Jan
11
2023
Does Leasing a Car Build Credit? How Leasing a Car Can Affect Your Credit

Does Leasing a Car Build Credit? How Leasing a Car Can Affect Your Credit

By | Credit, credit card, Family Finances | Comments Off on Does Leasing a Car Build Credit? How Leasing a Car Can Affect Your Credit

When you’re in the market for a new car, you have several options for how to finance the vehicle. Leasing a car, getting an auto loan, or paying for your car in cash are all possibilities, depending on your specific situation. If you’re unsure about your credit situation, you might wonder if leasing a car is possible for you, or how leasing a car affects your credit.

In most cases, you’ll need to have good credit to qualify for a lease on a car. If you have poor or no credit, you may have better luck getting an auto loan, although your interest rate may be high. Should you opt to lease a car or buy one with an auto loan, your payment history is usually reported to the major credit bureaus. As such, making on-time and regular payments can help build your credit.

Leasing vs Buying a Car

When you buy a car, you agree on a purchase price with the seller. You then can either pay for the full amount of the car at the time of purchase, or use an auto loan for some or all of the purchase amount.

With a lease, you may put some money down, and then you will pay a fixed amount each month for the duration of the lease. Your monthly lease amount will be based on how much the car is worth at the end of the lease period. At the end of your lease, you can either return your vehicle to the lessor or buy your leased car.

It’s also important to keep in mind that leasing a car often comes with some restrictions on how you use your car, which is not the case with buying a car. If you lease, you might have limits on the number of miles you can drive during the lease term, for instance.

Both buying and leasing a car can impact your credit score, since your monthly debt obligation and payment history (positive or negative) shows up on your credit report.

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

Pros and Cons of Leasing a Car

Beyond knowing whether leasing a car builds credit, it’s important to be aware of the pros and cons of leasing a car. By understanding the upsides as well as the drawbacks, you’ll be better able to choose between leasing or buying a car.

Here’s an overview of the major pros and cons of leasing a car to consider:

Pros

 Cons
Leasing can often offer lower monthly payments than buying the car outright. There may be restrictions on how you use the vehicle, such as the number of miles you can drive during the lease.
You can potentially upgrade your car every few years. You don’t actually own the car, so you won’t build any equity to show for your monthly payments.
The lease may include coverage for maintenance and some repairs. You may get charged for excessive wear and tear on the vehicle.

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Ways Leasing a Car Builds Credit

In most cases, your lessor will report the payments you make on a leased car to the major credit bureaus. This means that a car lease will show up on your credit report as an installment loan, and your payment history will be recorded. This can help your credit if you make on-time payments, but it may have a negative impact if you miss a payment or the lease becomes delinquent.

Recommended: When Are Credit Card Payments Due?

Can You Lease a Car With Bad Credit?

The exact credit score needed to lease a car will depend on the lender or lessor that you use, but you generally will need to have good or excellent credit (meaning 670+) to qualify for a lease. If you don’t have a good credit history or are still working on improving your credit, leasing a car may not be the right fit for you.

Alternatives to Leasing a Car

If you’re not able to or don’t want to lease a car, you do have some other alternatives.

Buying a Car With an Auto Loan

It is more realistic that you might be able to qualify for a car loan rather than a lease if your credit isn’t great. While your monthly payment may be higher with a purchase as compared to a lease (since you’re buying the car rather than just leasing it for a short period of time), that may still end up being the right option for you.

You will want to keep in mind that auto loan interest rates often vary depending on your credit score. That means that someone with fair credit will likely have a higher interest rate than someone with good or excellent credit.

Recommended: How to Avoid Interest On a Credit Card

Using a Cosigner

Another possibility if you can’t qualify for a lease is to use a cosigner. If you have a trusted friend or family member with good or excellent credit who is willing to cosign on your auto lease, you may stand a better chance of getting approved.

When you use a cosigner, the potential lessor can use the credit score and profile of both the primary applicant and the cosigner in determining whether to approve the lease.

Making a Large Down Payment

If you’re able to, you might consider making a large down payment as part of your auto lease. While you still may not be approved, providing a large down payment shows the potential lessor that you are serious and committed. Making a large down payment also will lower your required monthly lease payment, which may help you get approved as well.

Tips for Building Your Credit for the Next Lease

If you want to build up your credit to prepare for your next car lease, there are a couple of things you can do:

•   Improve your overall financial situation. For one, you can work on solidifying your finances overall, including by setting up a budget and paying down debt. Remember that owning a car means you have to pay not only for your monthly car payment but also auto-related expenses like repairs, gas, and car insurance.

•   Use credit cards responsibly. Responsibly using credit cards is another way to improve your credit profile. Make sure you’re paying off your monthly statement in full each and every month.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

Leasing a car can build credit in much the same way as taking out an auto loan. When you lease a car, it is reported as an installment loan on your credit report. Your payments (either on-time or late) are also reported to the major credit bureaus, and can have a positive or negative impact on your credit score.

