductibles, and premiums to get the best policy for your needs. Also consider whether the policy is providing actual cash value or replacement value. You may want to opt for a slightly pricier “replacement value” so you have funds to go out and buy new versions of any lost or damaged items, versus getting a lower, depreciated amount.
In addition to the theoretical coverage you encounter, it’s a good idea to stick with insurers with a good reputation. All the coverage in the world doesn’t matter if it’s only on paper; you need to be able to get through to customer service and file a claim when and if the time comes!
Fortunately, many online reviews are available that make this vetting process a lot easier. A few reputable sources for ratings: The Better Business Bureau and J.D. Power’s Customer Satisfaction Survey, and Property Claims Satisfaction Study. You can also do some of the footwork yourself by calling around to get quotes, though this is time-intensive and you might want to simply use an online comparison tool instead.
Step Four: Start Your New Policy, Then Cancel Your Old One
Found a new insurance plan that suits your needs better than your current one? Great news! But here’s the really important part: You want to get that new policy started before you cancel your old one.
That’s because even a short lapse in coverage could jeopardize your valuable investment, as well as drive up premiums in the future. Once you’ve made the new insurance purchase call and have your new declarations page in hand, you are ready to make the old insurance cancellation call. Be sure to verify the following with your old insurer:
• The cancellation date is on or after the new insurance policy’s start date.
• The old insurance policy won’t be automatically renewed and is fully canceled.
• If you’re entitled to a prorated refund, find out how it will be issued and how long it will take to arrive.
Congratulations: You’ve got new homeowners insurance!
The last step, but still a very important one, is to notify your mortgage lender about your homeowners insurance change. Most mortgage lenders require homeowners insurance, and they need to be kept up-to-date on who’s got your back should calamity strike. Additionally, if you still owe more than 80% the home value to your lender, they may still be paying the insurer for you through an escrow account — so you definitely want to make sure those payments are going to the right company.
💡 Quick Tip: A basic homeowners insurance plan doesn’t cover floods, earthquakes, or sinkholes. If you live in an area prone to natural disasters, you may want to look into supplemental coverage.
The Takeaway
Homeowners insurance is an important but often expensive form of financial protection. It can help you cover the cost of repairing or rebuilding your home if you undergo a covered loss or damage. Since our homes are such valuable investments, they’re worth safeguarding. Plus, most mortgage lenders require homeowners insurance.
Sometimes, changing your policy can help you save money for comparable or better coverage. Reviewing and possibly rethinking your homeowners insurance is an important process, especially as your needs and lifestyle evolve. If you’ve added on to your home, put in a pool, bought a prized piece of art, or are enduring more punishing weather, all are signals that you should take a fresh look at your policy and make sure you’re well protected.
If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.
Find affordable homeowners insurance options with SoFi Protect.
Photo credit: iStock/MonthiraYodtiwong
Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.
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.
If you rent, rather than own, your home, you’re off the hook for homeowners insurance. But you may still need or want renters insurance, which can help cover your assets in the event of a calamity.
Like all other forms of insurance coverage, choosing a renters insurance policy involves choosing a deductible, which will have an effect on your overall policy cost.
Let’s learn more about how a renters insurance deductible works and how to choose one that’s right for your circumstances.
What Is a Renters Insurance Deductible?
If you have renters insurance and wind up needing to file a claim, the insurance company will still expect you to pay some of the cost. That out-of-pocket expense is called your deductible, and is separate from the premium you pay on a regular basis to keep the policy active.
For example, say you have a renters insurance policy that covers up to $20,000 worth of your belongings in the event of a covered loss. If your deductible is a flat $500, you’d pay $500, and the insurance company would pay $19,500 toward replacing your belongings.
Your deductible might also be calculated as a percentage of your property coverage. So in this example, if your deductible is 2%, you’d pay $400 (2% of $20,000) and the insurer would pay out $19,600.
Your premium, on the other hand, is the amount you pay monthly or annually in order to support the policy. In the case of renters insurance, that might be about $200 a year, or around $20 or less a month.
💡 Quick Tip: Online renters insurance can cover your belongings not just at home but also in your car and on vacation.
Choosing a Renters Insurance Deductible
You may be happy to know that you have some agency when it comes to choosing your renters insurance deductible. While many policies offer flat deductible options of either $500 or $1,000, certain companies do offer lower or higher amounts. Occasionally, you may even find a program available with a $0 or 0% deductible, which means you wouldn’t pay anything out of pocket if you were to make a claim.
