How Bid and Ask Price Work in Trading

Bid and Ask Price: Definition, Example, How It Works

Bid and ask are commonly used investing terms, and they refer to the best potential price at which a security on the market could be bought or sold for at any given time. In other words, the best price that buyers and sellers would potentially be willing to buy (the “bid” price) or sell (the “ask” or offer price) the asset.

It’s important for traders to understand the bid vs. ask price of a security, as well as the difference between the two, which is known as the bid-ask spread. The market price is a historical price: the price of the last trade that occurred with the security. The bid and ask prices, on the other hand, show what buyers and sellers would be willing to trade the security for now.

Key Points

•   The bid price is the highest price a buyer is willing to pay for a security, reflecting market demand.

•   The ask price is the lowest price a seller is willing to accept, representing market supply.

•   The bid-ask spread, the difference between bid and ask prices, serves as a transaction cost and indicates market liquidity.

•   Narrow bid-ask spreads suggest high liquidity and trading volume, while wider spreads indicate lower liquidity.

•   Investors use the bid-ask spread to assess market sentiment and risk, with narrower spreads indicating lower risk.

What Are Bid and Ask?

If you’re new to online investing or investing in stocks, you’re probably wondering about bid vs. ask prices. Bid and ask prices show the current market supply and demand for the security. The bid price represents demand for a security; the ask price represents supply.

When an asset has high liquidity — i.e. the market has a high trading volume not dominated by selling — the bid and ask prices will be fairly close. In other words the bid-ask spread, or the difference between the bid and ask prices, will be narrow in a highly liquid market. When there’s a greater gap between demand and supply, the spread will be wider.

That’s why the bid-ask spread is often considered a gauge of liquidity.

Bid Price

The bid price is the best potential price that retail investors would be willing to pay to buy a security.

So if a trader wants to sell a security, they would want to know how much they’d be able to sell it for. They can find out the best price they could get for the security by looking at the current bid price in the market, which would show the highest potential amount they could get for it.

Ask Price

Conversely, ask price is the lowest price investors are willing to sell a security for at any given time. If a trader wants to buy a security, they want to get the lowest possible price, so they look at the ask price to find out what that is.

Bid and Ask Price Examples

Let’s imagine that an investor wants to buy Stock X at the quoted price of $75, so they plan to buy 10 shares for $750. But they end up paying $752. That’s not an error, but rather because the ask price (the selling price) is $75.20.

The current price of $75 per share is the last traded price. But prices can change quickly, and in this case the ask price was 20 cents higher. The bid or buyer’s price is almost always lower than the ask price.

Investors can use limit orders to set specific parameters around the price at which they’re willing to buy or sell a security. This can give investors some control, so they’re not simply paying the current price, which may or may not be advantageous.

Evaluating the bid-ask spread can be part of an investor’s due diligence when trying to gauge rates of return for different securities.

What the Bid-Ask Spread Signals

How far apart the ask price and bid price are can give you a sense of how the market views a particular security’s worth.

If the bid price and ask price are fairly close together, that suggests that buyers and sellers are more or less in agreement on what a security is worth. On the other hand, if there’s a wider spread between the bid and ask price, that might signal that buyers and sellers don’t necessarily agree on a security’s value.

How Are Bid and Ask Prices Determined?

Essentially it’s the supply and demand of the market that sets the bid and ask prices. And many factors can play into supply vs. demand. Because of this, investors who are interested in active investing can use the difference in price between the bid and the ask of a security to gauge what the market thinks the security is worth.

Investors and market-makers can place buy or sell orders at a price they set. These orders will be fulfilled if someone is willing to sell or buy the security at that bid or ask price. Those order placements determine the bid and ask price.

What’s the Difference Between Bid and Ask Prices?

In any market, from stocks to real estate to lemonade stands, there is almost always a difference between what someone is willing to pay for an item versus what someone wants to sell it for.

A buyer may want to buy a house for $300,000, but the seller is selling it for $325,000. An investor may want to buy a stock for $100, but the sell or ask price is $105.

That difference in price is called the spread, and when the spread is narrow it’s a lot easier to close the sale. When the spread is wider, there is a bigger gap between what the buyer thinks an item is worth vs. what the seller thinks it’s worth.

What Does It Mean When Bid and Ask Are Close?

A narrow spread, i.e. when the bid and ask price are close, means traders will be able to buy and sell the security at roughly the same price. This generally means there is a high trading volume for the security, with a lot of people willing to buy and sell because of high demand.

If demand increases for the security, the bid and ask prices will move higher, and vice versa. If there is a surge in demand, but not enough supply, that might drive the bid price up. Conversely, if supply outpaces demand, the bid price of a security could fall In either case, the spread would likely get wider when the bid or the ask prices outweighs the other.

The Bid-Ask Spread

The bid-ask spread is the gap between the two prices: the bid or buyer’s price and the ask or offer price. There are different factors that can affect a stock’s spread, including:

•   Liquidity. A measure of how easily a stock or security can be bought and sold or converted to cash. The more liquid an investment is, the closer the bid and ask price may be, since the market is in agreement about what the security is worth.

•   Trading volume. This means how many shares of a stock or security are traded on a given day. As with liquidity, the more trading volume a security has, the closer together the bid and ask price are likely to be.

•   Volatility. A way of gauging how rapidly a stock’s price moves up or down. When there are wider swings in a stock’s price, i.e. more volatility, the bid-ask price spread can also be wider as market makers attempt to profit from the price changes.

Who Benefits From the Bid-Ask Spread?

The difference in price between the bid and the ask is where brokers and market makers make their profit.

But traders can also benefit from the bid-ask spread, if they use limit orders to get the best possible price on a desired trade, as opposed to using market orders.

