A secured bond has an asset as collateral backing up a person’s investment while an unsecured one doesn’t have collateral backup. Here’s more about differences.
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Ex-dividend dates are the date on which an investor needs to be registered as a shareholder in order to receive the dividend. It falls after the company declares the dividend, and one day before the “record date,” or “date of record.”
Dividends — payments that companies make to shareholders when stocks perform well — can make a stock more enticing to investors, increasing their profit and making them feel valued. But an investor can’t necessarily just buy a stock one day and collect dividends on it the next. Investors need to know and plan for the ex-dividend date of any company they invest in, or may plan to invest in.
Key Points
• Ex-dividend dates are the dates on which an investor must be a shareholder to receive a dividend payout.
• Dividends are payments made by companies to shareholders as a share of profits.
• Dividend payments can be in the form of cash or additional stock, and are usually paid on a quarterly basis.
• The ex-dividend date is important for investors to ensure they are eligible to receive dividends.
• Investors may consider the ex-dividend date when deciding to buy or sell stocks to optimize dividend payments.
To fully understand the ex-dividend date, it helps to be able to broadly answer the question: what is a dividend?
Dividends are the company’s way of allowing its investors to share in its profits, without having to sell their stakes. A dividend can come in the form of cash or additional stock, but in the U.S., they’re usually paid as cash. As a result, dividends are taxed as income, according to the investor’s tax bracket. The returns from long-term stock returns are taxed, when sold, as capital gains. (That’s just one reason it’s helpful to know the current capital gains tax rate.)
Most companies with dividend-paying stocks offer their dividend payments on a quarterly basis. Many investors, especially retired investors, see dividends as an income source. It allows them to collect regular payments without having to sell their investments.
Unlike the interest payments from a bond, dividend payments can vary from quarter to quarter. A company might boost its dividend because it’s doing well, or simply because it can’t find a better use for its profits. On the flip side, a company might cut its dividend because it’s struggling, or because it’s found a great opportunity to invest in new business.
In the past, and during periods of crisis (financial, or otherwise), some companies that had offered dividends for years and even decades either slashed or eliminated their dividends because of the bad message it would send if they paid cash to investors while eliminating hundreds or thousands of jobs. It was one more reminder that dividends are not a sure thing.
💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
Here’s how dividends work with ex-dividend dates: If an investor buys a stock on its ex-dividend date or after, they won’t get the next dividend payment. That’s why it’s important to investors that they get their purchase orders in before the ex-dividend date, in order to receive the dividend.
This date has other important implications, beyond just who receives dividend payments. The ex-dividend date is also when companies determine who receives proxy statements, financial reports, and other information. While the latter two may be publicly available, proxy statements can be very important when a company is in the throes of a significant transition.
For interested investors, there is a formula that calculates the dividend payout ratio of a stock — which can be helpful in comparing one company to another. The key questions to ask about a potential dividend are “when” and “how much.” That’s why the ex-dividend date makes a difference.
For example, let’s say an investor wants to buy shares of a company that, after a strong quarter, declares a dividend of $1 per share. The record date of the dividend is December 19. That means the ex-dividend date would likely be a business day before, on December 18. An investor who buys the stock on December 17 would receive the $1 dividend. If they were to wait until December 18, they wouldn’t be entitled to the $1 dividend.
It’s also important to note that the market adjusts for this fact. The math would dictate that the stock is actually worth $1 less per share after the ex-dividend date than it was the day before, because that $1 per share has been taken out of the company in the form of dividend payment. As a result, the price of a dividend-paying stock typically drops by roughly as much — though that’s not always a guarantee.
There are a number of reasons investors may want to look at a stock’s ex-dividend date when considering buying or selling it.
1. They may want to sell just ahead of the ex-dividend date to get the best price without having to pay income taxes on the dividend payment.
2. They may want to buy a stock just ahead of its ex-dividend date, in order to participate in the dividend payments as soon as possible.
3. They may want to hold onto the stock just until the ex-dividend date to get the last dividend payment.
4. They may want to wait until after the ex-dividend date to buy that stock after it drops — assuming that it does — after its dividend payment.
