Nov
14
2023

The Ideal Wedding Budget May Be Smaller Than You Think

By | Budgeting & Goals, personal_loan | Comments Off on The Ideal Wedding Budget May Be Smaller Than You Think

Popular wedding sites claim the average wedding costs $29,000. Countless media reports have repeated that number while leaving out an important caveat: Averages can be misleading. Even one extravagant wedding may skew the average to be significantly higher than what most people actually paid.

SoFi wanted to know: How much does a wedding really cost? We surveyed 1,000 men and women across the country and then crunched the numbers. Read on to find out what we discovered.

How Much Did the Wedding Cost?

50% of respondents’ weddings cost less than $10,000

Total wedding budget breakdown:

•   Less than $10,000: 50%

•   $10,000 to 19,999: 18%

•   $20,000 to 29,999: 12%

•   $30,000 to $39,999: 10%

•   $40,000 to $49,999: 6%

•   $50,000 or more: 4%

Half of respondents to our wedding survey spent less than $10K on their ceremony and reception. That’s considerably less than the $29K figure that’s been popularized as “average.”

We’re not saying that the $29K budget is inaccurate — after all, half of respondents paid more than that. However, averages in general are notoriously confusing. Only 22% of couples in our survey spent about $29K (between $20K and $39K). And just 10% paid more than that.

But why does this matter?

There’s a concept in behavioral economics called anchoring. It describes how numbers can influence consumer decisions by unconsciously becoming our reference point for what’s standard or “normal.”

Let’s say you’re in the early stages of wedding planning. If you stumble across an authoritative $29K estimate, from then on you may view anything less than that as a “low-budget” wedding. And when figuring out your own wedding budget, you may make decisions that bring you closer to that total — even if a $10K wedding is more aligned with your savings and taste.

Most Common Wedding Regrets

The most common wedding regret? Spending too much money.

15% of respondents said their biggest wedding regret was spending too much money. Other common wedding regrets:

•   Type of wedding (traditional, elopement, courthouse): 10%

•   Letting other people dictate wedding decisions (guest list, location, bridal party): 10%

•   Drinking too much the night of the wedding: 9%

•   The guest list: 8%

You may have heard of a phenomenon called the “vacation mindset,” which drives travelers to splurge on special purchases they wouldn’t consider on their home turf. Well, a similar wedding mindset can push couples to indulge an uncharacteristic desire for luxury. “It’s a once-in-a-lifetime event! Your wedding should be as big as your love for each other!”

After the wedding, as the bills roll in, so does buyer’s remorse. And now, other big-ticket goals that took a backseat to the wedding — buying a home, having kids, expanding a business, or saving for the long term — now feel more urgent.

Nearly half (46%) of respondents who got married in 2020 or later had a nontraditional wedding (they eloped or got married in a courthouse).

Traditional or Not?

•   9% of people eloped. Of those, 6% had a reception with friends and family later.

•   25% of respondents got married in a courthouse. Of those, 18% had a reception with friends and family later.

The pandemic likely drove many couples to forgo big group events in favor of smaller celebrations. But there are other reasons behind the popularity of nontraditional weddings, according to several wedding vendors we spoke to:

3 Reasons to Have a Nontraditional Wedding

Financial goals:
“It’s no surprise that couples might want to scale back their wedding,” says Jim Campbell, founder of Honeymoon Goals. “They don’t want to spend years saving for an elaborate event when they could be saving for other things instead, like traveling together.”

Time:
“The last few years have shown people how much they value their free time,” observes Maddie Ward, of Sonnet Weddings. “Elopements and courthouse weddings are definitely lower-cost, but there’s also much less of a time investment in planning. The prospect of spending a year or more involved in a time-intensive endeavor with your partner has many people looking at alternatives.”

Stress:
“The No. 1 reason to scale back to a micro wedding or elopement is stress!” insists Lee Ramsay, of Lee Ramsay Events. “More guests means more money, and more money means more problems. Save your dollars, and avoid the headache of attempting to make everyone happy.”

The venue (23%) was among the biggest wedding expenses.

Of those who said the venue was the most expensive, the most commonly reported cost was $10,000 (11% of respondents). The most expensive venue cost reported? $500,000.

It’s safe to say that those who spent $10K on their venue had higher overall budgets. Those with smaller wedding budgets often got creative about the venue, choosing a park, beach, or private home or yard.

How Couples Save on Wedding Costs

Other common ways people saved money on their wedding venue were:

•   Limiting the number of guests: 31%

•   Using buffet or family-style food service: 29%

•   Booking a venue that didn’t require additional rentals (chairs, tables, tents): 26%

Nearly two-thirds (62%) of respondents had expenses pop up that they weren’t prepared for.

Sneaky Weddings Costs That Surprise Couples

The most common fee that snuck up on people? Marriage license and officiant fees: 23%.

Other common surprise costs reported by respondents:

•   Taxes and service charges: 17%

•   Pre-wedding events like the rehearsal dinner or welcome party: 15%

•   Meals for vendors: 13%

•   Overtime charges for vendors: 13%

•   Gratuities for vendors: 12%

•   Postage for stationery (invitations, RSVPs, thank you cards): 12%

82% of respondents who had a wedding planner said their planner helped them save money.

“Wedding planning is a lot like cooking. The more you do it, the better you get at it,” explains Jim Campbell. “The more weddings you plan, the better you get at saving money.”

According to The Knot, the average cost of a wedding planner is about $1,900. But a planner’s fee can vary widely widely depending on a number of factors:

•   Location: A destination wedding requires more coordination than a hometown ceremony.

•   Services required: A full-service planner costs more than someone hired to manage certain elements, such as the seating chart or budget.

•   Fee structure: Planners may charge a flat fee, hourly rate, or a percentage of your overall budget.

Only 25% of our respondents hired a wedding planner. (Another 13% said a planner was included with their venue.)

Ryan Mayiras, of Candid Studios wedding photography, thinks many couples don’t need a wedding planner. “Believe it or not, we recommend that most of our customers skip the wedding planner step. Good vendors will go out of their way to help couples plan their wedding,” he says. “We have a collection of timeline templates that we send to our customers for reference. They can skip the planner and go with a day-of coordinator instead. A coordinator is more affordable and will keep the event on schedule, so the couple doesn’t need to worry during the wedding itself.”

Who Paid for the Wedding?

Who paid for the wedding?

39% of respondents said the couple paid for the total cost of the wedding on their own. Of this group:

•   70% said their wedding cost less than $10,000.

•   88% said it cost less than $30,000.

45% of respondents said their parents helped pay for the wedding. 27% said their partner’s parents helped pay.