How the Bid-Ask Spread Is Used

When you understand how bid-ask spread works, you can use that to invest strategically and manage the potential for risk. This means different things whether you are planning to buy, sell, or hold a stock.

If you’re selling stocks, that means getting the best bid price; when you’re buying, it means paying the best ask price. Essentially, the goal is the same as with any other investing strategy: to buy low and sell high.

Bid-Ask Spread Impact on Trading Profits

Naturally, the bid-ask spread impacts trading profits, and in fact can act almost as a hidden cost.

For example, if an investor places a market order on a stock with a bid price of $90 and an ask price of $91, they’ll get the stock at $91 per share. If the price of the stock rises 5%, so the bid price is now $94.50 and the ask price is $95.55 and the bid-ask spread is $1.05.

If the investor decides to sell the shares they bought at $91 through a market order, they will receive $94.50 per share. So their profit is $3.50 per share, even though the stock price rose by $4.55. The $1.05 gap in profit reflects the $1.05 bid-ask spread on this stock.

Wide vs Narrow Bid-Ask Spread

What is the difference between wide and narrow bid-ask spreads, and what is the significance of each? Here’s a rundown.

Narrow Bid-Ask Spreads

The bid-ask spread, often just called the spread, is tighter when a security has more liquidity, i.e. there’s higher trading volume for that stock. When you think of big companies, industry leaders, constituents of different indexes like the Dow Jones or the S&P 500, those companies may have higher volume and narrower spreads.

Wider Bid-Ask Spreads

Conversely, smaller companies or those that aren’t in demand tend to have wider spreads, reflecting a lower level of market interest. These trades tend to be more expensive, as investors must contend with lower liquidity.

Impact of the Bid-Ask Spread

The narrower the bid-ask spread, the more favorable it is for traders. If an investor wants to buy 100 shares of Stock A at $60, but shares are being offered at $60.25, that 25 cent spread may not seem like much. It would add up to $25 (100 x 0.25). But if that trader wanted to buy 500 shares or more, the cost of the spread is about $125.

The Takeaway

Bid and ask prices help traders know exactly how much they may buy and sell securities for. The bid price is the highest price a buyer is willing to pay for a security. The ask price is the lowest price a seller is willing to accept. The difference between them is the bid-ask spread, or “spread.” The spread ends up being a transaction cost, as market makers pocket the cost of the spread.

Since the bid price and the ask price are essentially a function of supply and demand in the market, investors can consider the bid-ask spread as a gauge of risk. The narrower the spread, the more aligned buyers and sellers are on the value of a certain security, and thus there’s higher volume and more liquidity — and lower risk to the investor that the stock or security might lose value (although it could, as there are no guarantees).

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

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

FAQ

Do I buy a stock at the bid or ask price?

You buy a stock at the ask price, that’s the lowest price the seller is willing to offer.

Is the last price the same as the market price?

The last price is the last traded price for a security, or the last price at which it closed. The market price is the best current price.

Is it better if your bid is higher than the asking price?

The bid price is typically lower than the seller’s price or ask price, so it would be unusual if the bid was higher than the ask. If a bid price is higher than the ask, a trade would occur, but it would put the buyer at risk of a potential loss.


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Can a Personal Loan Hurt Your Credit?

Taking out a personal loan can both help and hurt your credit. In the short term, applying for a new loan can have a small, negative impact on your scores, due to the hard inquiry by the lender. If managed well, however, having a personal loan can boost your credit profile over time by adding to your positive payment history and broadening your credit mix. This could make it easier to get approved for loans and credit cards with attractive rates and terms in the future.

Here’s a closer look at how personal loans affect your credit score, both positively and negatively, plus guidelines on when it makes sense to take one out.

Key Points

•   Personal loans can initially take a few points off your credit score due to the lender’s hard inquiry.

•   Responsible management of a personal loan can help build your credit by adding to your positive payment history.

•   Missing payments on a personal loan can significantly harm your credit score.

•   Personal loans can help lower credit utilization if used to pay off credit card debt.

•   Over time, having a personal loan should benefit your credit more than harm it.

How Is Your Credit Score Calculated?

What makes up your credit score?

Understanding how personal loans impact your credit starts with knowing how your credit score is calculated. The most common credit scoring model, FICO®, uses five components to calculate your score. Here’s a look at each factor and how much weight it’s given in FICO’s calculation.

•   Payment History (35%): Your record of making on-time payments to lenders is the most important component of your score. This helps creditors determine how much risk they are taking on by extending credit.

•   Amounts Owed (30%): This includes the total amount of debt you currently have and your credit utilization ratio, which measures the percentage of available credit you’re using. If you’re tapping a lot of your available credit on your credit cards, it suggests you may be overextended and, thus, at higher risk of defaulting on a loan.

•   Length of Credit History (15%): This factor takes into account the average age of your accounts, the age of your oldest account, and how long it has been since you used certain accounts. Generally, having a longer credit history can positively affect your score.

•   New Credit (10%): A small but still important part of your score is how much new credit you’ve recently taken out. Opening new accounts or having too many credit inquiries can temporarily lower your score.

•   Credit Mix (10%): Your credit mix looks at how many different types of credit you hold. Having a variety of credit types — like credit cards, retail accounts, and installment loans — can positively affect your score.

A personal loan can influence several of these factors, for better or worse, depending on how you manage it.

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How Do Personal Loans Work?

A personal loan is a lump sum of money borrowed from a lender, such as a bank, credit union, or online lender. Personal loans are typically unsecured, meaning you don’t need to provide collateral (like your car or home), and can be used for various purposes like consolidating debt, covering medical bills, or funding a wedding.

When you take out a personal loan, you agree to repay it in fixed monthly installments over a predetermined period, usually ranging from two to seven years. The interest rate, determined by your creditworthiness, and any lender fees affect how much you’ll pay in total.

Recommended: Is There a Minimum Credit Score for Getting a Personal Loan?