If you’re looking to build your credit profile, another path to consider might be a credit card, where you can show you’re responsible by paying off your statement in full, each and every month. One option to look at might be a cash-back rewards credit card like SoFi’s credit card. You can earn unlimited cash-back rewards if you’re approved for a credit card with SoFi. You can apply those rewards as a statement credit, invest them in fractional shares, or put them toward other financial goals, like paying down eligible SoFi debt.

Apply for a SoFi credit card today!

FAQ

Does leasing affect your credit score?

Yes, leasing can affect your credit score, since activity is usually reported to the major credit bureaus in a very similar way to an auto loan. A lease will be reported as an installment loan, and your payment history will be included on your credit report. That means that regular and on-time payments can help improve your credit score, while late payments or delinquencies can hurt your credit score.

Can I lease a car with a low credit score?

Generally, potential lessors are looking for lessees with good or excellent credit. There are a variety of reasons for this, including a higher rate of delinquencies or car repossessions associated with less favorable credit. If you have a low credit score, you may not be able to qualify for a lease and may need to consider alternatives.

What is the minimum credit score I can lease a car with?

The exact minimum credit score that you’ll need to lease a car will depend on a variety of different factors. These include the specific lessor you’re working with, the car you’re considering leasing, and your overall financial situation. Many lessors are looking for people with good or excellent credit. If your credit is below that, you may not be able to qualify for a lease.

Photo credit: iStock/EmirMemedovski

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.




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Jan
10
2023
How to Reduce Taxable Income for High Earners

How to Reduce Taxable Income for High Earners

By | Budgeting & Goals, relay | Comments Off on How to Reduce Taxable Income for High Earners

If you’re looking to reduce the amount of income tax you’ll need to pay, there are numerous strategies to consider. Familiar moves include contributing to tax-deferred retirement and health-spending accounts, deducting certain taxes and interest, and making charitable donations. More complex maneuvers include timing investments to offset gains with losses.

Because each person’s situation is unique, be sure to check with your tax accountant to find out how a potential strategy might work for you. Note that some of the strategies included in this guide have income limits.

Keep reading to see how many of these 25 tactics you can implement.

25 Ways to Lower Your Taxable Income

As you look through this list of 25 ideas on how to pay less in taxes, you’ll note that some are broad, advising how to reduce either W-2 taxable income or self-employment income. Meanwhile, others are more targeted — for instance, applying only to the self-employed. Keep track of ideas that pertain to your situation, so you can explore them further.

1. Contribute to a Retirement Account

Many IRA contributions are tax deductible. If you’re covered by a plan at work, you can contribute up to $23,000 to a 401(k) plan in 2024, and an additional $7,500 if you’re over 50. You can also contribute $7,000 to an IRA ($8,000 if you’re over 50), though your deduction may be limited depending on income and other factors.

Self-employed individuals can contribute between 25% and 100% of net earnings from self-employment, up to $69,000 for 2024. Plans available to the self-employed include the Simplified Employee Pension (SEP) plan, solo-401(k), and Savings Incentive Match Plan for Employees (SIMPLE IRA).

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2. Open a Health Savings Account

A health savings account (HSA) allows you to deposit money on a pre-tax basis. Contribution limits depend on your health plan, age, and other factors, but most individuals can contribute $4,150 for 2024.

Funds can be used to pay for qualified medical expenses or rolled over year to year. You must have a high deductible health plan (HDHP) to contribute to an HSA.

3. Check for Flexible Spending Accounts at Work

In lieu of an HSA, you can contribute up to $3,200 in pre-tax dollars to a flexible spending account (FSA). FSAs allow people with a health plan at work to deposit money and then use it to pay for qualifying health care costs. Unlike HSAs, FSAs don’t require an HDHP to qualify. The downside: Only a small portion of funds may be rolled over to the following year.

4. Business Tax Deductions

The IRS guidelines around business deductions change frequently, so it’s wise to watch out for their announcements throughout the year. Some business expenses apply only to self-employed people.

5. Home Office Deduction

When a self-employed person regularly uses a specific area of their home for business purposes, they may qualify to deduct costs associated with that part of the house. The home office deduction can be calculated in two ways (regular or simplified) up to the current gross income limitation. For more information, search for “IRS publication 587.”


💡 Quick Tip: Online tools make tracking your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.

6. Rent Out Your Home for Business Meetings

If you’re self-employed, you can also rent out your home for business events and meetings, collect the income — and not have to pay income taxes on that rental income. To learn specifics, visit https://www.irs.gov/pub/irs-drop/rp-13-13.pdf.

7. Write Off Business Travel Expenses

Travel expenses, as defined by the IRS, are the “ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.” For IRS guidance for both W-2 employees and the self-employed, go to https://www.irs.gov/taxtopics/tc511.

8. Deduct Half of Your Self-Employment Taxes

When calculating your adjusted gross income (AGI) as a self-employed person, using Form 1040 or Form 1040-SR, you can deduct half the amount of your self-employment tax. The 2024 self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare, based on your net earnings.

9. Get a Credit for Higher Education

This tax credit can go up to $2,500 based on tuition costs along with what you paid in certain fees and for course materials. As a first step, income tax owed is reduced dollar for dollar up to your limit. Then, if your tax credit is more than what you owe, you may be able to get up to $1,000 in a refund.