Aside from the venue, the biggest wedding expenses

Of those who said the food and drinks were the most expensive, the most commonly reported cost was $10,000 (10% of respondents). The next most commonly reported cost for food and drink was $1,000 (8% of respondents).

Those who said the rings were the most expensive reported a wide range of dollars spent. Regardless of the total wedding budget, many couples (35%) splurged on their rings. Here were some of the most commonly reported costs:

•   $300: 5%

•   $500: 7%

•   $1,000: 8%

•   $2,000: 7%

•   $2,500: 5%

•   $3,000: 6%

•   $5,000: 7%

Popular money-saving tactics

The most common ways people saved money on their wedding attire:

•   Shopped around for deals: 33%

•   Bought a dress off the rack: 26%

•   Rented suits: 23%

18% of people said they didn’t try to save money on attire.

The most common ways people saved money on their wedding vendors:

•   Did their own hair and makeup: 38%

•   Hired a friend to do photography/videography: 32%

•   Didn’t provide transportation for wedding party or guests: 30%

The most common ways people saved money on their wedding decor, stationery, and gifts:

•   DIYed decor: 26%

•   Didn’t give gifts to parents: 25%

•   Didn’t give gifts to out of town guests: 24%

Money-Saving Tip

Ashley Meyer of Meyer Photo Video offered other money-saving tips:

•   “Skip traditional paper invitations and stamps, and opt for email invitations.

•   “Save a few hundred dollars by asking a close friend or family member to get ordained online to officiate your wedding.

•   “Join local bridal Facebook groups to buy discounted wedding items from couples who already tied the knot. Couples sell everything from their wedding dress and veil to candles and signage.”

What couples splurged on

The most common splurge was the rings (35%). Other wedding items that respondents splurged on:

•   The food: 32%

•   The dress: 27%

•   The drinks: 23%

•   The venue: 20%

Many wedding planners we spoke with recommended splurging on photos. Yet only 17% of respondents said they splurged on photography/videography.

The real takeaway? Couples don’t have to splurge on anything. You may feel better after your big day if you save your splurging for a new home or fat retirement account.

Financing a Wedding

Should you need a bit of financial assistance to put your wedding savings over the top, a personal loan is a better option than high-interest credit cards. With low rates and no fees required, SoFi can put those final funds at your fingertips the same day as your approval. That way, rather than anticipating how you’ll pay the bills, you can relax and enjoy your wedding.

Learn how SoFi can help you finance your big day.

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.


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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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Nov
10
2023
What Is a Margin Loan? Definition & Examples

Margin Loans: Definition, Examples, Pros & Cons

By | Growing Wealth, invest, Investing | Comments Off on Margin Loans: Definition, Examples, Pros & Cons

Margin loans are a type of loan that an investor takes out from a brokerage to buy investments. An investor typically borrows from a brokerage if they don’t have the cash balance in their trading account to cover the cost of a trade or investment – so, they use credit from their brokerage to cover the costs.

While there are risks associated with using margin and margin loans, they can also increase an investor’s purchasing power and bolster potential returns.

What Is a Margin Loan?

A margin loan is a loan from your brokerage to pay for securities that you can’t cover with cash. Similar to any other loan, you must apply for the account and be approved before you can borrow funds; and your brokerage will charge interest on any funds you borrow.

Having a margin account by definition enables you to take out a margin loan (the two are synonymous in many ways). Having the flexibility to buy securities on margin gives many traders the ability to take positions they might not have been able to afford otherwise. In fact, margin loans are a cornerstone to putting together effective day trading strategies, for advanced investors.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Understanding Margin Loans

Understanding margin trading can be tricky, but for the average investor, all you really need to know is that a margin loan is essentially a short-term financing solution. If you want to buy securities, but don’t have the cash in your account, your brokerage may allow you to buy those securities using credit. It’s similar to a line of credit, in that way.

So, that’s what margin debt is: The result of a margin loan, in which a trader borrows money to buy securities.

How Margin Loans Work

While we’ve mostly been discussing margin loans in terms of trading and investing, they could be used for any purpose. But almost always, a margin loan is used to buy securities.

As for the process of how they actually work: A margin loan is more or less like any other loan. To get one, you’ll need to apply and qualify for margin on your brokerage account (typically called a “margin account”).

Margin Accounts and How They Work

Like other forms of lending, margin loans have strict criteria. In addition, these accounts are governed by industry regulations as well as the policies of individual institutions, so be sure to understand how your desired margin account works. Each brokerage has different rules and eligibility requirements, and FINRA, for example, also requires you to deposit a minimum of $2,000 or 100% of the security’s purchase price, whichever is less. This is the “minimum margin.” Some firms may require you to deposit more than $2,000.

If you’re approved for a margin account, you’re able to trade using a margin loan — up to a certain amount. According to Regulation T of the Federal Reserve Board, you may borrow up to 50% of the purchase price of securities that can be purchased on margin.

This is known as the “initial margin.” Some firms require you to deposit more than 50 percent of the purchase price. (Also be aware that not all securities can be purchased on margin. Only those deemed “marginable” can be traded on margin.)

If you have $5,000 in your brokerage account, and you want to buy stock X, which is valued at $50 per share, with a 50% margin you could buy 50% more than your cash balance: 200 shares instead of 100. But half of those (100 shares) would’ve been purchased on margin — so, you’d need to settle up your account at some point, if or when you decide to sell your shares (hopefully for a profit).

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 4.75% to 9.50%* and start margin trading.

*For full margin details, see terms.

How Margin Interest Works

The other important thing to remember about margin loans is that they are, like pretty much all loans, subject to interest charges. Your brokerage is going to charge you for the money you borrow.

Margin interest is a big topic unto itself, but the key takeaway is to know that you’ll be on the hook for paying your brokerage back for the money you borrow, plus interest charges.

You’re probably thinking: “Can I avoid paying margin interest?” The answer is that it depends on how fast you can pay your margin balance back. Most brokerages will charge interest by the day and add the charges to your account monthly. So, if you have cash or can sell securities and pay your balance off before interest accrues, it’s possible.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Margin Loan Pros and Cons

Marginal loans can be highly useful for traders and investors. But like almost any financial instrument, margin loans have their pros and cons.

The biggest upside of margin is that it can open up a new swath of investing choices for traders. That means increasing their buying power, and allowing them to buy securities that may have otherwise been too expensive. This can increase potential profitability, too.

Conversely, traders who aren’t careful can’t quickly find themselves in debt if one of their trades backfires.