Every investment is unique, and so is every ex-dividend date. Research into the company and its stock can help an investor form educated expectations about how dividend payments impact its performance.
But there are always special circumstances. If a company offers a dividend that’s equal to 25% or more of the stock price, then the ex-dividend date can be delayed until one business day after the dividend is paid.
There are also occasions when a company decides to pay a dividend not in cash, but in its own stock. That may be in additional shares or possibly even in a new subsidiary that it is spinning off from the core business. In these unusual circumstances, the procedures will vary, and that includes the setting of the ex-dividend date.
Dividends are taxed as long-term capital gains in many cases.
In retirement, dividend income can be especially welcome. Some investors might even plan for living off dividend income after retirement. And though most retirees don’t spend their days trading the market, buying ahead of a stock’s ex-dividend date may make sense for income-focused investors.
💡 Quick Tip: An investment account that’s not for retirement is usually considered a taxable account. But the money you earn (i.e. your gains) is only taxed when you sell those securities. Learn more.
Ex-dividend dates are the dates on which an investor must officially be or remain a shareholder in order to receive a dividend payout. That can have some obvious implications into an investor’s overall strategy, and help guide their investing decisions.
Exactly when and how a stock pays its dividend can make a big difference to an investor’s plans, and taxes, at every stage of their lives. That’s why investors who are considering buying or selling a stock that pays dividends should know what is the ex-dividend date for that stock.
Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.
Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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.
The term capital appreciation refers to an investment’s value rising over time. Theoretically, capital, meaning money or funds, appreciates, or goes up (as opposed to depreciates) after an investor initially purchases it, and that rise in value is what’s referred to as capital appreciation.
Of course, capital can also depreciate, but investors aren’t usually looking for negative returns. This is an important concept for investors to grasp, too, as capital appreciation is likely the main goal of most investors’ overall strategies.
Key Points
• Capital appreciation refers to the increase in an investment’s value over time.
• Calculating capital appreciation involves comparing the current market price of an asset to its original purchase price.
• Factors such as company performance, economic conditions, and monetary policy can influence capital appreciation.
• Assets like stocks, real estate, mutual funds, ETFs, and commodities are commonly associated with capital appreciation.
• Capital appreciation is an important component of long-term wealth-building strategies, along with income from dividends and interest.
As noted, capital appreciation refers to a rise in the price of an investment. Essentially, it is how much the value of an asset has increased since an investor purchased it. Analysts calculate capital appreciation by comparing the asset’s current market price and the original purchase price, also called the cost basis.
Capital appreciation can be understood by analyzing an example from stock market investing.
If an investor purchases 100 shares of Company A for $10 a share, they are buying $1,000 worth of stock. If the price of this investment increases to $12 per share, the initial 100 share investment is now worth $1,200. In this example, the capital appreciation would be $200, or a 20% increase above the initial investment.
💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.
The value of assets can rise and fall for various reasons. These include factors specific to individual investments and those affecting the economy and financial world as a whole.
In the most traditional sense, the price of an asset will increase because of a rise in the fundamental value of the underlying investment. When investors see that a company is doing well and expect it to keep doing well, they will invest in the company’s stock. This activity pushes the stock price up, resulting in capital appreciation if an investor holds shares in the company.
For a real estate asset, the value of a property could go up after a homeowner or landlord renovates a structure. This capital improvement increases the property’s market value.
When the economy is booming, it can buoy all kinds of financial assets. In a strong economy, people typically have good jobs and can afford to spend money. This helps many companies’ bottom lines, which causes investors to put money into shares of the company. The opposite of this scenario is also true. When the economy endures a downturn, asset prices may fall.
Recommended: Understanding Economic Indicators
Central banks like the Federal Reserve play a significant role in how the financial markets operate. Because of this, the monetary policy set by central banks can play a prominent role in capital appreciation.