Ways Personal Loans Can Hurt Your Credit

While personal loans can be beneficial, they also have the potential to harm your credit. Here’s how:

Requires a Hard Credit Inquiry

When you apply for a personal loan, the lender typically performs a hard credit inquiry to evaluate your creditworthiness, which can adversely impact your credit score. Hard inquiries remain on your credit report for two years. However, their negative effect on your score is minor (typically 5 points or less) and lasts only about a year.

Note that prequalifying for a personal loan, which involves a soft inquiry, won’t have any impact on your score. This can give you an estimate of the interest rate and loan amount you can expect in a loan offer.

Can Increase Overall Debt

Taking out a personal loan can increase your overall debt, which can negatively affect the “amounts owed” component of your credit score. This may cause you to see a slight drop in your score. However, if you’re consolidating credit card debt, you will reduce that debt by paying it down with the personal loan, and your amounts owed won’t be impacted.

Can Negatively Impact Payment History If You Miss a Payment

Since payment history is the largest factor in credit scoring, missing just one payment on your personal loan can result in a substantial drop in your score. While being just a few days late may not affect your credit, lenders can report payments that are more than 30 days overdue to the credit bureaus. Late payments remain on your credit reports for seven years.

Setting up autopay or reminders can help ensure you make your payments on time and avoid this credit score setback.

Can Shorten Your Credit History

Taking on a new loan can shorten the average age of your credit accounts, which could have a small negative impact on your score. Generally, a longer credit history is considered better than a shorter one.

How Personal Loans Can Help Your Credit

Despite the risks, personal loans can also positively influence your credit when managed wisely. Here’s how:

Can Add to Your Credit Mix

Your credit mix accounts for 10% of your score. Adding a personal loan to your portfolio — especially if you primarily have revolving credit, like credit cards — can enhance your credit profile by showing that you can manage different types of credit responsibly.

Can Improve Your On-Time Payment History

Consistently making on-time payments on your personal loan demonstrates financial responsibility, which can strengthen your payment history — the most significant component of your score. It may take a few months for the benefits to show up but over time, this can positively impact your credit.

May Help Lower Your Credit Utilization Ratio

If you take out a personal loan to pay off high-interest credit card debt (also known as a credit card consolidation loan), you can lower your credit utilization ratio, which is the percentage of your available credit you’re using. A lower ratio — ideally under 30% — is generally beneficial for your credit. However, this strategy only works if you keep your credit card spending low after paying off your balances with the loan.

When to Consider Taking Out a Personal Loan

Even though applying for a personal loan may result in a small, temporary drop in your credit score, there are times when taking on this type of debt can be a smart financial move. Here are some scenarios where you might consider getting a personal loan.

•  You want to consolidate high-interest debt: Personal loans typically have lower interest rates than credit cards, making them an attractive choice for paying off expensive credit card debt. An online personal loan calculator can help you determine how much you could potentially save. If you’re juggling several credit cards, a debt consolidation loan can also simplify repayment.

•  You’re facing unexpected expenses: Medical bills, home and car repairs, or other emergencies can sometimes justify taking out a loan. Using a personal loan may be more cost effective than putting these expenses on your credit card.

•  You have good or excellent credit: The best personal loan interest rates are generally reserved for borrowers who have strong credit. While there are personal loans for bad credit, they typically come with higher interest rates and other less-than-ideal terms.

•  You earn a steady paycheck: Getting a personal loan generally only makes sense if you have a regular income and earn enough to comfortably cover the monthly payments for the term you select.

The Takeaway

Personal loans can have a positive or negative impact on your credit depending on how you manage them. Initially, applying for a personal loan can slightly downgrade your score. This is due to the hard inquiry, as well as the loan’s impact on the average age of your accounts and (potentially) your overall debt load. However, if you repay the loan responsibly, having a personal loan can ultimately help your credit by adding positive payment history, diversifying your credit mix, and — if you use it pay off credit card debt — reducing your credit utilization rate.

Before taking out a personal loan, you’ll want to assess your financial situation, shop around for the best rates and terms, and make sure the monthly payments work with your budget.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is a personal loan bad for your credit?

A personal loan isn’t inherently bad for your credit, but its impact depends on how you manage it. Initially, applying for a loan may lower your score slightly due to the hard credit inquiry. In addition, taking on more debt can increase your amounts owed, which might affect your score. However, consistently making on-time payments can boost your payment history, a major factor in credit scores. And if you use a personal loan to consolidate credit card debt, you’ll lower your credit utilization ratio (how much of your credit limit you are using), which can positively impact your credit.

Will a personal loan affect my credit card application?

It can. If you applied for the loan recently, the hard credit inquiry may have slightly lowered your credit scores. Having a personal loan can also lower the average age of your accounts and, potentially, increase your debt load, which can negatively impact your credit. Over time, however, having a personal loan can improve your credit profile by adding to your positive payment history and, if you use it to consolidate credit card debt, lowering your credit utilization, making it easier to get approved for a credit card.

Will a personal loan affect my car loan application?

It can. When assessing your eligibility for a car loan, lenders typically consider your credit score, debt-to-income ratio, and overall financial profile. The hard credit inquiry for the personal loan might lower your credit score temporarily. In addition, the added debt from the loan could increase your debt-to-income ratio, making you appear higher risk to a lender. On the other hand, responsible repayment of the personal loan shows financial discipline, which can improve your credit profile over time. Ultimately, this could make it easier to get a car loan with attractive rates and terms.


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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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Closing a Credit Card With a Balance: What to Know

Closing a Credit Card With a Balance: What to Know

Closing a credit card with a balance remaining is possible to do. However, keep in mind that even if your credit card account is closed, you’ll still have to pay off the remaining balance. Additionally, you’ll need to cover interest that’s accrued as well as any fees, and you could face other consequences, including losing out on rewards and seeing potential impacts to your credit score.