10. Itemize State Sales Tax

Currently, you can deduct a total of $10,000 for itemized state and local income taxes, sales taxes, and property taxes when you use Form 1040 or 1040-SR. If married but filing separately, the total is $5,000 per person. The IRS provides a calculator that you can use to figure out your deduction at https://apps.irs.gov/app/stdc/.

11. Make Charitable Donations

A taxpayer can typically deduct up to 60% of their AGI to qualified charities. But starting with contributions made in 2020, the IRS implemented a temporary suspension on limits. This means that a person can make qualified charitable contributions up to 100% of their AGI.

12. Adjust Your Basis for Capital Gains Tax

If you sell an asset, including but not limited to investments, a capital gains tax is levied on the difference between the purchase price and what it sells for. The adjusted basis also takes into account the costs of capital improvements made, minus decreases such as casualty losses. For more on the topic when selling a home, search for “IRS publication 523.”

Recommended: Should I Sell My House Now or Wait?

13. Avoid Capital Gains Tax by Donating Stock

You may be able to avoid paying capital gains tax if you transfer the ownership of your appreciated stock (held for more than one year). This is something that needs to be handled in exactly the right way; your tax accountant can help.

14. Invest in Qualified Opportunity Funds

If you invest in property through a Qualified Opportunity Fund, the IRS states that you can temporarily defer paying taxes on the gains. Taxes can be deferred (not reduced or canceled) up until December 31, 2026, or until an inclusion event occurs earlier than that date. This is a complex strategy and, again, you may want to get professional advice.

15. Claim Deductions for Military Members

You may be able to deduct moving expenses if you’re a member of the military on active duty who relocated because of a military order and permanent change of location. In this case, you can potentially deduct your unreimbursed moving expenses as well as those for your spouse and dependents. You can calculate relevant expenses on “IRS form 3903, Moving Expenses.”

16. Enroll in an Employee Stock Purchasing Program

In an employee stock purchase plan (ESPP), an employee who works at a company that offers this program can buy company stock at a discount. The company takes out money through payroll deductions and, on the designated purchase date, buys stock for participating employees. Note that only qualified plans have potential tax benefits.

17. Deduct the Student Loan Interest You’ve Paid

You may qualify to deduct student loan interest. Annual deduction amounts are the lesser between the amount of interest paid and $2,500. This deduction is lowered and eliminated when your modified adjusted gross income (MAGI) reaches a certain limit based on your filing status.

18. Sell Your Losing Stocks to Claim Capital Loss Carryover

If you sell stock at less than the purchase price, you’ve experienced a capital loss. You can use that loss to offset any capital gains that year. If you’ve lost more than you’ve gained, this can reduce your taxable income, which could reduce what you owe up to $3,000 for individuals and married couples, and $1,500 for someone married who filed separately.

Recommended: Tax Loss Carryforward

19. Deduct Mortgage Interest

You can deduct the money you paid on mortgage interest on the first $750,000 (or $375,000 if married, filing separately) of mortgage debt you owe. Higher limits exist ($1,000,000/$500,000) if the debt was taken on before December 16, 2017.

20. Deduct Medical Expenses

Under certain circumstances, you can deduct medical and dental expenses for yourself, your spouse, and dependents. You’ll need to itemize on your tax return and can only deduct qualifying expenses that exceed 7.5% of your AGI.

21. Delay IRA Withdrawal Upon Retirement

You can delay IRA withdrawals so that you don’t have more taxable income when you’re a high earner. For example, if you reach the age of 70 ½ in 2022 or later, you can wait until April 1 after you reach the age of 72.

22. Ask Your Employer to Defer Income

You pay income tax in the year the income is received. Although there are reasons why employers typically can’t postpone providing paychecks, they may be able to delay a bonus to the following year as long as this is standard practice for them. If self-employed, you can delay sending your end-of-year invoices to bump December payments to the following calendar year.

23. Open a 529 Plan for Education

A 529 plan allows you to save for future educational expenses. Although the contributions themselves aren’t deductible, interest that accrues in the account is tax-free, federally, as well as being tax-free in many states. In other words, when the money is withdrawn to pay college expenses, it is not taxed.

24. Buy Tax-Exempt Bonds

Interest you receive on muni bonds, for example, is not federally taxed (although there may be state and/or local taxes). These are typically very safe investments, although the interest rates may not be what you want.

25. Time Your Investment Gains or Losses

Known as tax loss harvesting, this strategy takes planning because you’ll want to ensure that any investment gains can be offset, as much as possible, by tax losses. So you may decide, as just one example, to hold on to a stock that’s lost significant value — selling it at a time when it can offset a stock sale with a sizable gain.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

High earners looking to reduce taxable income have many avenues to explore — some you’ve likely heard of, with others perhaps new to you. For instance, investors may be able to take advantage of tax loss harvesting, tax loss carryover, or tax efficient investing. Consult your tax accountant about your specific situation. And to take advantage of tax reduction opportunities, it’s important to keep careful track of your financial transactions.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How can I lower my taxable income?