For example, when a central bank cuts interest rates, corporations can usually borrow money at a lower cost. Businesses often use this injection of cheap money to invest in and grow their business, which may cause investors to pour into the stock market and push share prices higher. Additionally, companies may take advantage of lower interest loans to borrow money to buy shares of their stock, known as a stock buyback. These moves may push share prices higher, further leading to capital appreciation.
Another monetary policy tool is quantitative easing (QE), which refers to a method of central bank intervention where central banks purchase long-term securities to increase the supply of money and encourage investment and lending. Like a low interest rate policy, this method can lead to rising asset prices because more money is being added to the economy — money that flows into assets, bidding their prices higher.
Another potential cause of capital appreciation is speculation. Speculation occurs when many investors perceive the value of a particular asset as being higher than it is and start buying the asset in anticipation of a higher price. This activity may lead to the price of an asset being pushed higher. After a frenzy, the price of the asset eventually drops as investors sell in a panic when they realize there’s no fundamental reason to keep holding the asset. This type of speculation is fueled by investors’ emotions, rather than financial fundamentals.
There are several categories of assets that are designed for returns through price appreciation. Investors generally hold these investments for the long term hoping that prices will rise. This isn’t an exhaustive list, but it provides a good overview.
Stocks are a type of financial security that represents equity ownership in a corporation. They can be thought of as little pieces of a publicly-traded company that investors can purchase on an exchange, with hopes that the price of the shares will go up.
Real estate is a piece of land and anything attached to that land. Many people build wealth through homeownership and capital appreciation, buying a house at a specific price with an expectation that it will appreciate in value by the time they are ready to sell.
Residential real estate is just one area of real estate investment. Investors may also look to put money into commercial, industrial, and agricultural real estate activities. Investors can invest in various real estate investment trusts (REITs) to get exposure to returns on real estate.
A mutual fund consists of a pool of money from many investors. The fund might invest in various assets, including stocks, bonds, commodities, or anything else. In the context of a mutual fund, capital appreciation occurs when the value of the assets in the fund rises.
Similar to mutual funds, exchange-traded funds (ETFs) are investment vehicles that contain a group of different stocks, bonds, or commodities. ETFs can track stocks in one particular industry, e.g., gold mining stocks, or track all the stocks in an entire index such as the S&P 500. As the name suggests, ETFs are bought and sold on exchanges just like stocks.
Commodities are an investment that has a tangible economic value. This means that the market values these raw materials because of their different use cases. For example, commodities like oil and wheat are desired because they can power automobiles and be used for food, respectively. Commodities markets can be highly volatile, but many investors take advantage of the volatility to see the capital appreciation on both a short-term and long-term time horizon.
💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.
Capital appreciation bonds are municipal securities backed by local government agencies. With these bonds, investors hope to receive a significant return in the future by investing a small amount upfront.
Like all bonds, capital appreciation bonds yield interest, which is a primary reason that investors buy them. But instead of paying out interest annually, the interest gets compounded regularly until maturity. This gives the investor one lump sum payout at the end of the bond’s lifetime.
Unlike other assets that experience capital appreciation, the price of the capital appreciation bond does not rise. Instead, capital appreciation refers to the compounded interest paid out to the bondholder at maturity.
Though the terms are sometimes used interchangeably, there is a difference between capital appreciation and capital gains.
Capital appreciation occurs when the value of an investment rises above the purchase price while the investor owns the asset. In contrast, capital gains are the profit made once an investment is sold. Appreciation is, in effect, an “unrealized” gain. It becomes “realized” once the investment is sold for a profit.
Capital appreciation alone does not have tax implications; an investor doesn’t have to pay taxes on the price growth of an investment when they own it. But when an investor sells an investment and realizes a profit, they must pay capital gains taxes on the windfall.
Capital appreciation is one piece of the puzzle in an investment strategy. Another critical component to build wealth is investing in assets that pay out dividends, interest, and other income sources.
A dividend is a portion of a company’s earnings paid out to the shareholders. For every share of stock an investor owns, they get paid a portion of the company’s profits.