Still, there are instances when closing a credit card can be the right move. If you’re thinking about closing a credit card account with an outstanding balance, you’ll want to weigh these considerations — and also ensure you have a plan for paying off your remaining balance.

What Happens If You Close a Credit Card Account With a Balance?

Once you’ve closed a credit card account with a balance, you’ll no longer be able to use that card to make purchases. Beyond that, here’s what else you can expect after your account closure.

Payment of Balance and Interest

Perhaps the most important thing to keep in mind when a credit card is closed with balance is that you’re still liable for the credit card balance you’ve racked up. You’ll also owe any interest charges that have accrued on your outstanding balance.

As such, expect to continue receiving monthly statements from your credit card issuer detailing your balance, accrued interest, and minimum payment due. And until you’re absolutely positive your debt is paid off, keep on checking your credit card balance regularly.

Recommended: What is a Charge Card

Loss of Promotional APR

If the card you closed offered a promotional interest rate, this offer will likely come to an end. If you’ve been carrying a balance on a credit card, your balance could start to accrue interest. Plus, you may have to pay the standard APR (annual percentage rate) on the remaining balance rather than the lower promotional rate.

Loss of Rewards

Before you move forward with canceling a credit card that offers rewards like points or airline miles, make sure you’ve redeemed any rewards you’ve earned. That’s because you may forfeit those rewards if you close your account.

Policies on this can vary from issuer to issuer though, so just make sure to check with your credit card company to be safe rather than sorry.

How Closing Credit Cards With Balances Can Impact Your Credit

There are a number of ways that closing credit card accounts with a balance can adversely affect your credit score given how credit cards work. Closed accounts in good standing will remain on your credit report for 10 years, whereas those with derogatory marks may fall off after seven years.

•   For starters, closing your account could drive up your credit utilization ratio, one of the factors that goes into calculating your score. This ratio is determined by dividing your total credit balances by the total of all of your credit limits. Financial experts recommend keeping your ratio below 30% and preferably closer to 10%. Losing the available credit on your closed account can drive up this ratio.

•   Closing your account can impact your credit mix, as you’ll have one fewer line of credit in the mix.

•   Closing a credit card could decrease your length of credit history if the card you closed was an old one. This too could potentially decrease your credit score.

That being said, the impacts can vary depending on your credit profile and the credit scoring model that’s being used. If, after closing your account, you pay off your account balance in a timely manner and uphold good credit behavior across other accounts, your score can likely bounce back.

Recommended: What is the Average Credit Card Limit?

Is Keeping the Credit Card Account Open a Better Option?

In some scenarios, it may make sense to keep your credit card active, even if you don’t plan on spending on the card. Here’s when opting against closing your credit card account might be the right move:

•   When you can switch credit cards: If your card carrier allows it, you might be able to switch to a different credit card it offers rather than closing out your account entirely. This might make sense if you’re worried about your card’s annual fee, for instance. You’ll still owe any outstanding debt on the old credit card, which will get moved over to the new card (the same goes if you happen to have a negative balance on a credit card).

•   When you have unused credit card rewards: With a rewards credit card, closing the account may jeopardize the use of earned rewards. Avoid that scenario by keeping the credit card active until you’ve used up all the rewards earned on your current credit card or at least until you’ve transferred them to a new credit card, if that’s an option.

•   When you don’t use the credit card: Even if you don’t use your credit card or use it sparingly, keeping the card open could build your credit score. This is because creditors and lenders usually look more favorably on credit card users who don’t rack up significant credit card debt, which is why maintaining a low credit utilization ratio is one of the key credit card rules to follow.

Nevertheless, there are certainly some scenarios when it can make sense to say goodbye to your credit card account. Here’s when to cancel your credit card, or at least consider it:

•   You want to avoid the temptation to spend.

•   You want to stop paying your card’s annual fee.

•   The card’s interest rate is rising.

•   You’d like to have fewer credit card accounts to manage.

Recommended: How to Avoid Interest On a Credit Card

Guide to Paying Off a Credit Card Balance

No matter what you do with your credit card account, you’re going to have to pay down your credit card debt. Here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

To avoid making that mistake, here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

Debt Consolidation Loans

A personal loan at a decent interest rate can make it easier to curb and eliminate your card debt. Once the funds from the loan hit your bank account, you can use the cash to pay off all your credit card debts. Then, you’ll only have to keep track of paying off that one loan with fixed monthly payments, making it easier to manage.

Keep in mind that you’ll generally need good credit to secure a personal loan with competitive terms, though.

Balance Transfer Credit Cards

A balance transfer card with a 0% introductory interest rate can buy you some time when paying down debt. You can transfer your existing debt to the new card, allowing you to pay down credit card debt at a lower interest rate, without racking up any additional interest payments during the promotional period.

Just make sure to pay off the entire balance before the card’s introductory interest rate period ends and the interest rate rises significantly. Otherwise, you may be right back where you started — with high credit card debt and a high interest rate. That’s not likely to be a good way to use credit responsibly. Also note that a ​​ balance transfer fee will likely apply.

Debt Avalanche or Snowball

For credit card debt repayment, consider the debt avalanche or snowball approach.

•   With the avalanche debt repayment method, you prioritize paying off your credit card with the highest interest rate first. Meanwhile, you’ll maintain minimum payments on all of your other debts. Once your highest-rate debt is paid off, you’ll roll those funds over to tackle your balance with the next highest interest rate.

•   The snowball method, on the other hand, is all about building up momentum toward debt payoff. Here, you pay as much as possible each month toward your credit card with the lowest outstanding balance, while making minimum payments on all of your other outstanding debts. When the smallest debt is paid off completely, repeat the process with the next smallest balance.