There are also interest charges to consider, as discussed. And if things really go sideways, some traders may experience a “margin call,” which is when your brokerage sells your assets without warning to settle up or get your account balance back within its requirements.

Here’s a quick rundown:

Margin Loans: Pros & Cons

Pros

 Cons
Increased trading capacity Traders can accumulate debt
Traders can buy pricier securities Interest charges
Increased potential gains Potential margin calls

Typical Margin Loan Rates

Margin loan rates, or, the interest rate charged by a brokerage for using margin, vary. Brokerages make the information available to traders and investors, so finding what types of margin loan rates you’re subjected to usually just requires a little research (or a call to your broker).

As mentioned, a brokerage will probably charge different interest rates depending on your overall margin balance, and how much you’ve borrowed. Lower balances are typically charged higher interest rates.

Here are some hypothetical examples: Let’s say Brokerage ABC’s margin interest rates vary between 4% and 8%, depending on the trader’s balance. Traders using up to $24,999 in margin will be subject to the highest interest rate (8%), whereas traders with more than $1 million in margin debit are subject to the 4% rate.

Brokerage B, however, has a different scale, with traders in margin debt up to $24,999 subject to 8.5% interest, and those with balances between $500,000 and $999,999 subject to 6.5%.

So, while brokerages do vary in what they charge for margin loan rates, they tend to be similar. To know your exact rate, contact your brokerage, or look up the current rate schedule on the company’s website.

The Takeaway

Margin loans are similar to any other type of loan, but are typically used for the purpose of buying stocks or other securities. Once you’ve applied for and been approved for a margin account, which is akin to adding a line of credit to your existing brokerage account, you’ll have the flexibility to buy more investments than if you were relying only on cash.

That said, you’re on the hook for repaying the money you’ve borrowed, with interest. If you’ve made a profitable investment, this shouldn’t be a problem. But if you invest in stock X on margin, say, and the price drops, you would still owe the full amount you’d borrowed to buy the stock, plus interest.

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

FAQ

Can you withdraw a margin loan?

Yes, it’s possible to withdraw a margin loan, although the specifics will depend on an individual brokerage, as will any applicable interest charges.

Are margin loans a good idea?

Margin loans can be useful for many investors and traders, and whether or not they’re a good idea will depend on the specific individual considering taking one out. They do have risks, but upsides, too.

How do I pay back my margin loan?

The simplest ways to pay back margin loans are to either deposit cash into your brokerage account to get the balance back to zero, or to sell holdings that will result in a positive or neutral balance.

How much collateral is required for a margin loan?

The collateral required to take out a margin loan depends on a specific brokerage, but it’s not uncommon for brokerages to require somewhere between 30%, 40%, or 50%.

What happens if you can’t pay back a margin loan?

If you can’t pay back a margin loan, the brokerage will likely reach out to see what can be done, or lock you out of your account. Further, it could end up liquidating securities in your portfolio in order to cover the debt.

Photo credit: iStock/Sergey Nazarov

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.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Nov
07
2023
eggs in a nest mobile

Pros & Cons of Consolidating Your 401(k)

By | Growing Wealth, Investing | No Comments

The nature of work is no longer what it used to be. Gone are the days of working for just one employer for an entire career. Now, it’s more common to move between lots of jobs.

According to a recent study by the Bureau of Labor Statistics, the average person will have more than 12 jobs during the course of their career. That’s a lot of jobs – and potentially, a lot of 401(k) accounts.

That’s because instead of the pensions that many workers in previous generations had, the average worker today is likely to have self-funded retirement accounts like 401(k)s through each new employer.

This means that as employees move between jobs, many will be left with a hodgepodge of old 401(k)s and other retirement accounts.

Is it best to leave them as they are, or to consolidate 401(k) accounts? And if so, how do you consolidate them?

Read on to learn how to consolidate 401(k) accounts, along with the pros and cons of the most popular consolidation options.

What You Need to Know About 401(k) Plans

A 401(k) is a workplace-sponsored retirement plan. If you sign up for a 401(k), contributions are deducted from your paycheck to go into your 401(k) account. Often 401(k) plans are offered to employees as a workplace benefit, like vacation days and healthcare coverage.

Some companies offer a 401(k) match. This is where a company contributes money to an employee’s 401(k) to match the amount of money the employee has contributed, up to a certain amount. A company match program can make a 401(k) a lucrative way to save money for retirement.

In addition, 401(k) plans are considered an advantageous way to save retirement money because they have certain tax advantages. For instance, 401(k) accounts are referred to as “tax-deferred” because income taxes are deferred until later, when you take the money out in retirement.

The taxation of retirement accounts is an important consideration in long-term financial planning. Taxation also acts as a guide for knowing what retirement account types can be combined, and which types cannot be combined with other retirement account types.

Because all 401(k) accounts share the same tax status (tax-deferred), they can be combined. Traditional IRAs are also tax-deferred and can be combined with a 401(k) account. This process is called a rollover.

A Roth IRA is another popular retirement account type. A Roth IRA cannot be rolled over or combined with a 401(k) or a traditional IRA account, however, because it has a different tax status. With a Roth IRA, you pay the taxes upfront (meaning you make the contributions with after-tax dollars) and your qualified withdrawals are not taxed

Should I Combine My 401(k) Accounts?

You might be at the point during your career where you’ve got at least one 401(k) account from a previous job that you’re no longer contributing to. If you are wondering whether to consolidate your 401(k) accounts, here are a few of your options:

1.    Transfering the 401(k) account(s) into your active 401(k), meaning the one you have with your current employer).

2.    Rolling the 401(k) account(s) into a Traditional IRA at an institution of your choosing.

3.    Doing nothing, and leaving the account(s) as is.

Everyone’s financial situation is different, so evaluate the pros and cons of each option when trying to decide what is best for you. When weighing your options, here are some things you might consider:

Option 1: Rolling Over into Your Active 401(k)

Your first option with a 401(k) with a former employer is to transfer the money into your active 401(k) account with your current employer.

Pros:

1. A single place for your tax-deferred money

By transferring old 401(k) accounts into an existing 401(k), you are consolidating those tax-deferred accounts in one place. You may find managing just one account an ideal scenario.

2. Consolidating your investment strategy

Consolidation may make it easier to keep track of your money and manage a cohesive investment strategy. It can be challenging to manage a bunch of different retirement accounts.

Cons:

1. Limited investing options

Sometimes 401(k) plans have limited investing options. If this is the case with your current active 401(k), consolidating your other 401(k)s into the plan may limit your investing choices overall. Look at the investment option information provided by your plan to help make an informed decision.

