Updating the wiring in a house could cost between $6 and $10 per square foot, but keeping old wiring could have disastrous consequences. Electrical issues are the third most common cause of house fires in the United States.
Modern technology also may demand rewiring a house. Powering multiple electronic devices, having adequate interior and exterior lighting, and heating and cooling a home to today’s standards are difficult if a home’s electrical system is not up to the task.
Key Points
• Rewiring costs for a house typically range from $6 to $10 per square foot.
• A 1,300-square-foot house may cost between $7,800 and $13,000 to rewire.
• Rewiring a 2,500-square-foot home could range from $15,000 to $25,000.
• Factors influencing rewiring costs include house size, age, work extent, materials used, and wiring access.
• Older and larger homes often require more extensive rewiring, increasing the overall cost.
Factors That Affect the Cost to Rewire a House
Rewiring a home involves removing the outdated wiring inside a home’s walls and installing new, modern wiring that can safely meet today’s electrical needs.
Rewiring is typically done by a licensed electrician who strips out the old wiring and runs new wiring throughout the entire house, installs a new circuit breaker panel to handle the load of the new wiring system, and ensures that building codes are met.
It can be a big job — and an expensive one, too. Let’s look at some common factors that can impact the total cost.
Size of the House
The bigger the home, the more materials and labor the job will likely require. And that can drive up the price. Rewiring a 1,300-square-foot house, for instance, runs around $7,800 to $13,000. For a 2,500-square-foot home, you can expect to pay between $15,000 to $25,000.
House’s Age
Older homes weren’t constructed with 21st century living in mind, so a rewiring project will likely cost more. Common necessities like opening a wall to reach out-of-the-way wiring ($4-$8 per square foot), upgrading outdated wiring ($200-$2,300), and replacing an electrical outlet ($125-$200) can all add to the price tag.
Extent of Work Needed
Small-scale projects are typically cheaper than larger, more complex ones. If you’re planning to set up a new alarm system, run wiring to a backyard shed, or upgrade the electric panel, you’ll likely need to adjust your budget accordingly.
Flickering lights, outlets making a popping sound, or tripped breakers indicate that a home might need to be rewired. When buying an older home, a home inspection typically reveals if rewiring is recommended or necessary.
Even before a professional inspection, prospective homebuyers may be able to get a good idea of how the home is wired by peeking into the attic, basement, or crawl space.
Vintage charm does not extend to knob and tube wiring, which was common through the mid-1900s. The lack of a ground wire is seen as a significant fire hazard, and most carriers will deny homeowners insurance for a home that has knob and tube electrical wiring.
Another way to check for outdated wiring is to find the electrical panel and see if it has modern breaker switches or round fuses. The fuses indicate that the system is outdated, and rewiring the house might be recommended.
In almost every state, home sellers must disclose defects, but cautious buyers may still want to include the inspection contingency in the purchase contract.
If you’re living in a home with older wiring and notice that your circuit breakers trip often, lights flicker, the light switches feel warm to the touch, or there is a burning smell coming from an outlet, it’s time to schedule an appointment with an electrician.
Cost to Rewire a House Per Material
The cost of rewiring a house depends on square footage and how easy or difficult it is to access the space. But the wiring and cable materials can also have an impact. Let’s take a look:
• Used in most homes, nonmetallic (NM) cables are easy to install, flexible, and cost-effective. If you’re rewiring these cables, expect to pay between $0.40 and $0.80 per linear foot, according to Angi.
• Underground feeder (UF) cables are similar to NM cables, except that they’re designed to go underground or in damp areas. Rewiring UF cables costs around $0.50 to $0.75 per linear foot.
• Durable and able to handle high temperatures, THHN and THWN wires are often used in an unfinished space, like a basement, or for hot water heaters and garbage disposals. They cost $0.80 to $1.60 per linear foot to rewire.
• Coaxial cables have high bandwidth support and are easy to install, which once made them a go-to choice for televisions and video equipment. Today, they’re more commonly used to connect cable or satellite TV signals or for internet connectivity. These cables cost around $0.25 to $0.35 per linear foot to rewire.
Updating a doorbell or thermostat? You’ll likely be working with low-voltage wires, which are used for circuits less than 50 volts. Rewiring typically costs between $0.25 and $0.35.
Awarded Best Online Personal Loan by NerdWallet.