Debt Management Plan

If you’re still having trouble paying down your credit card either before or after you close the account, that could be a red flag signaling that you need help. In this case, consider reaching out to an accredited debt management counselor who can set you on the right path to credit debt insolvency.

In addition to helping you create a debt management plan, a credit counselor can help by negotiating a better deal on interest rates and lower monthly payments. That could result in paying down your credit card debt more quickly, which not only saves you money, but also helps protect your credit score.

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

The Takeaway

If you decide to close your credit card account with a balance, it’s critical to do so in a way where your debt obligations are covered and your credit score is protected. The key to doing the job right is to work with your card company, keep a close eye on outstanding balances and payment deadlines, and work aggressively to pay your card debt down as quickly as possible.

Since closing a credit card can have consequences, it’s especially important to consider a credit card ‘s pros and cons carefully before you apply.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you close a credit card with a balance?

Closing a credit card with a balance is possible. However, you’ll still be responsible for the outstanding balance on the card, as well as any interest charges and fees.

Does it hurt your credit to close a credit card with a balance?

Closing your credit card with a balance remaining has the potential to impact your credit score. However, the exact implications for your score can vary depending on your overall credit profile and which credit scoring model is being used.

Is it better to close a credit card or leave it open with a zero balance?

That depends on your personal situation. Closing a card for good may impact your credit score, but you also won’t be able to use the card again and risk racking up unwanted debt in the process.

What happens if you close a credit card with a negative balance?

If you close a credit card with a negative balance, that means the card issuer owes you money instead of vice versa. In this situation, the card issuer will typically refund you that money before closing out the account.

How do I close a credit card without hurting my credit score?

You can mitigate the impacts of closing your account by paying off the balance on that account and all other credit card accounts you have. If you have $0 balances, then closing your account and losing that available credit won’t affect your credit utilization rate.


Photo credit: iStock/staticnak1983

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Should You Call Roadside Assistance for a Flat Tire?

Should You Call Roadside Assistance for a Flat Tire?

Flat tires are one of the top reasons motorists call roadside assistance. Even when you know how to change a tire yourself, calling roadside assistance can be a good move. If you’re stuck on a dark or busy road or you have kids in the car, roadside assistance is safe and fast.

Roadside assistance plans are available from your car insurance provider, car rental companies, and other sources. We’ll explain how roadside assistance works, how much it costs for them to change a tire, and what else the service covers.

What Is Roadside Assistance?

Roadside assistance coverage is designed to help motorists experiencing a range of problems, from a dead battery to an overheated engine. You can call a toll-free number or use an app to contact your provider, and a dispatcher will send a qualified technician to your location. Depending on what services you require, your plan may pay all or some of the costs involved in getting your car back on the road.

You may be able to get roadside assistance coverage as part of your auto insurance policy. There also are auto clubs that sell subscription plans, or you may have a plan through your car warranty, credit card, car rental company, or another source.

If you’re one of many people who sit down annually for a personal insurance planning session, discuss this option with your insurer.

Recommended: Car Insurance Terms Explained

What Are the Benefits of Roadside Assistance?

Having a specific point of contact anytime you’re in need is arguably the top benefit of having roadside assistance coverage. This is especially important for first-time drivers. Instead of making multiple calls to find help from a nearby mechanic or garage, you can program your provider’s number into your phone or store it in your glove compartment with other relevant papers. If your provider offers an app, you can take advantage of that convenience.

With one call, you can get useful advice on what to do next. After assessing your situation, the dispatcher will get the appropriate service person out to help you. If your car can’t be fixed onsite, you can get a tow to a repair shop — and that cost may be covered as well.

Some plans offer benefits such as posting bond if you’re charged with a traffic violation or reimbursing you if you’re away from home and have to stay in a hotel overnight. Plans also may provide discounts on car maintenance, car rentals, hotels, and other perks. However, extra benefits may come at an extra cost.

Recommended: How Much Does Insurance Go Up After an Accident?

What Does 24-Hour Roadside Assistance Cover?

All roadside assistance programs are not the same, so it’s important to understand the coverage details and limitations of each plan you may be considering.

A plan may offer free fuel delivery, for example, for drivers who run out of gas — but typically there will be a charge for the gasoline received. Similarly, a plan may offer free lockout assistance, but a driver can expect to be charged if the locksmith has to make a new key. And there is usually a limit on how many miles a car can be towed for free.

Some plans limit the number of service calls you can make in a year. And plans also can have different rules regarding when a driver is or isn’t covered. With some plans, for example, you must be driving your own car when you call for assistance. But some plans will cover you even if you’re the passenger or driver in someone else’s car.

Programs generally include some type of coverage for:

1. Changing a Flat Tire

If you have a usable spare tire, your service provider likely can change a flat or blown tire onsite. If not, they can tow you to someone who can help.

2. Vehicle Towing

If your vehicle can’t be safely repaired or restarted onsite, roadside assistance can tow it to a nearby repair shop.

3. Battery Jump-Start or Replacement

Roadside assistance can give your dead battery a jump-start and, if that doesn’t work, tow you to a repair shop to get a new battery installed.

4. Lockout Assistance

If you’ve locked your keys in your car, roadside assistance can get a locksmith to help. Even if you’ve lost your keys, the service may be able to get you back in your vehicle and back on the road.

5. Winching Service

Your service provider may bring in a winch to extricate your car if it’s stuck in mud, ice, or a ditch.

6. Fuel Delivery

If you run out of gas, your provider can deliver fuel to your location. And if the battery in your electric car needs a charge, you can ask for a tow to the nearest charging station.

7. Quick Fix First-Aid

If you have a minor mechanical problem that can be fixed quickly, it may be possible to do so onsite. If not, the service can tow your car to a nearby repair shop.