If you’re wondering how to reduce your taxable income, there are numerous strategies that might work for your situation. A good place to start: Contribute to a retirement account, open a health savings account, and learn which taxes and interest you can deduct. Talk to your tax accountant about specific questions you may have.

What are the tax loopholes for the rich?

If you’re looking to reduce your taxable income, consider making charitable donations and investigating investment strategies that offset gains with losses.

Do 401(k) contributions reduce taxable income?

Said another way, are IRA contributions tax deductible? Retirements typically offer some tax benefits with specifics varying based on the type of retirement account. Traditional IRAs have different rules, for example, than Roth IRAs.

Photo credit: iStock/Petar Chernaev

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Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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.

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Jan
10
2023
Why you need to invest when the market is down

What You Need to Know When the Market Is Down

By | Growing Wealth, invest, Investing | No Comments

What do you do with your stocks when the market drops? If you’re like most people, your first instinct is to sell. It’s human nature, and behavioral finance studies bear this out. When your investments go up in value, it feels great. But when they decline, selling everything can seem like the best way out of a bad situation.

But instinctively selling when stocks drop is often counterproductive, and it may make more sense to invest while the market is down.

Should You Invest When the Market Is Down?

It’s generally a good idea to invest when the stock market is down as long as you’re planning to invest for the long term. Seasoned investors know that investing in the market is a long-term prospect. Stock market dips, corrections, or even bear markets are usually temporary, and, given enough time, your portfolio may recover.

When the market is down, it provides an opportunity to buy shares of stock at a lower price, which means you can potentially earn a higher return on your investment when the market recovers.

For example, in late 2007, stocks began one of the most dramatic plunges in their history. From October 2007 to March 2009, the S&P 500 Index fell 57%. During that time, many investors panicked and sold their holdings for fear of further losses.

However, the market bottomed out on March 9, 2009, and started a recovery that would turn into the longest bull market in history. Four years later, in 2013, the S&P 500 surpassed the high it reached in 2007. While that historic plunge of over 50% was terrifying, if you panicked and sold, rather than employ bear market investing strategies, you would have locked in your losses — and missed the subsequent recovery.

If, on the other hand, you had kept your investments, you would have seen stock values fall at first, but as the market reversed course, you may have seen portfolio gains again.

Consider the recent example of how the markets performed during the early stages of the Covid-19 pandemic. The S&P 500 fell about 34% from February 19, 2020, to March 23, 2020, as the pandemic ravaged the globe. However, stocks rebounded and made up the losses by August. Nearly three years later, stocks are still above their pre-pandemic high, even considering the bear market of 2022.

These examples illustrate why timing the market is rarely successful, but holding stock over the long term tends to be a smart strategy.

It’s still important to keep in mind that the stock market can be volatile and can fluctuate significantly in the short term. Therefore, you must be prepared for short-term losses and have a long-term investment horizon.

Recommended: Bull vs. Bear Market: What’s the Difference?

4 Things to Do During a Market Downturn

When the stock market is down, it can be a worrying time for investors. But it’s important to remember that market downturns are a normal part of the investing process and that the market may eventually recover. Here are a few things to do during a market downturn.

1. Stay Calm and Avoid Making Impulsive Decisions

It’s natural to feel worried or concerned when the stock market is down, but it’s essential to maintain a long-term perspective and not make rash decisions based on short-term market movements.

Buying and selling stocks based on gut reactions to temporary volatility can derail your investment plan, potentially setting you back.

You likely built your investment plan with specific goals in mind, and your diversified portfolio was probably based on your time horizon and risk tolerance preferences. Impulsive selling (or buying) can throw off this balance.

Instead of letting emotions rule the day, consider having a plan that includes investing more when the market is down (aka buying the dip). These strategies involve buying stocks on sale, and the hope is that the downturn is temporary and you’ll be able to ride any upturn to potential earnings.

So, when markets take a tumble, your best move is often to stay calm and continue investing.

That said, any investment decisions you make should be based on your own needs. Just because the market is down doesn’t mean you have to buy anything. Buying stocks on impulse just because they’re cheaper might throw a wrench in your plan, just like rushing to sell. Taking time to consider your long-term needs and doing research typically pays off.

2. Evaluate Your Portfolio

Review your portfolio and make sure it’s properly diversified. Portfolio diversification may reduce the overall risk of your portfolio by spreading your investments across different asset classes, like stocks, bonds, real estate, and cash. Investing in various assets and industries can protect your portfolio during a market downturn.

However, even if you have a well-diversified portfolio, you may also need to pay attention to your portfolio’s asset allocation during volatile markets. For example, during a down stock market, your stock holdings may become a lower percentage of your portfolio than desired, while bonds or cash become a more significant part of your overall holdings. If your portfolio has become heavily weighted in a particular asset class or sector, it could be strategic to sell some of those holdings and use the proceeds to buy securities to rebalance your portfolio at your desired asset allocation.

Recommended: How Often Should You Rebalance Your Portfolio?

3. Take Advantage of Low Prices With Dollar-Cost Averaging

To help curb your impulse to pull out of the market when it is low — and continue investing instead — you may want to consider dollar cost averaging.