Interest income is typically earned by investing in bonds, otherwise known as fixed-income investments. The interest payment is determined by the bond’s yield or interest rate. Investors can also be paid interest by putting money into savings accounts or certificates of deposit (CDs).
For real estate investors, rents paid by tenants can also act as a regular income payout.
Investing in assets that pay out regular income can supplement capital appreciation. The combination of capital appreciation with income returns is the total return of an investment.
Assets intended for capital appreciation tend to be riskier than those intended for capital preservation, like many types of bonds.
Investing in stocks for capital appreciation alone is also known as growth investing. This strategy is typically focused on investing in young or small companies that are expected to increase at an above-average rate compared to the overall market.
The returns with a growth investing strategy can be high, but the risk involved is also high. Because they don’t have a long track record, these small and young companies can struggle to grow their business and lead to bankruptcy.
Capital appreciation refers to the rise in value, or price, of an investment in an investor’s portfolio. It’s paramount to the whole concept of investing, as most investors invest in an effort to generate returns, or appreciation, on their money.
Capital appreciation is one part of a long-term wealth-building strategy. Along with income from dividends, interest, and rent, capital appreciation is part of the total return of an investment that investors need to consider.
Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.
Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹
The difference between the terms capital growth and capital appreciation is merely semantics. Both terms refer to an increase in value of an investment over time, and effectively mean the same thing.
Investors do not pay taxes on capital appreciation, as an investment gaining value does not trigger a taxable event. They do pay taxes on capital gains, which are realized when an investor sells an asset.
A dividend is a payout to shareholders from a company’s profits. Capital appreciation is the rise in market value of an investment or asset, so they are two completely different things.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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’re a homeowner, you may know those “uh-oh” moments when the basement floods or the roof leaks. If you’re in that situation, you may well need a considerable amount of cash to pay for repairs ASAP.
In this guide, you’ll learn the ballpark prices for some of the most common home repairs so you are better prepared if an emergency strikes. You’ll also gain insight into some financing options so if you find yourself dealing with an unexpected and significant bill, you can decide which source of funding is best for your needs.
Key Points
• Common emergency repair costs can be steep: roof replacement averages $9,217, mold remediation $5,000–$30,000, HVAC replacement $5,000–$12,000, and rewiring $2,500–$6,000.
• Foundation fixes range from minor crack repairs ($250–$800) to waterproofing ($2,000–$7,000) or raising a house ($1,000–$3,000).
• Paying with an emergency fund is ideal, with experts recommending saving 1%–3% of a home’s value for repairs.
• Financing options include homeowners insurance, home equity loans/HELOCs, government or community assistance programs, and credit cards (best only with 0% interest promotions).
• Personal loans can provide quick, unsecured funding without risking your home as collateral, making them a practical alternative for urgent repairs.
From the roof to foundation, there are a lot of things in and on a home that might need to be repaired. Among these features are things that might be emergency home repairs at some point, whether that means you’ve discovered black mold in the basement or a kitchen appliance has conked out. Here, learn about some of the most common home repair costs.
💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
A home’s roof has a certain life expectancy, generally based on the material used. A roof made of asphalt shingles might last from 15 to 30 years, while concrete- or clay-tiled roof could last for more than 50 years.
Regular roof inspections are a good way to identify any minor problems, which may typically cost about $220, but can vary with your specific home and the region you live in. Minor repairs might include:
• Gutter cleaning.
• Patching leaks.
• Replacing shingles.
• Repairing flashing.
Issues found during a roof inspection might average $1,100. Replacing a roof, a major expense, may be necessary at some point in the life of a home. For an average-sized home, a completely new roof can cost $9,217 on average.
Foundation issues can show up as cracks in a home’s walls, floors that are not level, gaps around windows, or doors that don’t close properly. Fixing these symptoms of a foundation issue won’t solve the underlying problem, but repairing the foundation at the earliest sign of the symptoms may mean a less costly foundation repair.
Hiring a structural engineer can be a good first step if there appear to be major foundation problems, as they won’t be trying to sell a product to fix any potential problems, so will likely be unbiased. A structural inspection typically costs about $600.