Recommended: How to Lower Your Car Insurance

Auto Insurance Companies That Offer Roadside Assistance

Insurance companies that provide roadside assistance typically offer these services as an add-on to an auto policy. If you aren’t sure if you already have roadside protection, contact your agent or log in to your account on your insurer’s website to get information about your coverage. The information may also appear on your insurance card.

If your car is damaged after an accident or in a flood or fire, your auto policy’s collision or comprehensive coverage may apply to your towing costs. But this is not the same as having roadside assistance or “towing and labor” coverage.

Here are a few insurance companies that offer roadside assistance:

Allstate

Allstate offers its 24-hour roadside assistance programs to both policyholders and non-policyholders. Costs and coverage vary based on the plan you choose.

Geico

Geico’s roadside assistance program is available to policyholders as an add-on, and it covers most of the basics other plans offer. The cost is determined by the number of vehicles you want to cover.

Liberty Mutual

To access Liberty Mutual’s 24-hour assistance program, which offers basic roadside services, you must purchase optional towing and labor coverage as an add-on to your policy.

Nationwide

Nationwide offers roadside assistance as an optional add-on for policyholders. The plan covers the same basic services offered by other insurers, but optional features and other program details may vary by state.

Progressive

Emergency roadside assistance for flat tires is available as an optional add-on for Progressive auto insurance policyholders. Progressive’s program covers service basics such as towing, jump-starts, flat tires, and lockout assistance.

State Farm

State Farm’s roadside assistance program is an add-on for policyholders. If you have this coverage and need assistance, State Farm will be billed directly for any basic services you receive, so you may not have to worry about turning in your receipts and waiting to be reimbursed.

How Much Does Roadside Assistance Cost for a Flat Tire?

The cost to get your flat tire fixed may depend on if you have a usable spare tire and other factors. If you have a good spare tire available, the roadside assistance technician may be able to change your tire onsite and get you right back on the road at no charge.

If, for some reason, the tire can’t be changed onsite and your vehicle must be towed to a repair shop, the tow charge will be based on mileage. Many roadside assistance plans will go 15 miles or to the nearest qualified repair shop for free. But if you ask to be towed to a shop that’s farther away, you may have to pay for any extra mileage.

When your car arrives at the repair shop, you can expect to be charged if you need any parts or repairs, or a new tire.

How Much Does Roadside Assistance Cost Without Insurance

The most inexpensive way to get roadside assistance coverage is usually to have it included as an add-on through your auto insurance policy. Allstate, for example, offers its Roadside Advantage plan membership without an Allstate auto policy starting at $89 for the first year.

If your insurer doesn’t have 24-hour roadside assistance, or if you don’t like the plan your insurer is offering, you may want to check out online insurance companies to see what’s available based on your budget and needs.

How to Change a Flat Tire Yourself

Even if you have roadside assistance coverage, it can be a good idea to know how to fix a flat tire — just in case you forget your phone or can’t get cell service when you run into trouble.

If no one ever taught you how to change a tire, you might want to practice sometime when you’re in a safe place and you’re not in a hurry or wearing nice clothes. There are plenty of YouTube videos on the topic, or you can ask someone who knows their way around a car for a demonstration.

Here are a few tire-changing basics:

1. Drive Prepared

Make sure your spare is in good shape and your jack, lug wrench, and owner’s manual are always in your car. You might want to keep rain gear, work gloves, a flashlight, and wheel wedges in your trunk as well.

2. Safety First

If you suspect your tire is flat, turn on your hazard lights and pull off to the side of the road — as far as you can. Once you’ve stopped, you can put on your parking brake and get out to inspect your car. If you do indeed have a flat, secure your tires with wheel wedges or a couple of large stones.

To change a rear tire, place the wedges behind the front tires. To change a front tire, place the wedges behind the rear tires.

3. Remove the Hubcap/Wheel Cover

Consult your owner’s manual for instructions on removing the hubcap or wheel cover.

4. Loosen the Lug Nuts

Turn the lug nuts counterclockwise with your lug wrench. (Getting them started may require some effort!) Loosen the lug nuts about a quarter- to half-turn, but don’t take them off completely.

5. Put the Jack in Place

Check your owner’s manual for specific placement instructions.

6. Use the Jack to Raise the Vehicle

Carefully raise your car until the flat tire is about 6 inches above the ground.

7. Unscrew the Lug Nuts and Take off the Tire

Remove the lug nuts completely and put them in a safe place (a cup, envelope, hat, purse, etc.). Pull the flat tire toward you until it comes free and place it on the ground on its side.

8. Put on the Spare

Grab the spare tire and place it on the hub by lining up the rim with the lug bolts. Push gently until you can see the lug bolts through the rim.

9. Put the Lug Nuts Back in Place

Put the lug nuts back on the lug bolts and tighten them by hand.

10. Lower the Car and Tighten the Lug Nuts Again (and Again)

Lower the vehicle until the tire is touching the ground, but don’t let it down all the way yet. Tighten the lug nuts with the wrench, as tight as you possibly can, then lower the car all the way to the ground and remove the jack. Tighten each lug nut again with the wrench to be sure they’re all as secure as possible. Replace the hubcap (only if you can and want to), or put it in the trunk with the flat tire.

11. Stow Your Stuff

Congratulate yourself for being prepared, and be sure you put everything back in the trunk before you pull away. If you have a tire gauge, check to see if the spare has plenty of air (temporary spares typically require 60 psi). If the pressure is low, drive with caution to the nearest repair shop.

12. Get Your Damaged Tire Repaired

Spare tires aren’t meant to be driven on for long. Get your car to a tire shop or garage as quickly as possible to buy new tires or get your old tire patched.

Should You File an Insurance Claim?

It can be convenient and less expensive to purchase roadside assistance coverage as an add-on to your car insurance policy. But keep in mind that when you use your insurer’s plan — even for a flat tire — it can count as an insurance claim.