Here’s how it works: On a regular schedule — say every month — you invest a set amount of money in the stock market. While the amount you invest each month will remain the same, the number of shares you’ll be able to purchase will vary based on the current cost of each share.

For example, let’s say you invest $100 a month. In January, that $100 might buy ten shares of a mutual fund at $10 a share. Suppose the market dips in April, and the fund’s shares are now worth $5. Instead of panicking and selling, you continue to invest your $100. That month, your $100 buys 20 shares.

In June, when the market rises again, the fund costs $25 a share, and your $100 buys four shares. In this way, dollar cost averaging helps you buy more shares when the markets are down, essentially allowing you to buy low and limiting the number of shares you can buy when markets are up. This helps protect from “buying high.”

After ten years of investing $100 a month, the value of each share is $50. Even if some shares you bought cost more than that, your average cost per share is likely lower than the fund’s current price.

Steady investments over time are more likely to give you a favorable return than dumping a large amount of money into the market and hoping you timed it right.

4. Consider Tax-Loss Harvesting

If you’ve already experienced losses, you may want to consider tax-loss harvesting — the practice of selling investments that experienced a loss to offset your gains from other investments.

Imagine that you invest $10,000 in a stock in January. Over the year, the stock decreases in value, and at the end of the year, it is only worth $7,500. Instead of wishing you’d had better luck, you can sell that position and reinvest the money in a similar (but not identical) stock or mutual fund.

You get the benefit of maintaining a similar investment profile that will hopefully grow in value over time, and you can write off the $2,500 loss for tax purposes. You can write off the total amount against any capital gains you may have in this year or any future year, helping to lower your tax bill. This is tax-loss harvesting.

You can also deduct up to $3,000 of capital losses each year from your ordinary income. However, you must deduct your losses against capital gains first before using the excess to offset income. Losses beyond $3,000 can be rolled over into subsequent years, known as tax loss carryforward.

During major market downturns, this technique can ease the pain of capital losses — but it’s important to consider reinvesting the money you raise when you sell, or you’ll risk missing the recovery. But remember that with investing comes risk, so there’s no assurance that a recovery will occur.

SoFi has built a Recession Help Center
that provides resources to help guide you
through this uncertain time.

4 Things to Avoid When the Market Is Down

Feeling anxious when the stock market is down is natural, but it’s important to remain calm and not let fear drive your investment decisions. Here are a few things to avoid when the stock market is down.

1. Trying to Time the Market

Timing the market is the idea that you will somehow beat the market by attempting to predict future market movements and buying and selling accordingly.

However, it’s difficult to predict with certainty when the stock market will go up or down, so trying to time the market is generally a futile endeavor. As they say: No one has a crystal ball in this business.

As a result, timing the market is not a strategy that works for most investors. Even during a down market, you should not wait until the market hits bottom to start investing in stocks again.

2. Selling All Your Stocks

You should resist the temptation to sell all of your stocks or make other rash decisions when the market is down. While it may be tempting to sell all of your stocks during a down market, it’s important to remember that the stock market usually recovers. If you sell all of your stocks when the market is down, you may miss out on the opportunity to participate in the market’s recovery.

3. Chasing After High-Risk Investments

When stocks are down, you may be inclined to try to earn quick profits by investing in high-risk assets — like commodities or >cryptocurrencies — but these investments can be particularly volatile and are not suitable for everyone.

Moreover, riskier investment strategies like options and margin trading may be an appealing way to amplify returns in down markets. But if you are not comfortable using these strategies, you could end up with even bigger losses.

Recommended: Options Trading 101: An Introduction to Stock Options

4. Abandoning Your Long-Term Financial Plan

It’s important to remember that the stock market is just one part of your overall financial plan. Keep your long-term financial goals in mind, and don’t let short-term market movements distract you from your larger financial objectives.

Risks to Investing in Down Markets

While the stock market generally recovers after a decline, there are exceptions to the idea that the market tends to snap back quickly or always trends upward.

Take the stock market crash of 1929. Share prices continued to slide until 1932, as the Great Depression ravaged the economy. The Dow Jones Industrial Average didn’t reach its pre-crash high until November 1954.

In addition, as of early 2023, the Nikkei 225 — the benchmark stock index in Japan — has yet to reach the peak of over 38,000 it hit at the end of 1989. Back then, the index went on to lose half its value in three years as an economic bubble in the country burst. However, the Nikkei did touch the 30,000 level at various points in 2021 for the first time since 1990.

So, investors need to remember that just because stock markets have recovered in the past doesn’t mean that it will always be that way. As the saying goes, past performance is not indicative of future results.

The Takeaway

Almost everyone feels a sense of worry (or fear) when the market is down. It’s only natural to find yourself swamped with doubts: What if the market keeps sliding? What if I lose everything? What if it’s one of those rare occurrences when the recovery takes ten years?

Rather than succumb to panic, the best investment advice is not to give in to your impulses to sell or scrap your entire investment strategy, but to stay the course. Using strategies like dollar-cost averaging, which allow you to invest in a down market sensibly, can be a part of a balanced investment strategy that helps grow wealth over time.