• Cracks in a foundation that don’t affect the structure are minor repairs but are best not ignored, lest they lead to major issues. Potential cost: between $250 and $800.
• A leaking foundation might be the cause of those cracks. Waterproofing a foundation, which may involve excavating around the foundation, installing tile drains, filling cracks, and then coating the structure with a sealant, can cost anywhere from $2,000 to $7,000.
• A house with a settling or sinking foundation may have flooring that is warped or sloping, doors and windows that don’t open and close properly, or even exterior cracks, or other apparent issues. The cost generally depends on the type of repair. Raising a house using piers can cost between $1,000 and $3,000, while jacking might be between $600 and $1,600.
Water damage in a basement might be due to flooding from a storm or broken water line, for example, and is best fixed quickly so mold doesn’t grow and become another issue to take care of. In addition to being an unpleasant sight, standing water can cause structural or electrical issues in a home. Extraction of the water is generally the first step in this type of repair, followed by any necessary structural repairs.
• For simple fixes, such as cleaning up after an overflowing toilet, the cost might be around $150.
• Water damage restoration, though, is a bigger ticket item, averaging between $1,300 and $5,600, though it could go higher. If your entire home’s wood flooring is warped by water damage or basement flooding wrecks your electrical panel, that could spiral into five figures.
Recommended: How Much Does It Cost to Finish a Basement?
If the above water issues are not fixed in a timely manner, mold can grow on the surfaces, requiring additional necessary repairs. In addition to damaging any surface mold grows on, it’s also a serious health hazard, potentially causing allergic reactions, asthma attacks, and skin irritation.
Mold remediation costs average between $5,000 and $30,000 for a 2,000 square foot home. If the mold issue is localized (say, just in the attic or basement), your costs could be anywhere from $500 to $7,500 on average, depending on the specifics of your situation.
Pests and rodents in a home can be more than just annoying. Infestations might cause major damage to a home if left untreated. One-time pest control costs around $450 on average. Ongoing services may cost $50 or more a month.
Attics can be inviting spaces to rodents like mice, rats, or squirrels, or other animals such as raccoons or bats. Eliminating the problem can cost $200 to $600 typically.
A home’s heating, ventilation, and air conditioning (HVAC) systems control the regulation and movement of air throughout the building. Like other components in a home, it’s wise to have an HVAC system inspected regularly to catch any problems before they become serious (as in, needing to pull together the cost of replacing an HVAC system). A standard tune-up for an HVAC system might cost between $150 and $450, with any potential repairs added to that. Some companies might offer ongoing maintenance plans, which could be a cost saver over time.
And what if the entire HVAC system needs replacing? Your price tag could be between $5,000 and $12,000 or higher. This could be a good opportunity to investigate any rebates available. For instance, if you buy an eco-conscious heat pump, you might find rebates as part of the Inflation Reduction Act.
💡 Quick Tip: Unsecured home improvement loans don’t use your house as collateral — a relief for many homeowners.
Electrical issues in a house can vary from minor repairs, such as replacing an outlet, to wiring overhauls that may require professional help.
• Hiring an electrician to replace a home’s outlets, light fixtures, and switches can cost around $280 on average. For someone who is confident in their DIY skills, this relatively simple job can be done for about $5 per outlet.
• Replacing a circuit breaker or the entire electrical panel is something homeowners might leave to a professional. Costs will depend on the number of breakers being replaced or, in the case of replacing the electrical panel, how many amps. Panel replacement or upgrade can be anywhere from $2,000 to $6,000.
• Rewiring a home can be quite expensive and include other repairs, such as plaster or drywall repair. To rewire an entire home, a homeowner might expect to pay between $2,500 and $6,000 for a three-bedroom house.
Even with regular inspections and maintenance, sometimes emergency home repairs are necessary. Some roof tiles may blow away, allowing rain in, or mold can take root in a damp basement. How to pay for home repairs (especially major ones) might involve using a variety of sources, depending on what is available and a person’s individual financial circumstances.