Though occasional use likely won’t cause your insurer to drop you or raise your auto insurance rates, if you make several roadside assistance claims over a short period, it could affect your overall policy. You might want to ask your insurance agent if multiple roadside assistance claims could be a problem. (And get it in writing if the answer is no.)

Do Insurance Policy Deductibles Apply to Roadside Assistance Claims?

Even with roadside assistance coverage, you could end up having to pay some out-of-pocket costs. And if your auto insurance policy has a deductible that applies to roadside assistance claims, you might have to pay that amount, as well. This could be another topic to cover with your insurance agent. (Read more about the different types of deductibles.)

Recommended: How to Lower Car Insurance

The Takeaway

Roadside assistance insurance can cover a range of problems you might have on the road — from fixing a flat tire to unlocking the car to jump-starting the battery.

Insurance companies typically offer roadside assistance as an add-on to an auto policy. Plans may look pretty much the same from one company to the next, but it can be a good idea to look beyond the basics to find the level of coverage and other benefits that are a good fit for your needs and budget.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

FAQ

What should I do if my tire is flat?

If you know how to change a tire and you can pull off the road to a safe place, you might want to tackle the job yourself. But if you aren’t prepared to DIY, you can call roadside assistance instead. A technician may be able to change your tire onsite and get you back on the road for free.

Will 911 help with a flat tire?

If your tire is flat and you’re in potential danger or blocking traffic, the safest move is to turn on your flashers and call 911 for assistance. The 911 dispatcher will then assess your situation and determine whether to send help. If you don’t feel you’re in danger or that your car has become a hazard to others, you can call your roadside assistance company’s toll-free number for help.

Can you drive a couple of miles on a flat tire?

Driving on a flat tire, even for a short distance, can further damage the tire and possibly the rim. If you can turn on your hazard lights and drive slowly to a safer location, that may be your best option, but you should try to limit the distance you travel.

How much does it cost to put on a spare tire?

If you have roadside assistance coverage, it may not cost you anything to have your flat tire replaced onsite with your spare.

Should you tip roadside assistance for a flat tire?

There’s no obligation to tip any service provider your roadside assistance plan sends to help you. However, just as with any service, if you feel that person went above and beyond, you may want to show your gratitude with a tip.


Photo credit: iStock/okugawa

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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What Does FUD Mean in Investing in Crypto?

What Does FUD Mean?

FUD stands for “fear, uncertainty, and doubt” and refers to a general mindset of pessimism about a particular asset or market, as well as the manipulation of investor or consumer emotions so that they succumb to FUD.

While the term “fear, uncertainty, and doubt” has been in circulation for a century or so, it became popular as the abbreviation FUD in the 1970s — and widely known more recently, thanks to the highly volatile crypto markets. FUD is also used throughout finance and can apply to any asset class.

Here’s what you need to know about FUD now.

Key Points

•   FUD, which stands for “fear, uncertainty, and doubt,” describes negative investor sentiment that can lead to impulsive decision-making in financial markets.

•   Distinguishing between FUD and FOMO (fear of missing out) is crucial, as FUD represents collective fear while FOMO reflects collective greed during market fluctuations.

•   The history of FUD dates back to the 1920s and gained traction in the 1970s as a tactic to influence consumer behavior through misinformation.

•   In the cryptocurrency arena, FUD can refer to both deliberate attempts to manipulate prices and general skepticism about the asset class stemming from negative news.

•   The impact of FUD can lead to significant market reactions, as exaggerated or misleading information spreads rapidly, influencing investor behavior during volatile periods.

What Does FUD Mean in Investing?

Investment strategies based on fear, uncertainty, and doubt are not usually recommended. Sometimes FUD might be justified, but in general, the term is used to describe irrational, overwhelming negative sentiment in the market.

Many investors have concrete or pragmatic fears and doubts. Some investors worry that they’ve invested too little or too late (or both). Others might fear a total market meltdown. Some investors worry that an unforeseen factor could impact their investments. These are ordinary, common concerns.

FUD is different, and it’s important to understand what FUD is. When investors talk about FUD, they’re referring to rumors and hype that spread through media (and social media) that drive impulsive and often irrational investor decisions. Think about the meme stock craze.

Thus the term FUD can often have a demeaning edge, in the sense that it refers to these unpredictable waves of investor behavior.

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FUD vs FOMO: What Is the Difference?

What is FUD in stocks or the stock market? FUD can be thought of as the opposite of FOMO (fear of missing out). While FOMO tends to inspire people to do what others are doing — often in that they don’t want to miss out on a hot stock and potential gains — FUD can be described as a collective negative effect that spreads like wildfire, typically through social media.

When markets are going up, many people fall victim to FOMO trading, but when markets are going down, FUD can also spread swiftly. In the most basic sense, you could think of it like this: FUD equals fear and FOMO equals greed.

The two can sometimes be contrary indicators. In other words, when FUD seems to be everywhere, astute investors might actually be buying assets at reduced prices (aka buying the dip), and when many people are experiencing FOMO, seasoned traders might actually be selling at a premium.

Crypto traders offer a counter to FUD by using the term “hodl.” The hodl meaning is interpreted as “hold on for dear life.” Hodl comes from an old Reddit post where an investor posted a rant about having trouble timing the market, while misspelling the word “hold” several times.

The phrase was initially used in reference to Bitcoin but can apply to different types of cryptocurrency.

What Does FUD Mean in Crypto?

While FUD is often associated with investor sentiment in the crypto markets, the phrase “fear, uncertainty, and doubt” actually has a much longer history than many people realize.

The History of FUD

The general term “fear, uncertainty, and doubt” has been around for decades, and the use of FUD gained traction in marketing, sales, and public relations, through the 1980s and 1990s.