Paying less during a time of loss probably sounds like an unmitigated good thing. But there is a bit of a catch. Generally speaking, the lower your deductible, the higher your premium, which means you’re paying more on a regular basis for a benefit you might get if a loss occurs.
On the other hand, if you hedge your bets and go for a high deductible, your regular premium payments will be lower — but you’ll be on the hook for a lot more if you do need to file a claim.
How Does Your Renters Insurance Deductible Affect Your Premiums?
While the inverse relationship between deductibles and premiums is fairly standard, other factors do play into your specific renters insurance costs.
For example, your insurer may cut you a break if you have certain security equipment installed, such as an alarm system or smoke alarm. On the other hand, if you live in what’s deemed a high-risk area or your credit score could use some work, your available coverage options may be more expensive, even if you choose a high deductible.
Renters Insurance by State
Because different states have different risk levels, both for criminal activity and natural damage, the average cost of renters insurance varies depending on what state you’re in. Here are the average monthly renters insurance premiums by state, per data from the Zebra:
• Alabama: $23
• Alaska: $15
• Arizona: $20
• Arkansas: $26
• California: $18
• Colorado: $17
• Connecticut: $24
• Delaware: $21
• District of Columbia: $20
• Florida: $21
• Georgia: $22
• Hawaii: $20
• Idaho: $16
• Illinois: $20
• Indiana: $28
• Iowa: $14
• Kansas: $21
• Kentucky: $17
• Louisiana: $38
• Maine: $12
• Maryland: $19
• Massachusetts: $18
• Michigan: $22
• Minnesota: $13
• Mississippi: $26
• Missouri: $24
• Montana: $19
• Nebraska: $16
• Nevada: $17
• New Hampshire: $14
• New Jersey: $19
• New Mexico: $19
• New York: $26
• North Carolina: $23
• North Dakota: $13
• Ohio: $18
• Oklahoma: $23
• Oregon: $16
• Pennsylvania: $19
• Rhode Island: $24
• South Carolina: $18
• South Dakota: $14
• Tennessee: $19
• Texas: $32
• Utah: $14
• Vermont: $9
• Virginia: $18
• Washington: $14
• West Virginia: $24
• Wisconsin: $14
• Wyoming: $11
Keep in mind that your specific monthly price will vary further based on your city and even your neighborhood, as well as many other factors. Check with your insurer for actual insurance premium prices available to you.
Renters insurance can be a truly valuable tool if you suffer a loss as a renter. While it doesn’t cover the structure of your home the way homeowners insurance does — the building’s owner is responsible for those costs — renters insurance does cover your belongings in case of damage or theft. It also covers personal liability costs in the event that someone is injured while at your home and sues you.
Some landlords require renters insurance, while others don’t. But for most renters, it’s a good idea to at least consider it, especially since it’s usually pretty affordable. (Many renters insurance programs cost less than $200 per year or about $15 to $20 monthly.)
Do keep in mind that renters insurance, like all types of insurance coverage, doesn’t cover everything.
What Does Renters Insurance Cover?
Generally, renters insurance offers coverage in the following four categories:
• Personal property: This covers your possessions.
• Personal liability: This would take care of the medical or legal fees you might incur if someone is hurt while at your home.
• Loss-of-use or additional living expenses: This covers the money you’d need to spend to find yourself a place to stay and food to eat if your home was, for some reason, rendered unlivable.
• Additional coverages: These may be purchased to cover items and services that wouldn’t otherwise be eligible for coverage on your policy (such as lock replacement).
Keep in mind also that certain high-value categories of items may have coverage limits, though these can often be exceeded if you purchase a separate rider or endorsement for them. These categories may include cash, jewelry, watchers, fur clothing, and firearms.
💡 Quick Tip: It’s important to create an inventory of your personal possessions in case you ever need to file a renters insurance claim. One easy way to do that is to walk through your home and photograph all your belongings — especially anything of value.
The Takeaway
Renters insurance is a kind of insurance that can cover your belongings and personal liability if you’re a renter. Like other forms of insurance, a deductible likely applies. The lower the deductible you choose, the higher your premium is likely to be.
While insurance isn’t anyone’s favorite bill to pay, it’s the kind of thing you’re grateful for when you do turn out to need it.
Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.
Explore renters insurance options offered through SoFi via Experian.
Photo credit: iStock/Edwin Tan
Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.
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.
By Janet Siroto |
Insurance |
Comments Off on How Much Auto Insurance Do I Really Need?
Figuring out just how much car insurance you really need can be a challenge.