Apply Online, Same Day Funding
How to Cover Your House Rewiring Costs
Rewiring a home is not a small expense. Fortunately, there are various ways to pay for it. Here’s a look at some options.
Home Equity Loans
If you’ve built up equity in your home and are facing a major rewiring project, a home equity loan may be the right choice. There are three main types to consider: a fixed-rate home equity loan, a home equity line of credit (HELOC), and cash-out refinancing.
Each has its pros and cons. For instance, with a fixed-rate home equity loan, you receive a lump sum payment, which you’ll pay back over a period of time with a set interest rate.
A HELOC, on the other hand, is revolving debt. As the balance borrowed is paid down, it can be borrowed again during the draw period, which typically lasts 10 years.
With a cash-out refinance, you can refinance your mortgage for more than what you currently owe, and then take the difference in cash.
Home Improvement Loans
A home improvement loan is a type of personal loan used to fund renovations and upgrades, including rewiring a house. Once your loan application is approved, you’ll receive a lump sum of cash, which you can use to pay for home improvements. You’ll repay the loan, with interest, in regular installments over the life of the loan — typically five to seven years.
These loans are unsecured, which means your home isn’t used as collateral. As a result, they often come with a higher interest rate.
💡 Quick Tip: Check out SoFi’s home improvement loan rates to explore competitive terms and find the right financing for your renovation needs.
Credit Cards
A credit card is a fast, easy way to fund a rewiring project, and it can be a good option if you’re able to pay off the balance on the card that month. Or look for a card with an introductory 0% annual percentage rate (APR), as this allows you anywhere from six to 18 months to pay back the balance with zero interest. But keep in mind that any balance left after the promotional period ends will start accruing the card’s regular APR.
Cash
Depending on the scope of the project and your budget, you may decide to dip into your savings account or withdraw money from your emergency fund, if you have one.
As you create a budget and weigh your financing options, look for opportunities to save money. Research how much rewiring a house costs in your area, and include a cushion in your budget for unexpected expenses. If you’re not planning to tackle the job yourself, gather quotes from reputable licensed electricians in your area and see which one can offer you the best deal.
Finally, factor in the long-term costs and benefits. Although rewiring might seem cost-prohibitive when buying a single-family home, owners may find that the cost of rewiring a house — and the peace of mind the upgrade provides — can be money well spent.
The Takeaway
At $6 to $10 per square foot, the cost of rewiring a house may seem high. But adequate electrical panels and modern wiring can amp up your home value and prevent fires. Wondering how you’re going to pay for it all? Home equity loans, savings, credit cards, and home improvement loans are all ways to pay for the average cost to rewire a house.
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 NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is it worth rewiring an old house?
Yes, it’s worth rewiring an old house. Replacing outdated wiring can help prevent a house fire and add value to the property. Plus, updated, energy-efficient fixtures are sometimes included in a remodeling job of this scope, which can potentially lower utility costs.
How much does it cost to replace all the electrical wiring in a house?
According to the home services website Angi, home owners can expect to pay anywhere from $601 to $2,590 to rewire a house. However, if you have an older, larger home, you’ll likely pay closer to $6,000.
Can a house be rewired without removing drywall?
In many cases, at least some drywall will need to be removed during a rewiring project. But talk to your electrician to see if the work can be done without disrupting your walls.
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.
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.
Payroll deductions are amounts of money that are taken out of your gross pay, leaving you with net (or take-home) pay. Common types of payroll deductions include taxes, retirement savings, and Social Security contributions, among others. However, it can be confusing (and sometimes a little discouraging) to see how much money comes out before you have cash in hand.
Here, take a closer look at the deductions that are required by law and are out of your control, as well as others that are part of your employee benefits package, which means that you may be able to adjust them. This paycheck breakdown can help you understand more about where your money goes so you can manage it better.
Key Points
• Payroll deductions include mandatory and elective amounts taken from gross pay, affecting net pay.
• Common deductions include taxes, Social Security, Medicare, retirement contributions, and employee benefits.
• Federal taxes depend on W-4 form details.
• Retirement contributions reduce taxable income but have limits.
Whether you’re paid hourly or by salary, your rate of pay is the compensation that you and your employer agreed upon when you accepted the job. That said, it’s typically expressed as your annual salary for full-time employees.
This number appears in official contracts and is referred to as your gross pay. However, it does not represent the actual amount that you will be paid.