Homeowners insurance may be the first source most homeowners look to when needing to pay for emergency home repairs. The policy will stipulate what is covered, how much the company will pay, and any amount the homeowner might be responsible for, such as a deductible.
Some things a typical homeowners insurance policy might cover are costs to repair or rebuild after a disaster, replacement of personal belongings that were destroyed because of a disaster, or the costs of alternative housing while repairs are being made or a house is being rebuilt.
If there is a sufficient amount in an emergency fund, paying for an unexpected home repair with cash on hand is an option that won’t incur interest. How much to save in a home repair emergency fund will depend on the home’s size, age, and value. Older or more expensive homes might mean higher repair costs.
A typical recommendation is to save between 1% and 3% of a home’s value in a home repair emergency fund. So for a home valued at $500,000, this means having between $5,000 and $15,000 saved for emergency home repairs. This is a goal to work toward, but even having $1,000 in savings can be helpful.
If you do dip into your fund to fix your house, it can be like an emergency home repair loan, without any interest charged or monthly repayment schedule.
Homeowners who have built up equity in their homes may choose to use that equity to get money for home repairs. Using this type of financing, however, does come with some risk because the home is used as collateral. If the borrower defaults, the lender may seize the home as a way to repay the debt.
There are two types of loans that are based on a home’s equity: home equity loans and home equity lines of credit (HELOCs).
• A home equity loan is a fixed-rate, lump-sum loan. It has a set repayment term, and the borrower makes regular, fixed payments consisting of principal and interest.
• A HELOC also uses the equity a homeowner has built up, but the borrower does not receive a lump sum. Instead, they access the loan funds as needed until the loan term ends. Funds can be borrowed, repaid, and borrowed again, up to the limits of the loan.
HELOCs are variable-rate loans and consist of two periods: a draw period and a repayment period. The draw period is the time during which money can be borrowed, and might be 10 years. The repayment period is the time during which the loan is repaid and might last for 20 years. The combination of the two would make this example a 30-year HELOC.
Recommended: The Different Types Of Home Equity Loans
If emergency home repairs are required but the homeowner can’t afford to pay for them, assistance programs might be an option to look into.
• Government loan or grant assistance. The U.S. Departments of Housing and Urban Development (HUD) , Agriculture (USDA), and Veterans Affairs (VA) offer grants and loans to eligible homeowners for home repairs and improvements.
• Disaster relief. HUD offers several programs for homeowners affected by federally declared disaster areas. HUD partners with other federal and state agencies to provide relief in the form of mortgage assistance, relocation, food distribution, and other types of disaster relief.
• Community Assistance Programs. Funding assistance may be able to be found by looking at local sources, such as county or city governments or charities. A good place to start a search is through HUD’s state listings .
Using a credit card to finance unexpected and urgent work on your home may seem like an easy fix. It can certainly be a quick way to pay for such repairs and a viable option if you’re thinking of how to pay for home repairs with no money withdrawn from your bank account. There are pros and cons to using a credit card for this purpose.
• On the positive side: If the credit card is a zero-percent-interest card — and the balance can be paid in full before the promotional period ends — this can be a way to pay for an emergency home repair without paying interest.
• As for disadvantages, credit cards are more likely to have high-interest rates, which can add a significant amount to the account balance if not paid off quickly.
• Credit cards also come with borrowing limits. A major emergency home repair might max out this limit or even exceed it.
• In addition, using all available credit can potentially have a negative effect on a borrower’s credit score. It can raise a person’s credit-utilization ratio. And if they are applying for a loan, it could raise their debt-to-income ratio, which might make getting a favorable loan rate a challenge.
Another option to pay for emergency home repairs might be a home improvement loan, which is a type of personal loan.
• An unsecured personal loan does not use collateral, like a home equity loan or HELOC, so the borrower is not risking losing their home if they can’t repay the loan. The potential loan value is also not limited by the amount of equity in the home.
• An unsecured personal loan may be funded more quickly than a home equity loan or HELOC. Because there is no collateral to determine a value for, this cuts out a potentially time-consuming step included in secured loans.