At minimum, you’ll want to make sure you have enough car insurance to meet the requirements of your state or the lender who’s financing your car. Beyond that, there’s coverage you might want to add to those required amounts. These policies will help ensure that you’re adequately protecting yourself, your family, and your assets. And then there’s the coverage that actually fits within your budget.
We know it may not be a fun topic to think about what would happen if you were involved in a car accident, but given that well over five million drivers are involved in one every year, it’s a priority to get coverage. Finding a car insurance policy that checks all those boxes may take a bit of research — and possibly some compromise. Here are some of the most important factors to consider.
How Much Car Insurance Is Required by Your State?
A good launching pad for researching how much car insurance you need is to check what your state requires by law. Only two states do not require a car owner to carry some amount of insurance: New Hampshire and Virginia. If you live elsewhere, find out how much and what types of coverage a policyholder must have. Typically, there are options available. Once you’ve found this information, consider it the bare minimum to purchase.
💡 Quick Tip: Saving money on your fixed costs isn’t always easy. One exception is auto insurance. Shopping around for a better deal really can pay off.
Types of Car Insurance Coverage
As you dig into the topic, you’ll hear a lot of different terms used to describe the various kinds of coverage that are offered. Let’s take a closer look here:
Liability Coverage
Most states require drivers to carry auto liability insurance. What it does: It helps pay the cost of damages to others involved in an accident if it’s determined you were at fault.
Let’s say you were to cause an accident, whether that means rear-ending a car or backing into your neighbor’s fence while pulling out of a shared driveway. Your insurance would pay for the other driver’s repairs, medical bills, lost wages, and other related costs. What it wouldn’t pay for: Your costs or the costs relating to passengers in your car.
Each state sets its own minimum requirements for this liability coverage. For example, in California, drivers must carry at least $15,000 in coverage for the injury/death of one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property. The shorthand for this, in terms of shopping for car insurance, would be that you have 15/30/5 coverage.
But in Maryland, the amounts are much higher: $30,000 in bodily injury liability per person, $60,000 in bodily injury liability per accident (if there are multiple injuries), and $15,000 in property damage liability per accident. (That would be 30/60/15 coverage.)
And some may want to go beyond what the state requires. If you carry $15,000 worth of property damage liability coverage, for example, and you get in an accident that causes $25,000 worth of damage to someone else’s car, your insurance company will only pay the $15,000 policy limit. You’d be expected to come up with the remaining $10,000.
Generally, recommendations suggest you purchase as much as you could lose if a lawsuit were filed against you and you lost. In California, some say that you may want 250/500/100 in coverage – much more than the 15/30/5 mandated by law.
Collision insurance pays to repair or replace your vehicle if it’s damaged in an accident with another car that was your fault. It will also help pay for repairs if, say, you hit an inanimate object, be it a fence, tree, guardrail, building, dumpster, pothole, or anything else.
If you have a car loan or lease, you’ll need collision coverage. If, however, your car is paid off or isn’t worth much, you may decide you don’t need collision coverage. For instance, if your car is old and its value is quite low, is it worth paying for this kind of premium, which can certainly add up over the years?
But if you depend on your vehicle and you can’t afford to replace it, or you can’t afford to pay out of pocket for damages, collision coverage may well be worth having. You also may want to keep your personal risk tolerance in mind when considering collision coverage. If the cost of even a minor fender bender makes you nervous, this kind of insurance could help you feel a lot more comfortable when you get behind the wheel.
Comprehensive Coverage
When you drive, you know that unexpected events happen. A pebble can hit your windshield as you drive on the highway and cause a crack. A tree branch can go flying in a storm and put a major dent in your car. Comprehensive insurance covers these events and more. It’s a policy that pays for physical damage to your car that doesn’t happen in a collision, including theft, vandalism, a broken window, weather damage, or even hitting a deer or some other animal.
If you finance or lease your car, your lender will probably require it. But even if you own your car outright, you may want to consider comprehensive coverage. The cost of including it in your policy could be relatively small compared to what it would take to repair or replace your car if it’s damaged or stolen.
Personal Injury Protection and Medical Payments Coverage
Several states require Personal Injury Protection (PIP) or Medical Payments coverage (MedPay for short). This is typically part of the state’s no-fault auto insurance laws, which say that if a policyholder is injured in a crash, that person’s insurance pays for their medical care, regardless of who caused the accident.