Net pay, also referred to as take-home pay, is the compensation that is paid out via check or direct deposit to an employee. It is your gross pay with all the deductions taken out, which can make you think, “Wait, where’d my money go?” when it hits your checking account.
What Are Payroll Deductions?
So, to answer that question: Here’s where your money goes before it lands in your checking account:
• Mandatory deductions: By law, an employer must subtract various mandatory federal and state tax withholdings.
• Elective deductions: Employers will also subtract costs for employer-sponsored offerings that the employee takes part in, such as healthcare, life insurance, and retirement.
Whether required or optional, these are pulled out of your gross pay and applied where needed. While you may feel disappointed to see these funds siphoned off, they have an upside. They are saving you from owing major taxes come April 15, and they are potentially helping provide important elements of financial fitness, like saving for your future. This knowledge can be reassuring, especially if you are filing taxes for the first time, and are feeling a bit shocked about the difference between your gross and net pay on an annual basis.
How Do Payroll Deductions Work?
As mentioned above, payroll deductions may be required, such as federal or any state taxes, or they may be optional (say, a 401(k) plan or health insurance). The mandatory and elective deductions are subtracted from your paycheck’s gross pay amount.
What remains after these payroll deductions is your net pay. This is the amount that is paid to you. You can typically see a breakdown of exactly what has been subtracted from your compensation by looking at your paystub. If you are paid via direct deposit, you will likely find this information online at your employer’s portal. If you receive a paper paycheck, the paystub is often attached.
Types of Payroll Deductions
As you look at your paystub and see all the deductions that are being taken out of your gross pay, you may want a bit of help understanding what’s what. Below are explanations of some of the most common paycheck deductions:
Federal Taxes
Federal taxes include all the taxes you are required by law to pay to the federal government. These taxes (which are often referred to as being withheld vs. paid) help fund the federal government, allowing them to invest in things such as infrastructure, education, and national defense, and provide services to the American people.
It’s common to wonder what tax withholding is and how much must you allocate towards it. When you were first hired, you likely filled out an Employee’s Withholding Certificate or W-4 form form and claimed the number of tax exemptions you have. This amount tells the federal government how much money to take out of each paycheck to cover your taxes. The more allowances you take, the less federal income tax the government will take out of your paycheck.
One way to ensure that you have the right amount of tax withheld for each pay period is to use the Internal Revenue Service’s IRS Tax Withholding Estimator or speak with someone in your company’s HR department. You can tell them if you’re single or married, how many dependents you have, and if you have any other sources of income, and they should be able to help you fill out your form accurately.
It’s also a good practice to revisit your IRS Form W-4 selections annually as significant life events may change your withholding and also because the W-4 form is periodically updated. It can be wise to think about your exemptions regularly
During tax season of each year, individuals who have overpaid in federal taxes receive a refund from the government. Those who’ve underpaid, however, are required to pay additional funds and possibly a penalty.
Get up to $300 with eligible direct deposit when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 3.80% APY on savings balances.
Up to 2-day-early paycheck.
Up to $3M of additional FDIC insurance.
State and Local Income Taxes
There are other types of taxes that will possibly be withheld from your gross pay. Many states require a state tax to help fund government projects and services. To learn more about your state’s taxation policy, you can look at this map for details.
Just as with federal taxes, your state income tax will get deducted from your paycheck to cover taxes you may owe at the end of the year.
Social Security and Medicare
Another common paycheck deduction you’ll see: Social Security and Medicare taxes that are part of the Federal Insurance Contributions Act (FICA) tax, a group of payroll taxes collected from both the employer and the employee. As the name implies, these taxes fund our nation’s Social Security and Medicare programs, helping with income and insurance needs once you reach retirement age.
The tax rate for social security is currently 6.2%, and Medicare receives an additional 1.45% (employers match these tax rates, bringing the total of FICA tax contributions to 15.3%).
Wage Garnishments
Another possible payroll deduction to know about: wage garnishments. These are legal procedures designed to repay delinquent, outstanding debts, such as unpaid child support, overdue credit card payments, or even unpaid taxes.
Most wage garnishments are initiated by court order. However, the IRS and other tax collection agencies also levy for unpaid taxes in the form of wage garnishment.
Garnishments are made on earnings leftover after all legally required deductions are made. The actual amount of any garnishment will depend on the amount of debt owed and income earned.