• How can you use a personal loan? They can be tapped for a variety of reasons, not just emergency home repairs. If there are expected repairs, planned repairs, or home renovations that might make a home more livable, an unsecured loan can be a good option.
It’s probably safe to say that nobody likes to think about emergencies. But it’s wise to be prepared in the event that one arises. When pricey home repairs are required, a personal loan may be the option that works best for your financial situation.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
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Buying a car is often a major purchase, whether you opt for new ($48,000 on average) or used (typically about $26,000). If you’re in the market, you may well be exploring your financing options, which could include a loan. In fact, you may be deciding between a car loan and a personal loan.
If that’s your situation, it’s worth taking a closer look at your options and the pros and cons of each. Here, you’ll learn more about this topic, so you can make the best decision for your situation and needs.
Table of Contents
Key Points
• Personal loans offer flexibility in funding, allowing for the purchase of a car and covering other related expenses.
• Secured personal loans do not require collateral, unlike auto loans that use the car as security.
• Interest rates for personal loans may be higher due to their unsecured nature.
• Personal loans can be either secured or unsecured, with fixed or variable interest rates.
• Approval for a personal loan before car shopping can empower buyers to negotiate effectively at dealerships.
Can you use a personal loan to buy a car? Yes. But is it the right option? There are a few things to take into consideration when thinking about buying a car with a personal loan or a car loan.
• Are you buying a new car or a used car?
• Are you buying a car from a private individual or a dealership?
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars. While SoFi does not offer auto loans at this time, we do offer personal loan options with other use cases.
If you’re buying a new car from a dealership, the benefits of using dealer financing might outweigh the drawbacks. Automakers offer financing on cars purchased through their dealerships, with low or sometimes even 0% annual percentage rates (APRs) for well-qualified buyers in an effort to compete with banks and other financial institutions.
An individual who is selling a used car is not likely to offer financing, so a car buyer in that situation would likely need to find their own source of funds. As the name implies, a personal loan can be taken out for a variety of personal expenses — including to pay for a car. In this way, personal loans to buy a car can work well if you’re shopping from friends, neighbors, or other individuals.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars. While SoFi does not offer auto loans at this time, we do offer personal loan options with other use cases.
Funds from a personal loan can be more flexible than funds from an auto loan — they can be used not just for purchasing a car but for the other costs of owning a car as well.
Personal loans can be secured or unsecured, with either fixed or variable interest rates. If you choose to purchase a car with an unsecured personal loan, collateral is not needed. There is no asset for a lender to seize in the case of default, as with a secured personal loan, although lenders can pursue you in court.
Car buyers who have a personal loan approval in hand before they go to the dealership can negotiate, knowing exactly how much they can spend. If you don’t think your income would qualify you for an auto loan from a dealership, you could consider looking for personal loans based on income.
Refinancing a car loan with a personal loan might be an option in some cases. Perhaps your credit score was bad when you purchased your car, but you’ve built it since taking out your car loan and you can now qualify for a lower interest rate. Or you’d rather have a shorter-term loan than you currently have, and refinancing with a personal loan might accomplish that.
Recommended: How Does Collateral Work with a Personal Loan?
Whether the car you’re considering is new or just new to you, there are a number of well-respected pricing guides to consult for an appropriate price range once you narrow down your car choices. Having an idea of the car you’re considering buying may give you more confidence while negotiating a price.
• Edmunds offers a True Market Value guide.
• Kelley Blue Book has suggested price ranges for various cars (particularly useful for used cars).
• J.D. Power offers information about new and used cars, including classic cars.
• Consumer Reports provides detailed reviews and reports about specific makes and models.
These resources simply provide a price range for the car you want. Calling car dealers for price quotes or estimates and looking for any purchase incentives or dealer financing offers are good ways to be prepared as you consider your financing options.