So put aside what the market is doing today, and remember the long game. If you’re ready to start investing, you can open an online brokerage account with as little as $5 on SoFi Invest®. You can buy and sell stocks, exchange-traded funds (ETFs), and fractional shares — all from the convenience of your phone or laptop.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
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Jan
10
2023
Average Cost of a Wedding in 2021

Average Cost of a Wedding in 2024

By | Budgeting & Goals, Family Finances, Money & Life, personal_loan | Comments Off on Average Cost of a Wedding in 2024

Planning a wedding can be a major endeavor. First, there’s the figuring out financing. According to a recent SoFi survey, the median cost of a wedding is $10,000. And then there’s all the logistics that need wrangling. Dress? Check! Rings? Check! Venue, music, photography, and more?

It can be wise to get organized as early as possible to make the process as smooth as possible. Here’s a look at what you can expect from venues, vendors, and other costs as you plan this happy day.

What Is the Average Cost of a Wedding?

According to The Knot, the average cost of a wedding ceremony and reception in recent years was $19,000, but SoFi’s most recent research found a more affordable median price of $10,000. Either way, that’s a considerable investment: a five-figure amount to pull together or finance.

Typically, the wedding venue and reception account for the largest share of a budget, but all the trimmings (think flowers, gifts for your maid of honor and best man, band, and so forth) all contribute to the bottom line. It’s important to note however, that true wedding costs will vary based on how elaborate the event and the unique vendor and venue costs of the region.

What Goes Into the Cost of a Wedding?

Planning a wedding is a huge undertaking. From the dress to the decor, there are so many details involved that many couples choose to pay the $1,500, on average, for a professional wedding planner to handle them all. These recent numbers are courtesy of The Knot’s Real Wedding Survey.

Pre-Wedding Costs

The purchase of engagement rings is generally what kicks off the entire wedding planning process. While the tradition of spending three month’s salary on a ring may be old and outdated, couples are known to spend $5,500 on rings on average.

The cost of wedding invitations can vary widely depending on many factors. Handmade paper will cost more than cardstock. Letterpress printing will cost more than digital printing. More guests means more invitations, which means a higher cost. The average cost of invitations is $590.

Then comes the dress, which can take months to find. Assuming you’re not bent on purchasing an elaborate couture gown, but definitely want to secure something nicer than what might be found on a bargain rack, a dress can average $1,600.

It would be a mistake not to hold a rehearsal with your full wedding party, and taking the opportunity to treat them to dinner, thanking them for being a part of your celebration, is tradition. Rehearsal dinners can cost around $1900.

Recommended: The Cost of Being in Someone’s Wedding

Vendor Costs

What is your big day if no one is there to capture it? Photographer costs can be as high as $2400 for a wedding. Should you choose to film it as well, you can expect to pay around $1800 for a videographer.

Wedding photos are lifetime memorabilia and people want to look good in them. Average costs for professional services are $110 for hair and another $100 for makeup.

If you need transportation to the wedding, from the wedding to the reception venue, or for a guest shuttle, it can cost around $800 on average.

Wedding decor is a must, and flowers are one of the most common choices. From the choice of your bouquet to the centerpiece arrangements on your guest tables, a proper florist can average $2000.

The star of the show—after the bride—is the cake. Whether traditional white or unconventionally colored, tiered or cupcakes, a wedding cake can cost around $500.

Reception Costs

The reception venue will likely be your largest expense. It is where you will feed and entertain your guests for the longest portion of your celebration and, depending on the type of venue you book, it may or may not come with decor. This can cost around $10,500.

You can’t let your guests go hungry. Catering your reception, accounting for any special dietary restrictions, and toasting with champagne, you’ll pay around $70 per person. If you want to offer top-shelf liquor, that cost can increase.

Now let’s dance! The music is what will set the tone for your celebration, and it’s likely what your guests will remember most after your “I dos.” A DJ can cost around $1200 for a wedding. A live band on the other hand will cost significantly more at $3700.

Some couples choose to give their guests wedding favors, a gift that says ‘thank you for coming.’ Purchasing favors for your guests that remind them of the great time they had on your big day will cost around $400.

A few ways that can help you cut spending costs include trimming the guest list, opting for a cash bar, and enlisting family and friends to help you DIY a few things. Make a shortlist of the planning details that are most important to you and you don’t want to skimp on, and consider spending less on the unlisted details that aren’t as meaningful. Also, be sure to leave a buffer in your budget. You never know if you’ll have to cover an unexpected wedding expense or even a last-minute guest, and having extra room in your budget will allow you to cover those costs without overspending.

Recommended: Affordable Wedding Venue Ideas

Smart Ways to Finance a Wedding

Knowing how much you can expect to spend is only one half of the wedding planning puzzle. The other half is actually funding the spending. With average wedding costs in the tens of thousands of dollars, it’s important to plan ahead so you can enjoy your special day with minimal stress.