2. Additional fees

Some 401(k) accounts have additional fees on both the accounts and investments themselves. Check to see if fees are assessed at a flat rate, or if they are assessed as a percentage of the amount invested. This may influence your decision to transfer your other 401(k)s into your active 401(k).

How to do it:

How to consolidate 401(k) accounts starts with contacting the institution that holds your old 401(k) and requesting a rollover to your active 401(k). The customer service representative should likely be able to help you on the phone or direct you to the paperwork online. It can be smart to clarify that this is a rollover to another tax-deferred account.

Ideally, the company is able to transfer the funds electronically to your active 401(k). If they are not able to do this, they may request an address to send a check. Get the address of the financial institution where your 401(k) is located and have it ready before making the call.

Option 2: Rolling into an IRA

Rolling old 401(k) accounts into a Traditional IRA of your choosing is a popular choice that allows you maximum control over the investments within the account.

Pros:

1. You choose the institution

You get to choose where to open your individual retirement account. By selecting the institution, you can choose a place that fits your needs. You will have control over your investment choices and whether to use an institution that charges for certain services.

This may be especially important if the institution that holds your current 401(k) charges account maintenance fees or only offers high-cost investment products.

2. You’ll control it

You open a Traditional IRA on your own and without an employer—therefore, a Traditional IRA is yours. Some people may find it helpful to think of a Traditional IRA as a “home base” for their tax-deferred money. As you move through your career, you can roll old 401(k) accounts into a Traditional IRA that’s not going anywhere—it’s your home base.

3. More investment options

As compared to some 401(K) plans, a Traditional IRA opened at an institution of your choosing may have more options for investing.

Some 401(k) plans may require that participants choose from a pre-selected list of options. If you open a Traditional IRA at a brokerage firm or other financial institution, you’ll have the benefit of a broker’s wisdom and experience should you wish to use a broker. Asking the right questions is key to making sure a broker is the right fit for you.

Cons:

1. You may still have multiple accounts to maintain

Even if you open a Traditional IRA, you may still want to contribute to your active 401(k). Therefore, you will need to maintain at least two retirement accounts. (And perhaps three, if you have a Roth IRA, which cannot be combined because it has a different tax status.)

(Still, having two accounts—an active 401(k) and a Traditional IRA—might be better for you than having many multiple 401(k) accounts scattered around at different financial institutions.)

2. It may complicate a “backdoor” Roth IRA

A backdoor Roth IRA is a way to contribute to a Roth IRA when your income is too high to contribute to one directly.

Though you’ll want to check with a tax professional, it is generally understood that a backdoor Roth IRA might be complicated if your Traditional IRAs contain a mix of pre and post-tax money that you put in.

If you want to pursue a backdoor Roth IRA, you may want to roll your old 401(k) assets into your current 401(k), or leave the account as it is. The greater the balance in your Traditional IRA, the greater the tax liability for the backdoor Roth IRA contributions since you can only contribute money that’s already been taxed to a Roth IRA.

How to do it:

If you do not already have one, you may want to open an IRA account at a financial institution of your choosing. This could be at a bank or other financial institution.

Once your Rollover IRA is active you can roll funds from your 401(k) into the Rollover IRA. The process is generally similar to that of rolling assets into an active 401(k) as noted above.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Option 3: Doing Nothing

Lastly, you may opt to leave your 401(k) accounts exactly as they are. Here are some pros and cons of this strategy.

Pros:

1. You are happy with the financial institution and/or investments

If you like your current investment allocation and investment options and want to continue using them, you may choose to leave your 401(k) as it is.

Cons:

1. Difficult to manage

It could be hard to manage a cohesive investing strategy across multiple accounts. This may be the case for someone that has multiple accounts at different institutions.

2. Cannot add money to an old employer-sponsored 401(k)

It is not possible to contribute new money to an old 401(k) account that was previously tied to an employer. New money must go into a current 401(k) or some other self-directed retirement account, such as a Solo 401(k), Roth IRA, or Traditional IRA.

If you do not currently have access to an employer-sponsored 401(k), you may want to seek out another retirement account for which you can make contributions.

3. Possible maintenance fees

Old 401(k) accounts may charge monthly or annual fees such as account maintenance fees. By consolidating, it may be possible to eliminate all or most of these fees.

For example, a person could roll old 401(k) accounts that charge a maintenance fee into an account that has no such fee, whether that be their current 401(k) or a Traditional IRA.

4. Limited investing options

Because a person does not get to choose the bank that holds their employer-sponsored 401(k), they don’t get to determine the plan’s investing options, either. Therefore, it’s up to you to decide whether the available investment options in your old 401(k) are sufficient.

The Takeaway

People may benefit from consolidating their 401(k) accounts into their current 401(k) or into a Traditional IRA, if for no other reason than to consolidate their money under one roof.

It can be hard to manage a bunch of different accounts at different institutions, and may only get harder as individuals progress through their careers and end up with even more 401(k) accounts.

In general, a Traditional IRA can provide more flexibility and investing options than a 401(k). It means that you’ll be managing two accounts, yes, but it might be worth it to keep a Traditional IRA as a home base to roll all old 401(k) accounts into over time.

When you open an IRA, you’ll want to find a bank or financial institution that meets your needs. Many investors prefer institutions where they will not be charged with unnecessary fees and have access to low-cost investing options.

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.

Invest with as little as $5 with a SoFi Active Investing account.

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Nov
01
2023

Best Types of Loans for Home Improvement

By | Home Ownership, personal_loan | Comments Off on Best Types of Loans for Home Improvement

A higher resale value of your home is one of the many rewards for carrying out home improvements and renovations. But remodeling projects cost money, and financing them can be expensive, depending on the amount you borrow and the type of loan you use.

Options for home improvement financing include home equity loans (HELOCs), home equity lines of credit, and cash-out refinancing. These types of financing allow homeowners to borrow against the equity they have built up in their home. Other financing options are personal loans, credit card financing, and government programs. Any of these could be the best option depending on the circumstances.

Here’s what homeowners need to know about the different types of home improvement loans and what factors they should consider before settling on a lender.

1. Home Equity Loans

If you have built up equity in your home, which means you have paid off a portion of your mortgage, a home equity loan could be the right choice to finance home improvements. To find out how much equity you have, subtract the balance due on your mortgage from the assessed value of your home. For example, if your home is worth $400,000 and you owe $200,000 on your mortgage, you have $200,000 in equity. A bank will let you borrow up to a certain percentage of that amount — up to 100% in some cases.