Once you know which car you want and what you can afford, how do you pay for it? If you’re considering different ways to get a car loan — and a personal loan is one option — there are some pros and cons to weigh. Here, details that can help when you know that you can use a personal loan to buy a car but wonder if it’s the right move.
| Pros of Using a Personal Loan for a Car | Cons of Using a Personal Loan for a Car |
|---|---|
| Prequalification for a personal loan means you know exactly how much you can spend. | Capping your spending at the amount of your personal loan will limit the pool of cars you can afford. |
| You don’t need a downpayment. | Interest rate may be higher than for an auto loan. |
| Funds can be used for other expenses, not just the car purchase. | May be more difficult to qualify for than an auto loan. |
💡 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.
In essence, a car loan works much like a mortgage. It’s a secured loan paid for in monthly installments, and the asset isn’t fully yours until the final payment is made. The car is the asset that secures the loan, which means if you default on payments, the lender could seize your car. The car’s title typically remains with the lender until the loan is paid in full.
| Pros of Using an Auto Loan To Buy a Car | Cons of Using an Auto Loan To Buy a Car |
|---|---|
| May be easier to qualify because it’s a secured loan. | If you default on the loan, the lender can repossess your car. |
| Auto loans are structured specifically for vehicle purchases. | Lenders may restrict purchase to a newer car. |
| May be easier to qualify for an auto loan than a personal loan. | May need a good or excellent credit score to qualify for favorable interest rates. |
After comparing the general factors of using a personal loan vs. using an auto loan to buy a car, you might want to look at some more specific things. “Can you get a personal loan for a car?” is a question that can be answered differently depending on your financial situation and other factors. Learn more about the ins and outs of personal loans for cars here.
Since a personal loan for a car is an unsecured loan, you typically need a higher credit score to qualify for a favorable interest rate. Unsecured loans are generally riskier for lenders than secured loans because there is no collateral to back the loan.
Having a bank account may make it easier to get a personal loan. Lenders tend to see a bank account as evidence that an applicant has sufficient cash flow to make payments. Getting a personal loan with no bank account may mean having a higher interest rate or less favorable terms — or both.
Generally speaking, personal loan applicants who are approved for lower interest rates have higher credit scores. Personal loan interest rates tend to be higher than auto loan interest rates because there is no collateral to secure the loan.
Personal loan fees that potentially can be charged are usually higher than auto loan fees. Origination fees are one example — they’re commonly included in personal loans and can range from 1% to 10% of the loan amount. Some auto loans may include an origination fee, but the range is typically lower than the personal loan range, at 1% to 2% of the loan amount.
The term of a loan is the length of time the lender allows for repayment of the loan. Personal loan terms tend to be shorter than auto loan terms. One reason for this is due to the unsecured nature of a personal loan. If a lender doesn’t have an asset to secure a loan, they may want to make sure they get their money back as soon as possible. Personal loan terms typically range from two to seven years.
Personal loans are usually unsecured, which means no collateral is required. As mentioned before, however, that tends to equate to higher interest rates and shorter terms than secured loans offer. Collateral gives a lender more confidence that the borrower is serious about repaying the loan.
Online applications for personal loans are fairly common. Completing an online application is usually quick and easy, especially at the pre-qualification stage. After that, a lender will likely ask for more detailed information to move forward in the process.
At this point, the lender will likely run a hard credit check on your credit report, which will affect your credit score (in contrast to a soft credit check, which doesn’t affect your credit score). You may be asked what the purpose of the loan is, and you’ll need to fill out a complete loan application. Lenders will also ask you to provide proof of identity, Social Security number, and current address, and will verify your employer and income.
Typically, a down payment is not required when using a personal loan to purchase a car. This factor can be the deciding one for some people looking for auto financing. If you’re getting a personal loan for part of the cost of the car and paying for the remainder with your own funds, you could think of the latter as your unofficial down payment.
Choosing what type of loan — auto loan or personal loan — generally corresponds to what type of car you’re buying, what interest rate and terms you might qualify for, and what works best for your specific financial situation. Getting prequalified for a personal loan before you begin shopping for a car may help direct your car search toward vehicles that are affordable and fit your lifestyle.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
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