While these two types of medical coverage help pay for medical expenses that you and any passengers in your car sustain in an accident, there is a difference. MedPay pays for medical expenses only, and is often available only in small increments, up to $5,000. PIP may also cover loss of income, funeral expenses, and other costs. The amount required varies hugely depending on where you live. For instance, in Utah, it’s $3,000 per person coverage; in New York, it’s $50,000 per person.
Uninsured/Underinsured Motorist Coverage
Despite the fact that the vast majority of states require car insurance, there are lots of uninsured drivers out there. The number of them on the road can range from one in eight to one in five! In addition, there are people on the road who have the bare minimum of coverage, which may not be adequate when accidents occur.
For these reasons, you may want to take out Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage. Many states require these policies, which are designed to protect you if you’re in an accident with a motorist who has little or no insurance. In states that require this type of coverage, the minimums are generally set at about $25,000 per person and $50,000 per accident. But the exact amounts vary from state to state. And you may choose to carry this coverage even if it isn’t required in your state.
If you’re seriously injured in an accident caused by a driver who doesn’t carry liability car insurance, uninsured motorist coverage could help you and your passengers avoid paying some scary-high medical bills.
Let’s take a quick look at some terms you may see if you shop for this kind of coverage:
Uninsured motorist bodily injury coverage (UMBI)
This kind of policy covers your medical bills, lost wages, as well as pain and suffering after an accident when the other driver is not insured. Additionally, it provides coverage for those costs if any passengers were in your vehicle when the accident occurred.
With this kind of policy, your insurer will pay for repairs to your car plus other property if someone who doesn’t carry insurance is responsible for an accident. Some policies in certain states may also provide coverage if you’re involved in a hit-and-run incident.
Underinsured motorist coverage (UIM)
Let’s say you and a passenger get into an accident that’s the other driver’s fault, and the medical bills total $20,000…but the person responsible is only insured for $15,000. A UIM policy would step in and pay the difference to help you out.
Guaranteed Auto Protection (GAP) Insurance
Here’s another kind of insurance to consider: GAP insurance, which recognizes that cars can quickly depreciate in value and helps you manage that. For example, if your car were stolen or totaled in an accident (though we hope that never happens), GAP coverage will pay the difference between what its actual value is (say, $5,000) and what you still owe on your auto loan or lease (for example, $10,000).
GAP insurance is optional and generally requires that you add it onto a full coverage auto insurance policy. In some instances, this coverage may be rolled in with an auto lease.
Non-Owner Coverage
You may think you don’t need car insurance if you don’t own a car. (Maybe you take public transportation or ride your bike most of the time.) But if you still plan to drive occasionally — when you travel and rent a car, for example, or you sometimes borrow a friend’s car — a non-owner policy can provide liability coverage for any bodily injury or property damage you cause.
The insurance policy on the car you’re driving will probably be considered the “primary” coverage, which means it will kick in first. Then your non-owner policy could be used for costs that are over the limits of the primary policy.
Rideshare Coverage
If you drive for a ridesharing service like Uber or Lyft, you may want to consider adding rideshare coverage to your personal automobile policy.
Rideshare companies are required by law in some states to provide commercial insurance for drivers who are using their personal cars — but that coverage could be limited. (For example, it may not cover the time when a driver is waiting for a ride request but hasn’t actually picked up a passenger.) This coverage could fill the gaps between your personal insurance policy and any insurance provided by the ridesharing service. Whether you are behind the wheel occasionally or full-time, it’s probably worth exploring.
Car insurance is an important layer of protection; it helps safeguard your financial wellbeing in the case of an accident. Given how much most Americans drive – around 14,000 miles or more a year – it’s likely a valuable investment.
What If You Don’t Have Car Insurance?
There can be serious penalties for driving a car without valid insurance. Let’s take a look at a few scenarios: If an officer pulls you over and you can’t prove you have the minimum coverage required in your state, you could get a ticket. Your license could be suspended. What’s more, the officer might have your car towed away from the scene.
That’s a relatively minor inconvenience. Consider that if you’re in a car accident, the penalties for driving without insurance could be far more significant. If you caused the incident, you may be held personally responsible for paying any damages to others involved; one recent report found the average bodily injury claim totaled more than $24,000. And even if you didn’t cause the accident, the amount you can recover from the at-fault driver may be restricted.
If that convinces you of the value of auto insurance (and we hope it does), you may see big discrepancies in the amounts of coverage. For example, there may be a tremendous difference between the amount you have to have, how much you think you should have to feel secure, and what you can afford.