A home equity loan acts like an additional mortgage, where the homeowner pays back the loan in monthly payments. The payments are in addition to the original mortgage payments. Home equity loans often have low fixed interest rates because the home is used as collateral for the loan. However, there are closing costs to consider that could be between 2% to 5% of the loan amount.

On the plus side, home equity loans usually qualify for the mortgage interest tax deduction as long as the funds are used to substantially improve the home.

If you have plenty of equity and need a sizable amount to finance a big project, a home equity loan could make sense. You will receive a lump sum payment, and the improvements you make may increase the value of your home.

Advantages of a Home Equity Loan

 Disadvantages of a Home Equity Loan
Low interest and terms from five to 30 years There are origination fees and closing costs
You can borrow up to 100% of your home’s equity Funds are disbursed as one lump sum, so borrowers need to budget carefully
The interest is tax deductible The monthly payments add to existing mortgage payments



💡 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.

2. Home Equity Line of Credit (HELOC)

A home equity line of credit also borrows against the equity you have built up in your home. But the funding works more like a credit card and is not distributed as a lump sum payment. A bank will allow a qualified homeowner to borrow up to a preapproved limit and then pay it back. HELOC loan terms are typically between five and 20 years.

Interest rates differ for HELOCs because they are adjustable and rise and fall over the life of the loan. However, interest is only due on the outstanding balance — the amount borrowed — not the full credit limit.

The amount you can borrow through a HELOC depends on your credit score, income, and the value of your home. Your lender can change the loan terms, too. For example, if your credit score drops during the loan term, your lender may reduce the amount you can borrow.

One advantage of a HELOC is that you can use funds from the line of credit, make payments, and then borrow again. A HELOC is a better option if you have smaller projects to do over a longer term. You can borrow as you go, only pay interest on how much you use, and avoid paying closing costs.

Advantages of a HELOC

 Disadvantages of a HELOC
No closing costs Interest rates may go up and down
Interest payments are tax deductible Interest rates are typically higher than those for a home equity loan
You only pay interest on the amount you use Your lender can change the amount you can borrow and the repayment terms

3. Cash-Out Refinancing

Another option to fund home improvements is cash-out refinancing. In the case of cash-out refinancing, a homeowner takes out a new mortgage that is higher than their original mortgage. The borrower then pays off the original mortgage and uses the leftover cash to fund home improvements. The amount of cash they can access depends on the equity they have in the home.

For example, let’s say the homeowner currently owes $100,000 on a $300,000 mortgage. They take out a new mortgage for $350,000, pay off the old mortgage ($300,000), and now have $50,000 left to spend on home improvements. The catch is that their new monthly mortgage payments will be higher because they have increased the size of the loan, and they will have to pay origination fees and closing costs.

Money from refinancing does not have to be used to improve a home; it can be used to consolidate debt, pay for school, or anything else the borrower wants to use it for. Also, the cash is not considered income from the IRS and is not taxable.

Cash-out refinancing may be a good option if interest rates have dropped since you took out your original mortgage. You can take out cash and pay a lower interest rate on the new loan. You might also be able to reduce the term length of your original mortgage and pay off your home loan sooner. This will be the case if the total cost of your new loan including closing costs is less than the total cost of your original mortgage.

Advantages of Cash-Out Refinancing

 Disadvantages of Cash-Out Refinancing
You will still have one monthly mortgage payment Your new mortgage will have a higher balance
You might be able to lower your interest rate and loan term Your loan term will start from the beginning, so you will be paying off your mortgage for longer
You can use the cash for anything If interest rates have gone up, your monthly payments may be higher

4. FHA 203(k) Rehab Loan

An FHA 203(k) rehab loan is a loan taken out at the time of the home’s purchase. These loans are typically used for a fixer-upper, when the owners need funding right away for improvements. This could be the best type of loan for home improvements for big projects. The advantages of this type of loan for the borrower are that they have funds available for improvements from the outset, and they only have to pay back one loan with one set of closing costs.

These loans are also backed by the government and come with benefits. Borrowers can qualify with a less-than-stellar credit score (typically, a minimum of 620), and the down payment expected is lower than it would be for a traditional mortgage loan (as low as 3.5%).

Two things to remember are that the renovation costs must exceed $5,000 for the borrower to qualify for this type of loan, and the closing process can take a long time. Lastly, work covered under an FHA 203(k) loan must start within 30 days of closing, and projects must be completed within six months.

This type of loan may be worth considering if you are buying a fixer-upper that requires significant work, and your credit score qualifies you for this type of loan.

Advantages of a FHA 203(k) Rehab Loan

 Disadvantages of a FHA 203(k) Rehab Loan
One loan and one set of closing costs Only old homes or homes in bad repair may qualify
Federally-backed with low interest rates and low closing costs You are likely to be charged costly monthly mortgage insurance
You can qualify with a lower credit score Cash must be used for specific home improvements

5. Personal Loans

If you don’t have sufficient equity in your home to take out a home equity loan or a HELOC, a personal loan is an option. A personal loan will come with a higher interest rate, adjustable or fixed, because this type of personal loan is unsecured. Your home is not used as collateral. These loans are processed much quicker than home equity loans or HELOCs, sometimes the same day.

Personal loan terms are shorter, from two to five years, which will mean higher monthly payments, and you’ll have to pay closing costs.

These loans may work if you lack equity or if you have an emergency, such as a broken water heater or HVAC system. That said, they are probably one of the most expensive borrowing options.

Advantages of a Personal Loan

 Disadvantages of a Personal Loan
Fast financing Higher interest rate than mortgage loans
You can qualify for a good interest rate even with an average credit score Shorter terms, which increases monthly payments
Your home is not used as collateral and is not at risk Fees and possible prepayment penalties

6. Credit Cards

A credit card can be used for financing, and it’s a fast, simple way to access funds. The amount you can spend on improvements will depend on your credit limit (although you could use multiple cards), and the interest charges are likely to be much higher than other financing options.

A credit card can be a good option if you think you can finish your renovations quickly and pay off the balance on the card. Look for cards with an introductory 0% annual percentage rate (APR). Some cards allow you up to 18 months to pay back the balance at that introductory rate. If you can pay off the balance by the deadline, that’s interest-free financing. However, check for fees and other hidden costs.

The danger here is that if you don’t pay off the balance by the end of the interest-free rate, the interest charges can skyrocket. That’s why credit cards should not be used for long-term financing.

A credit card can be a great option for home improvement financing if you can find one with a low introductory rate, low fees, and you are confident you can pay off the balance within the introductory rate period.