Gifts and Contributions

A bride and groom seldom pay for their wedding alone. As a matter of fact, in 2019, couples only contributed 41% toward their total wedding costs with their parents taking on the brunt of expenses. Immediate family members can be a resource to help cover costs and are often happy to do so. Whether it’s the groom’s family that agrees to cover rings and clothes, or the bride’s family that takes care of the flowers and food, having a family discussion about who is able and willing to cover what on your big day can help relieve some of the spending stress.

Also, contributing cash isn’t the only way to help. Any time your family, friends, or even your wedding party can offer with planning, creating, or decorating anything that you might have otherwise paid someone else to do can help keep your budget in the black.

Recommended: Wedding Gift Etiquette

Savings

Being able to cover costs with funds from a saving account is one of the more ideal ways of covering large wedding costs. Couples that plan long engagements might be able to take advantage of this method more so than those with short engagements, simultaneously saving for and planning their big day over several months or years.

Retaining a comfortable amount of savings separate from wedding funds to have on hand for an emergency is always a smart money move that can help prevent financial roadblocks in the future. As much as you may want to fund your big day with savings, if doing so will put you in a financially precarious position or prevent you from reaching other financial goals, it may be better to err on the side of caution. Having those funds post marriage may be more important than spending them now.

Credit Cards

Credit cards provide quick and immediate access to cash that can be used to cover wedding costs. If you have particularly high credit limits, and not much cash on hand, it may be possible for you to cover the entire cost of your wedding on a credit card.

Though this may be one option among many, using your credit card might also come with a few drawbacks, such as high interest rates and an increase in your credit utilization ratio. Charging wedding purchases to your credit cards means you’ll be subject to paying interest on those charges until you pay off those credit cards. Also, using large amounts of credit will increase your credit utilization ratio and could, in turn, trigger a drop in your credit score. If that scenario will keep you from reaching future financial goals, you may want to think twice about using this method.

Personal Loan

Applying for a personal loan is another method for securing wedding funds. Personal loans tend to offer qualified applicants lower interest rates than traditional credit cards. A personal loan may also have a fixed interest rate that can help you manage and maintain steady payments over the life of the loan.

Another benefit of a personal loan is that it can help you build your credit. Diversifying the types of credit you have helps the three credit bureaus view you as a responsible borrower, and in turn may raise your credit score.

Awarded Best Online Personal Loan by NerdWallet.
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The Takeaway

Average costs are just that: average costs. Planning a wedding doesn’t have to be a budget breaker, but an event with this significance does come with some costs that probably don’t easily fit into most budgets. Using a personal loan to pay for wedding costs is reasonable if you are financially able to repay it.

SoFi wedding loans have no fees required, low fixed rates, and can save thousands of dollars in interest compared to using a credit card. Getting prequalified takes just a few minutes, and loans can be funded in as little as three days.

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 .

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.

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.

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Jan
10
2023
The Different Types Of Home Equity Loans

The Different Types Of Home Equity Loans

By | Home Ownership, mortgage, Terminology | No Comments

How does a home equity loan work? First, it’s important to understand that the term home equity loan is simply a catchall for the different ways the equity in your home can be used to access cash. The most common types of home equity loans are fixed-rate home equity loans, home equity lines of credit (HELOCs), and cash-out refinancing.

Key Points

•   Home equity loans allow homeowners to borrow against the equity in their homes.

•   There are two main types of home equity loans: traditional home equity loans and home equity lines of credit (HELOCs).

•   Traditional home equity loans provide a lump sum of money with a fixed interest rate and fixed monthly payments.

•   HELOCs function like a credit card, allowing homeowners to borrow and repay funds as needed within a set time frame.

•   Home equity loans can be used for various purposes, such as home renovations, debt consolidation, or major expenses.

What Are the Main Types of Home Equity Loans?

When folks think of home equity loans, they typically think of either a fixed-rate home equity loan or a home equity line of credit (HELOC). There is a third way to use home equity to access cash, and that’s through a cash-out refinance.

With fixed-rate home equity loans or HELOCs, the primary benefit is that the borrower may qualify for a better interest rate using their home as collateral than by using an unsecured loan — a loan that is not backed by collateral. Some people with high-interest credit card debt may choose to use a lower-rate home equity loan to pay off those credit card balances, for instance.

This does not come without risks, of course. Borrowing against a home could leave it vulnerable to foreclosure if the borrower is unable to pay back the loan. A personal loan may be a better fit if the borrower doesn’t want to put their home up as collateral.

How much a homeowner can borrow is typically based on the combined loan-to-value ratio (CLTV ratio) of the first mortgage plus the home equity loan. Generally, this figure cannot exceed 80% CLTV. To calculate the CLTV, divide the combined value of the two loans by the appraised value of the home. In addition, utilizing a home affordability calculator can serve as a good starting point in understanding how much you’ll need to put down and other expenses related to the home-buying process.

Of course, qualifying for a home equity loan is typically contingent on several factors, such as the credit score and financial standing of the borrower.

Fixed-Rate Home Equity Loan

Fixed-rate loans are pretty straightforward: The lender provides one lump-sum payment to the borrower, which is to be repaid over a period of time with a set interest rate. Both the monthly payment and interest rate remain the same over the life of the loan. Fixed-rate home equity loans typically have terms that run from five to 15 years, and they must be paid back in full if the home is sold.