That’s why it can help to know what your state and your lender might require as a starting point. Keep in mind that having car insurance isn’t just about getting your car — or someone else’s — fixed or replaced. (Although that — and the fact that it’s illegal to not have insurance — may be motivation enough to at least get basic car insurance coverage.)
Having the appropriate levels of coverage can also help you protect all your other assets — your home, business, savings, etc. — if you’re in a catastrophic accident and the other parties involved decide to sue you to pay their bills. And let us emphasize: Your state’s minimum liability requirements may not be enough to cover those costs — and you could end up paying the difference out of pocket, which could have a huge impact on your finances.
Discover real-time vehicle values with Auto Tracker.¹
Now you can instantly monitor vehicle prices in this unprecedented market—to help you make smart money moves.
Finding the Best Car Insurance for You
If you’re convinced of the value of getting car insurance, the next step is to decide on the right policy for you. Often, the question on people’s minds is, “How can I balance getting the right coverage at an affordable price?”
What’s the Right Amount of Car Insurance Coverage for You?
To get a ballpark figure in mind, consider these numbers:
Type of Coverage
Basic
Good
Excellent
Liability
Your state’s minimum
• $100,000/person for bodily injury liability
◦ $300,000/ accident for bodily injury liability
◦ $100,000 for property damage
• $250,000/person for bodily injury liability
◦ $500,000/ accident for bodily injury liability
◦ $250,000 for property damage
Collision
Not required
Recommended
Recommended
Comprehensive
Not required
Recommended
Recommended
Personal Injury Protection (PIP)
Your state’s minimum
$40,000
Your state’s maximum
Uninsured and Underinsured Motorist (UM, UIM) Coverage
Your state’s minimum
• $100,000/person for bodily injury liability
◦ $300,000/ accident for bodily injury liability
• $250,000/person for bodily injury liability
◦ $500,000/ accident for bodily injury liability
Here are some points to consider that will help you get the best policy for you.
Designing a Policy that Works for You
Your insurance company will probably offer several coverage options, and you may be able to build a policy around what you need based on your lifestyle. For example, if your car is paid off and worth only a few thousand dollars, you may choose to opt out of collision insurance in order to get more liability coverage.
Choosing a Deductible
Your deductible is the amount you might have to pay out personally before your insurance company begins paying any damages. Let’s say your car insurance policy has a $500 deductible, and you hit a guardrail on the highway when you swerve to avoid a collision. If the damage was $2,500, you would pay the $500 deductible and your insurer would pay for the other $2,000 in repairs. (Worth noting: You may have two different deductibles when you hold an auto insurance policy — one for comprehensive coverage and one for collision.)
Just as with your health insurance, your insurance company will likely offer you a lower premium if you choose to go with a higher deductible ($1,000 instead of $500, for example). Also, you typically pay this deductible every time you file a claim. It’s not like the situation with some health insurance policies, in which you satisfy a deductible once a year.
If you have savings or some other source of money you could use for repairs, you might be able to go with a higher deductible and save on your insurance payments. But if you aren’t sure where the money would come from in a pinch, it may make sense to opt for a lower deductible.
Checking the Costs of Added Coverage
As you assess how much coverage to get, here’s some good news: Buying twice as much liability coverage won’t necessarily double the price of your premium. You may be able to manage more coverage than you think. Before settling for a bare-bones policy, it can help to check on what it might cost to increase your coverage. This information is often easily available online, via calculator tools, rather than by spending time on the phone with a salesperson.
Finding Discounts that Could Help You Save
Some insurers (including SoFi Protect) reward safe drivers or “good drivers” with lower premiums. If you have a clean driving record, free of accidents and claims, you are a low risk for your insurer and they may extend you a discount.
Another way to save: Bundling car and home insurance is another way to cut costs. Look for any discounts or packages that would help you save.
💡 Quick Tip: If your car is paid off and worth only a few thousand dollars, consider updating your car insurance: You might choose to opt out of collision coverage and double down on liability.
The Takeaway
Buying car insurance is an important step in protecting yourself in case of an accident or theft. It’s not just about repairing or replacing your vehicle. It’s also about ensuring that medical fees and lost wages are protected – and securing your assets if there were ever a lawsuit filed against you.
These are potentially life-altering situations, so it’s worth spending a bit of time on the few key steps that will help you get the right coverage at the right price. It begins with knowing what your state or your car-loan lender requires. Then, you’ll review the different kinds of policies and premiums available. Put these pieces together, and you’ll find the insurance that best suits your needs and budget.
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.
SoFi brings you real rates, with no bait and switch.
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¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.
Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