Advantages of Credit Card Financing

 Disadvantages of Credit Card Financing
Fast financing High interest rates, particularly after a low introductory interest rate period has expired
Some cards offer 0% introductory rates Possibly low credit limits
Less paperwork High fees

7. Government Assistance Programs

The federal government has grants and programs that can help homeowners pay for renovations. Two home renovation loan options are Title I loans and Energy Efficient Mortgages. Lenders for Title I property improvement loans for your state are listed on the U.S. Department of Housing and Urban Development’s website.

Title I Loans

An FHA Title 1 loan is a fixed-rate loan used for home improvements and rehabilitation. Loans under $7,500 are usually unsecured, but bigger loans may use your home as collateral. These loans may be used in conjunction with a 203(k) rehabilitation mortgage.

The maximum loan terms are between 12 and 20 years, and loan amounts are $7,500 to $60,000, depending on the home’s size and type.

The loan must be used for property improvements, and an FHA mortgage insurance premium of 1% of the loan amount will be added to your interest rate. There is no minimum credit score required, but your debt-to-income ratio may factor into your loan terms.

Energy Efficient Mortgage

FHA’s Energy Efficient Mortgage program (EEM) finances energy-efficient improvements with their FHA-insured mortgage. The borrower must qualify for the loan amount used to purchase or refinance a home. However, they’re not required to be qualified on the total loan amount that includes the amount used to finance energy-efficient improvements. The FHA insures the loan to protect the lender against loss in the event of payment default.

Starting in 2023, homeowners can also get tax credits for some energy-efficient updates, including windows, insulation, new doors, heat pumps, and air conditioners.

These types of programs will reduce the cost of financing for home improvements and are great options if you meet the criteria.

Advantages of Government-Assisted Financing

 Disadvantages of Government-Assisted Financing
Low interest rates Financing must be used for property improvements.
Broad range of loan terms Strict qualification standards
Tax credits Larger loans may require your home as collateral.

How to Decide the Best Type of Home Improvement Loan for You

If you’re trying to decide what home improvement loan is best for you, consider the following factors:

Are You Purchasing a Fixer-Upper?

If you are buying a fixer-upper, check if you qualify for either an FHA 203(k) rehab loan or a government-assisted program. You may get cheaper financing this way.

Do You Need Funds Right Away?

If you need funds quickly — for example, you have a broken heat pump or HVAC system — a personal loan or credit card financing are options to explore.

Do You Have Equity Available?

If you have built up equity, a home equity loan or line of credit will provide cheaper financing than a personal loan and over a longer term, so that your monthly payments will be lower. A cash-out refinancing loan might also mean that you could lower your payments and reduce your term if interest rates have dropped significantly since you took out your original mortgage.

How to Get a Home Equity Loan

The first step in getting a home equity loan is to decide which loan is best for your situation. Next, find a lender with the best terms and fill out an application to see if you qualify.

1. Check Your Financial Health

The better your credit score, the better the loan terms will be. If you can boost your credit score before you apply for financing, you’ll boost your chances of getting a better deal. Lenders will also look at your debt-to-income ratio when setting the interest rate and term, so lowering your debt before you apply for a home improvement loan can help lower the cost of your financing.

2. Compare Lenders

You should contact a few different lenders to compare their rates and loan terms. Look for benefits, such as rate discounts for enrolling in autopay, and watchouts, such as late payment fees and minimum loan amounts.

3. Gather Documentation

You will need to submit a few basic pieces of information when you apply for a loan. As a general guide, you will need:

•  Proof of income, such as W-2s or 1099s, bank statements, pay stubs, or tax returns.

•  Proof of residence, such as your Social Security number and utility bills.

Your current debts, housing payment, and total income will also play a role. Be sure to have all the information your lender may need on hand when you apply to speed up the application process.



💡 Quick Tip: With home renovations, surprises are inevitable. Look for a home improvement loan with no fees required — and no surprises.

4. Apply for Prequalification

Some lenders will prequalify you, which will tell you your interest rate and how much your monthly payments will be. Prequalification should not affect your credit score, whereas a formal loan application could. Applying for too many loans in a short space of time could lower your credit score.

5. Complete the Loan Application Process

Your loan application might be fully online, via phone and email, or in person at a local branch. In cases where you are borrowing against equity, your lender may require a home appraisal. Provided your finances are in good shape, the lender should approve your application, and you’ll receive funding.

How Your Credit Affects Your Home Improvement Loans

Your credit score will affect the total cost of a home improvement loan. The higher your score, the less of a risk you pose to a lender, so the better the loan terms will likely be for a mortgage or long-term loan. The same goes for credit cards and personal loans. Also, if you have good credit, you’ll probably have an easier time securing a home improvement loan.

Can You Use Home Equity Loans for Non-Home Expenses?

Home equity loans and HELOCs are flexible and can be used for anything, not just home expenses or renovations. However, these loans are best suited for long-term, ongoing expenses like home renovations, medical bills, or college tuition.

The Takeaway

The types of loans for home improvements include loans based on the equity you have built up in your home, such as a home equity loan, a HELOC, or cash-out refinancing. You can also use personal loans, credit card financing, and government programs. Loans based on equity tend to cost less over the loan’s lifetime, but they also tend to have longer loan terms. Equity-based loans also tend to be best when you need to borrow a larger amount, because you can spread out the cost over a longer period.

A personal loan will have a higher interest rate and a shorter term, but the higher your credit rating, the better the interest rate tends to be. Alternatively, credit card financing is favorable if you need funds quickly, the amount you need is not too high, and you can take advantage of a 0% introductory rate and pay off the balance before the rate expires.

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.


SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What type of loan is best for home improvements?

The type of loan that is best for home improvements depends on your finances and how much you need to spend. If you hold a fair amount of equity and need a sizable amount of cash, a home equity loan, HELOC, or cash-out refinancing may be good options. Cash-out refinancing might be particularly appealing if interest rates have dropped, and you can refinance with better loan terms.

If, on the other hand, you have a smaller project that you expect to complete in a short timeframe, using a credit card that gives a 0% interest rate for a period could be the way to go.

What is the best renovation loan?

If you’re taking on a big project, buying a fixer-upper or planning to renovate an older home, you may want to consider the FHA 203(k) mortgage. The 203(k) rehab loan lets you consolidate the home and renovation costs into a single remodel home loan and avoid paying double closing costs and interest rates.

If your home is newer or higher-value and you have equity, cash-out refinancing can be a good option, particularly if interest rates have dropped.

Should I use a personal loan for home improvements?

Personal loans are a more expensive option for home improvements, especially if your credit score is average. However, using a personal loan for home improvements might be the best option if you don’t have a lot of equity to borrow from.

Are home improvements tax deductible?