With a fixed-rate home equity loan, the amount of closing costs is usually similar to the costs of closing on a home mortgage. When shopping around for rates, asking about the lender’s closing costs and all other third-party costs is recommended. These costs vary from bank to bank.

This loan type may be best for borrowers with a one-time or straightforward cash need. For example, let’s say a borrower wants to build a $20,000 garage addition and pay off a $4,000 medical bill. A $24,000 lump sum loan would be made to the borrower, who would then simply pay back the loan with interest. This option could also make sense for borrowers who already have a mortgage with a low interest rate and may not want to refinance that loan.

Recommended: What Is a Fixed-Rate Mortgage?

Turn your home equity into cash with a HELOC from SoFi.

Access up to 95% or $500k of your home’s equity to finance almost anything.

Home Equity Line of Credit (HELOC)

A HELOC is revolving debt, which means that as the loan balance is paid down, it can be borrowed again during the draw period (whereas a home equity loan provides one lump sum and that’s it). As an example, let’s say a borrower is approved for a $10,000 HELOC. They first borrow $7,000 against the line of credit, leaving a balance of $3,000 that they can draw against. The borrower then pays $5,000 toward the principal, which gives them $8,000 in available credit.

Unlike with a fixed-rate loan, a HELOC’s interest rate is variable and will fluctuate with market rates, which means that rates could increase throughout the duration of the credit line. The monthly loan payments will vary because they’re dependent on the amount borrowed and the current interest rate.

HELOCs have two periods of time that are important for borrowers to be aware of: the draw period and the repayment period.

•   The draw period is the amount of time the borrower is allowed to use, or draw, funds against the line of credit, commonly 10 years. After this amount of time, the borrower can no longer draw against the funds available.

•   The repayment period is the amount of time the borrower has to repay the loan in full. The repayment period lasts for a certain number of years after the draw period ends.

So, for instance, a 30-year HELOC would have a draw period of 10 years and a repayment period of 20 years. Payments made during the draw period are typically interest-only, with principal payments added during the repayment period.

This loan type may be best for people who want the flexibility to pay as they go. For an ongoing project that will need the money portioned out over longer periods of time, a HELOC might be the best option. While home improvement projects might be the most common reason for considering a HELOC, other uses might be for wedding costs or business start-up costs.

Home Equity Loan Fees

Generally, under federal law, fees should be disclosed by the lender. However, there are some fees that are not required to be disclosed. Borrowers certainly have the right to ask what those undisclosed fees are, though.

Fees that require disclosure include application fees, points, annual account fees, and transaction fees, to name a few. Lenders are not required to disclose fees for things like photocopying related to the loan, returned check or stop payment fees, and others.

Home Equity Loan Tax Deductibility

Since enactment of the Tax Cuts and Jobs Act of 2017, interest on home equity loans is only deductible if the loan is used on qualifying home improvements. Checking with a tax professional to understand how a home equity loan or HELOC might affect a certain financial situation is recommended.

Cash-Out Refinance

Mortgage refinancing is the process of paying off an existing mortgage loan with a new loan from either the current lender or a new lender. Common reasons for refinancing a mortgage include securing a lower interest rate, or either increasing or decreasing the term of the mortgage. Depending on the new loan’s interest rate and term, the borrower may be able to save money in the long term. Increasing the term of the loan may not save money on interest, even if the borrower receives a lower interest rate, but it could lower the monthly payments.

With a cash-out refinance, a borrower may be able to refinance their current mortgage for more than they currently owe and then take the difference in cash. For example, let’s say a borrower owns a home with an appraised value of $400,000 and owes $200,000 on their mortgage. They would like to make $30,000 worth of repairs to their home, so they refinance with a $230,000 mortgage, taking the difference in cash.

As with home equity loans, there typically are some costs associated with a cash-out refinance. Generally, a refinance will have higher closing costs than a home equity loan.

This loan type may be best for people who would prefer to have one consolidated loan and may want to secure a lower rate or a different loan term. For example, a homeowner who purchased their house 10 years ago with a 6% mortgage interest rate may now have equity in the home and might even have better credit than when they first took out the mortgage. The homeowner might be able to refinance to a mortgage with a 4% interest rate while also taking out cash.

The Takeaway

There are three main types of home equity loans: a fixed-rate home equity loan, a home equity line of credit (HELOC), and a cash-out refinance. Just as with a first mortgage, the process will involve a bank or other creditor lending money to the borrower, using real property as collateral, and require a review of the borrower’s financial situation. Keep in mind that cash-out refinancing is effectively getting a new mortgage, whereas a fixed-rate home equity loan and a HELOC involve another loan, which is why they’re referred to as “second mortgages.”

While each can allow you to tap your home’s equity, what’s unique about a HELOC is that it offers the flexibility to pay as you go. This can make it well-suited to those who need money over a longer period of time, such as for an ongoing home improvement project. If that sounds like your situation and you have equity in your home, consider a home equity line of credit with SoFi.

Apply today to turn your home equity into cash.

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

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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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.

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