Employee Benefits
Depending on where you work, you may be able to opt into a variety of benefits. Typically, these costs are automatically deducted from your paycheck.
If you sign up for your employer-provided health insurance, at least some of the cost is likely to be a type of paycheck deduction.
Under the Affordable Care Act, employers with 50 employees or more must offer affordable health insurance. As part of an employee’s compensation package, many companies will pay half, or another percentage, of the insurance premiums. The employee’s portion of those premiums is represented on a pay stub as a deduction.
Other benefits, like flexible spending plans, commuter plans, and life insurance, may also be deducted from your pay, depending on whether or not you opt into them and if your employer picks up the bill fully or partially.
Health insurance and other benefits typically come out before your taxes, and you may be able to reduce your taxable income by signing up for them.
If you opt into this benefit, your employer will deduct funds from your wage earnings and deposit them into a retirement account. (How much of your paycheck should you save? Experts often recommend 20% should go towards saving for retirement and other short- and long-term goals.)
Employees are typically able to choose the amount they would like deducted from their earnings for retirement savings. In some cases, employers may contribute an additional percentage of your salary into your retirement account.
Contributions to your 401(k) can not only help you save for the future but also lower your taxable income, since they come out of your paycheck before taxes get assessed.
3. Calculate any overtime for those employees who are not exempt and worked over 40 hours a week.
4. Take any pre-tax deductions.
5. Calculate and deduct federal income tax based on pay, withholding status, what tax bracket an employee is in, and other factors.
6. Determine and deduct Social Security and Medicare payments.
7. Calculate and deduct any state and local taxes.
8. Take any other deductions, and move funds to the appropriate entity.
Tips to Manage Payroll Deductions
If you are an employee seeking to tweak your deductions, you will have a few options. You might update your W-4 to reflect more or fewer exemptions, depending on whether you want to reduce or increase the taxes withheld.
In addition, if you could use some breathing room in your budget during a financial crunch, you might decrease retirement contributions a notch to free up a little more money for bills.
If you are in a position to be managing payroll deductions, consider these tips for making the process run smoothly:
• Develop organizational systems to manage forms, deadlines, and other aspects of the process. There are many digital and online tools you can use for this.
• Keep up to date with federal, state, and local tax laws to make sure you are deducting the proper amounts; know the guidelines about, say, equal pay provisions; and more.
• Automate the entire process with payroll software. This can save time and boost accuracy versus doing things by hand. Or consider outsourcing the responsibilities to an external agency.
• Regularly update training for payroll and HR teams, if you employ them.
• Don’t touch payroll taxes that are only paid quarterly. It may be tempting to dip into those funds before they are due and use them for other business expenses, but this is a very risky path to pursue. If you wind up being short when the taxes must be paid, you could face penalties.
While you may be surprised to see all the deductions coming out of your paycheck, once you know what number to expect to see landing in your bank account each pay period, you’ll be able to plan your spending and budget accordingly. Deductions can include those you can’t change, such as taxes, and those that you may be able to alter, such as retirement contributions.
It’s a good idea to check your pay stubs periodically to ensure that the deductions being taken out are accurate and align with your financial goals.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 up to 3.80% APY on SoFi Checking and Savings.
FAQ
What are some common incorrect payroll deductions?
Examples of incorrect employee payroll deductions are expenses that have to do with running the business, workers’ compensation premiums, and some personal protective gear costs. In addition, payroll deductions should not bring an employee’s income below minimum wage.
How do I report payroll deductions?
If you are an employee, your payroll deductions will be reflected in the end-of-year W-2 form that you receive. If you are an employer, you are likely filing IRS Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return, which shows the wages you’ve paid and various taxes withheld.
What are the pros and cons of payroll deductions?
Payroll deductions are a fact of life. On the plus side, they whisk away taxes regularly so you don’t face a huge tax bill come April 15, and the money paid in taxes can help quality of life in America. Also, deductions like health insurance and retirement savings go towards achieving financial security. The main con, of course, is that you take home less pay than your gross earnings and may need to budget wisely to balance your spending and saving.
What are the categories of payroll deductions?
The main categories of payroll deductions are federal, state, and local taxes; Social Security and Medicare; employee benefits; and retirement contributions.
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).
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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. *Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
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.
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).
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.
Photo credit: iStock/eclipse_images
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
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.
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.
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.
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.
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 .
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.
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.
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.
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.)
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.