Home improvement loans are generally not tax deductible. However, if you use a refinance or home equity loan, some of the costs might be tax deductible. Check with a CPA or tax specialist.

What credit score is needed to get a home improvement loan?

Credit score requirements for a home equity loan depend on the lender. A credit score in the mid-600s might be enough to be approved by some lenders, while others might not approve you with a score above 700. Lenders consider many factors, including your debt-to-income ratio and equity in the home, when considering you for a home equity loan.

Photo credit: iStock/Hero Images

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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.
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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Oct
30
2023

Finding Value Is in Season: Even the Rich Are Discount Shopping Now

By | Budgeting & Goals, Family Finances, money | Comments Off on Finding Value Is in Season: Even the Rich Are Discount Shopping Now

How America shops is shifting in a fundamental way.

Shoppers are turning to discount stores such as Dollar Tree, ALDI, and Big Lots more often, driven largely by spiking inflation, which peaked at 9.1% in June 2022. These days, shoppers are increasingly asking themselves, Why pay more? as they place a higher premium on value.

According to SoFi’s Discount Shopping Survey of 1,500 consumers fielded in August 2023, 81% of respondents are currently shopping at discount stores at least monthly, regardless of their income level.

Surely, the impetus may vary:

•   For many, discount stores are a vital tool when sticking to a tight budget.

•   For others, it might be a way to find splurges, both large and small, at the right price.

Still, though circumstances may vary, a whopping 78% of respondents are laser-focused on snagging the lowest possible prices for items on their list.

While shoppers may have been swayed by ambience and amenities at stores in the past, now it’s all about getting top value for every hard-earned dollar. Sticking to — and stretching — one’s budget is the new black. Also worth noting: Among the ranks of discount shoppers are high-earners pulling in six figures.

SoFi’s proprietary research found intriguing and unexpected facts about just who’s hitting the discount stores, what they are hunting for at these retailers, and why the face of shopping may never be the same again.

Where the Buyers Are: 74% of Respondents Dropped Into Dollar Tree

Where are discount shoppers spending their dollars?

Curious about which discount retailers are topping shoppers’ lists? According to SoFi’s Discount Shopping Survey, almost three-quarters (74%) of discount shoppers have dropped into a Dollar Tree, where the motto is “Extreme Value Every Day,” over the past year.

It isn’t just those living paycheck to paycheck who are shopping at Dollar Tree:

•   64% of the survey’s highest earners (households bringing in $150,000+) say they’ve bought items at Dollar Tree in the last 12 months.

Discount shoppers are also looking elsewhere to find where the best buys are. Over the past year:

•   65% have shopped at Dollar General

•   42% at Five Below

•   41% at ALDI

•   38% at Big Lots

•   37% at T.J. Maxx

•   35% at Ross Dress for Less

•   35% at Marshalls

Where else are moneywise shoppers queuing up? It turns out that 22% have shopped at HomeGoods, while one in five (20%) has rung up items at brand-name outlets (Nordstrom Rack, for instance).

Discount Stores: The New Social Media Darlings

Reflecting their new status as many shoppers’ go-to destination, discount stores are accumulating hefty followings. As of September 2023, the stats are:

•   ALDI USA has 955K Instagram followers; 184K on TikTok

•   Dollar Tree has 675K Instagram followers; 76.6K on TikTok

•   Five Below has 706K Instagram followers; 214.3K on TikTok

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81% Discount-Shop at Least Once a Month

18% of respondents shop at discount stores at least once a month

People aren’t just hitting the discount shops for an occasional find. Rather, SoFi’s discount shopping research uncovered that these retailers are quickly gaining traction as routine destinations for shoppers.

•   81% of respondents shop at discount stores at least once a month.

•   38% — practically four out of ten people — shop at discount stores weekly.

•   14% of respondents say you’ll find them shopping at discount stores several times a week. (These may be people who are saving money daily with their shopping habits.)

Compelling find: Close to half of high-income earners (those making $100,000+ a year) say they shop at discount stores at least weekly.

Inflation Surge Drives Shoppers to Discount Stores

63% of discount shoppers say inflation prompted them to shop at discount stores

If you’re wondering why discount shopping is surging, consider the economic state of our union. After inflation rates fell month after month for a solid year, July 2023 saw an uptick in prices that surely set some people on edge. (Inflation in July 2023 increased 3.2% from July 2022.)

What’s more, the cost of living is soaring. Social Security recipients enjoyed a cost of living adjustment (COLA) to the tune of 8.7% in 2023, one indicator of how steeply the price of, well, everything has been rising.

Indeed, consider this:

•   Nearly two-thirds of discount shoppers (63%) say inflation and rising costs have prompted them to shop at discount stores over the last 12 months.

•   In addition, nearly half of discount shoppers have ramped things up, with 49% saying they are hitting discount stores more frequently than they did before the inflation surge.

When it comes to defending one’s paycheck against price hikes, bargain-hunting is a smart maneuver. ”Inflation is real for just about all of us,” says David Bakke, a consumer finance expert and writer at personal finance blog Dollar Sanity. “My discount shopping has definitely increased. I find myself spending a lot more time at ALDI, Dollar General, and the like.”

Indeed, inflation is making over the way Americans shop. SoFi’s discount shopping data shows this significant stat:

•   40% of respondents say they “always” search for ways to save on their purchases when shopping.

•   Only 2% said they never search for ways to save.

Discount shoppers' cost-cutting tactics

Here are some of the leading tactics discount shoppers have used to cut costs:

•   41% have used couponing websites.

•   40% have subscribed to company emails.

•   31% have followed a company or brand on social media.

•   21% have joined a Facebook group or other online community.

•   18% have followed an influencer on social media who talks about discount shopping.

More Than Half Discount-Shop to Benefit Their Budget

In these challenging economic times, many consumers are embracing budgeting as a way to manage their finances. Almost six out of 10 discount shoppers (58%) say one of the biggest benefits of shopping at discount stores is the ability to stick to a budget.

This holds true for 62% of those with household incomes under $75K, as well as 46% of those pulling in $100K or more.

Other reasons to love these retailers? SoFi’s discount shopper respondents said:

•   Regular availability of discounted products (47%)

•   The convenience and accessibility of discount stores (46%)

•   The ability to find trendy or seasonal items at lower prices (45%)

Another shopping pattern that SoFi’s discount shopping survey uncovered: A significant number of discount shoppers are making most of their purchases from these lower-priced retailers:

•   36% make more than 50% of their purchases at discount stores.

•   Almost one in 10 (9%) of those with household incomes of $150,000 or more do more than 75% of their shopping at discount stores.