More recently, FUD has taken on a broader connotation in investing circles — particularly in the crypto markets — referring to the potential many investors have to succumb to sudden anxiety or pessimism that changes their behavior.

FUD and Crypto

In crypto, FUD has become a well-known crypto term, and it means one of two things:

1.    To spread doubt about a particular token or project in an attempt to manipulate prices downward.

2.    The general skepticism and cynicism about crypto as an asset class, and any related news/events. Even the rumor of a negative event possibly happening can generate FUD.

Again, FUD is not strictly relegated to the crypto space, but in recent years, it’s perhaps most commonly used when discussing crypto.

FUD Crypto and Memes

Crypto FUD also tends to involve the spreading of memes that can either amplify or lessen the FUD’s effect. Sometimes FUD being spread by the media is widely seen as trivial, in which case memes making fun of the idea might pop up. Or, if the FUD is perceived as more legitimate, memes making fun of those not taking the threat seriously might start circulating.

When Can FUD Occur?

FUD can occur whenever prices are falling or a big event happens that’s widely thought to be bearish. A company could miss earnings expectations or it could be revealed that an influential investor has taken a short position against a stock. Or the FUD could come from a larger source, like a pandemic, natural disaster, or the threat of a government defaulting on its debt.

The more catastrophic something could theoretically be, and the greater uncertainty surrounding its outcome, the more it becomes a suitable subject for people to spread FUD.
Sometimes markets react swiftly across the board to such news. Other times people take things out of context or exaggerate them, creating a sort of fake news buzz to scare others into selling.

In stocks and other regulated securities, it’s against the law to spread FUD with the intention of lowering prices. Doing so is considered to be a form of market manipulation and could subject individuals to legal action from regulatory agencies like the SEC, FINRA, or FINCEN.

As not all cryptocurrencies have been definitively classified as securities by all regulatory agencies, there is still some gray area. The idea that many altcoins could one day be deemed securities has itself become a big topic of FUD, because it would have a big impact on the regulatory landscape surrounding crypto

FUD Crypto Examples

Here are a few well-known examples of FUD in crypto. These examples show FUD at its finest. There are elements of truth to them, but the idea is that their detrimental impacts to asset prices are exaggerated to the point of hysteria.

China Banning Bitcoin

This might be one of the best examples of FUD in crypto, and perhaps the one that has been the subject of more memes and Twitter rants than any other.

At many points in recent years, officials in China have claimed to ban Bitcoin in one way or another. Of course, a real, comprehensive “ban” on Bitcoin would be a one-time event. What really happens is the Chinese government introduces some kind of restrictions for individuals or organizations involved in crypto markets, and media outlets report the event as a “ban on Bitcoin.”

In 2021, China really did make Bitcoin mining illegal in the country. Even so, markets shrugged off the event over time.

Government Regulation

Regulatory concerns coming from any national government can be a big source of fear, uncertainty, and doubt. Because crypto markets are still somewhat new, many countries have yet to adopt regulatory frameworks around crypto that provide specific rules around the use and taxation of cryptocurrencies.

Several countries have tried to make any use of crypto illegal, while others make public statements about harsh restrictions coming down the line. Whether the threat is real or perceived, the mere suggestion of governments cracking down on crypto transactions tends to spook investors.

The Fear of Lost Crypto

Nothing stokes investors’ fears like the idea of investment losses, but with crypto there’s the even greater dread of actually losing your coins. Unfortunately, there is some truth to that anxiety, in that there are notable cases of crypto being lost and never recovered, usually because someone loses the private keys that gave them access to their crypto.

Unfortunately, because crypto is decentralized, investors’ assets aren’t protected the same way they would be in traditional, centralized banking systems. (While it’s theoretically possible that all your cash money could vanish from your bank overnight, it’s highly improbable. And even if it did, you’d have the benefit of FDIC insurance.)

Influential Crypto Tweets

Another example of FUD includes some social media posts by famous people that had an immediate impact on a given type of crypto.

It’s important to remember that FUD moments don’t last, and the impact of a single power person on the price of a certain coin — even if it roiled markets for a period of time — was temporary.

Corporate Crypto Assets

In the last couple of years, several big corporations have launched, or announced plans to launch, a proprietary form of crypto. Unfortunately, it’s not that easy to get a new crypto off the ground — despite the many comparisons between the crypto markets and the frontiers of the Wild West — and the failure of at least one high-profile coin helped to sow FUD for some investors.

Solar Storms

Because crypto is digital, a great deal of FUD stems from technology-based fears that random events could take down electrical grids and effectively wipe out crypto holdings. One such FUD-inducing rumor is about the possibility of Earth being zapped by solar storms, but the scientific validity of this has yet to be confirmed.

The Takeaway

Crypto FUD is one of many crypto terms that have become popular, but the underlying concept — that fear, uncertainty, and doubt can influence investor behavior — is not new. In fact, FUD as an actual strategy exists in many spheres, including marketing, sales, public relations, politics (and of course crypto).

FUD can come from anywhere and be focused on just about anything, but crypto can be particularly vulnerable to FUD because this market is already quite volatile. It’s also a very new sector, and some investors don’t fully understand the technology involved, and they can be manipulated by alarmist rumors or even celebrity opinions.

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FAQ

Who uses FUD?

Some FUD arises naturally from market movements or economic conditions. Some FUD is deliberately cooked up to instill enough fear in the markets that investors make impulsive decisions, e.g. selling one type of crypto for another.

Why does FUD matter?

It’s important for investors to understand the concept of FUD so that they don’t get caught in the inevitable waves of negativity that can lead some people to panic and make poor choices.

What Counts as FUD?

Ordinary fears and concerns about market performance, or an investor’s personal long-term goals, don’t count as FUD. FUD refers to a broader market or crypto phenomenon, where highly negative information goes viral and causes investors to panic.


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