First on the Discount Shopping List: Groceries

What items do discount shoppers buy at discount stores?

It’s no secret that food prices can trigger sticker-shock, and that’s not just for luxuries like a pumpkin spice latte. Overall, food prices are ratcheting up 5.9% this year, per the USDA’s numbers, which may explain why consumers are hitting the low-cost stores for items they might otherwise buy at a standard supermarket.

According to the SoFi discount shopping research, groceries are the most common purchase made by discount shoppers: 78% buy groceries at discount stores.

And no wonder: These stores often have an array of staples and snacks, from coffee to cookies, and some are putting a health spin on things, as with Dollar General’s “Better for You” selections. Shopping at discount stores can be a solid way to save money on food.

“I shop at discount grocer ALDI,” says Melissa Cid, consumer savings expert with MySavings.com. “Chips, peanuts, cookies, yogurt, and ice cream are 25% to 50% cheaper than at traditional grocery stores.”

After food, the next most popular items:

•   Fashion and apparel: 58%

•   Beauty and skin care: 49%

•   Home decor: 40%

I shop at discount grocer Aldi.

11% Splash Out When Discount Shopping

Think shoppers are only grabbing cereal, socks, and a bottle of shampoo? Not necessarily.

Yes, many people are hunting for lower-priced essentials at the discount stores, but super-low prices are also leading to big-ticket purchases, for some. According to SoFi’s survey:

•   11% of discount shoppers say the most expensive item they’ve purchased at a discount store in the past 12 months cost $250 or more.

Here is what shoppers say are some of the priciest items they purchased at a discount store:

•   18% say it was a fashion/apparel item.

•   16% say it was an electronic item.

•   13% say it was a home decor item.

“Tech gadgets and home essentials top the list of items that I purchase from discount stores,” explains Thomas Paddock, an Amazon FBA Six-Figure Seller and the founder of Learn Retail Arbitrage, an online selling resource. “These categories often carry substantial markups in conventional retail outlets. Discount stores can offer high-quality items at a more
reasonable cost.”

There is, however, a bit of a gender gap when it comes to shopping for certain items at discount stores:

•   36% of men have purchased electronics vs. 27% of women.

•   67% percent of women have made clothing purchases vs. 44% of men.

•   Nearly 3x as many men (22%) have made sports/outdoor purchases vs. women (8%).

Finding Fashion at Discount Shops? Yes, Says Gen Z

How Gen Z discount shops

The SoFi discount shopping stats reveal that 67% of young people (aged 16-24) have purchased fashion and apparel items at a discount store within the last year.

Given that Gen Z is broadly recognized as the first digitally native generation, it’s probably no surprise that social media may have led many of them to these style purchases:

•   30% of respondents aged 16-24 have followed an influencer on social media who talks about discount shopping, vs. 18% of total respondents.

And the presence these retailers have on social media channels is significant. On Instagram, as of September 2023, T.J. Maxx has 2+ million followers, Nordstrom Rack has 1+ million followers, and Ross Dress for Less has 537K followers. All three have tens of thousands of followers on TikTok.

Almost 50% of Shoppers Seek Seasonal Wares

Seasonal and holiday shopping is (very) big business in the U.S., with Halloween spending, for instance, totalling $10.6 billion in 2022.

“Here today, gone tomorrow” items are part of the allure of discount stores, where goods can be found at a rock-bottom price. Consider these numbers from the SoFi survey:

•   45% of discount shoppers say one of the biggest benefits of discount stores is the availability of lower-priced trendy or seasonal items.

•   65% of discount shoppers are hunting for clearance or end-of-season items.

•   70% of women look for clearance and end-of-season deals at discount stores vs. 56% of men.

More Than Half of Discount Shoppers Spend Serious Time Bargain-Hunting

Discount shoppers spend serious time bargain-hunting

The new wave of smart shoppers are dedicated bargain-hunters. They will invest hours to get a great deal. In fact, more than half (51%) will spend between one and three hours extra to find savings or specific items at discount stores. A dedicated 4% are willing to spend five hours or more. (Of these, 63% have a household income of less than $50,000.)

Discount Shoppers Also Prioritize Availability

60% of discount shoppers with household income of $150,000

Low prices are the leading reason for the popularity of discount shopping, but availability of desired products is another big incentive:

•   52% head to these retailers for the specific items they know they can find there.

Whether it’s a favorite energy bar or shower gel, items that are part of a person’s usual shopping list are a big draw for discount shoppers.

This is especially true of the deep-pocketed respondents to the SoFi survey. Why spend top-dollar on your favorite matcha beverages or other small luxuries when you can buy them for much less?

•   60% of the highest earners (household income of $150,000 or more) say one of the reasons they shop at discount stores is for specific items they know they can find there.

There are a good number of impulse buyers among the aisles though:

•   Almost one in five (19%) discount shoppers say they don’t go to the stores looking for any particular item. Rather, they “go in without a plan and buy things that speak to them.”

As for the rest of the respondents to SoFi’s survey:

•   More than half of discount shoppers (51%) say they know what they need when they go to a discount store, but are open to buying items not on their list.

•   More than a quarter (26%) say they buy what they need and exit ASAP.

•   Only 3% say they just browse and rarely actually purchase anything.

And the Biggest Frustration With Discount Shopping Is…

Obviously, there is much to love about discount shopping, as detailed above. But, yes, there are a couple of pain points. Here, the two biggest downsides:

•   38% of discount shoppers say the items they want aren’t always available. That suggests that consumers would buy even more at these retailers if they could find everything they are hunting for.

•   22% say that the biggest downside is that the items are of a lower quality.

It seems that getting what you want, when you want it, may matter even more than an item’s quality.

That said, Thomas Paddock of Learn Retail Arbitrage contends that you can find good quality if you shop smart. “Contrary to general assumptions, not every item in a discount store is of inferior quality. Many times, these are overstock products or emerging brands,” he says. “Discount stores can be an avenue to discover value.”

The Takeaway

As inflation increases, shoppers of all income levels are finding that discount stores can serve their needs. Of the 1,500 consumers surveyed for SoFi’s Discount Shopping Survey in August 2023, 81% say they are visiting discount stores (think Dollar Tree, ALDI, and Five Below) at least once a month. Popular purchases are food, fashion, personal care, and home decor items.

What frustrates discount shoppers when seeking their budget buys? Lack of availability first and foremost, followed by lower quality of some goods.

For anyone looking to make the most of their money, finding the right banking partner can also make a big difference. One that charges low or no fees and offers a competitive interest rate can help you make the most of your finances.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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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