Extended Car Warranties: Are They Worth It?

Extended Car Warranties: Are They Worth It?

When you buy a new or used car, the salesperson may offer you an extended warranty.

These policies are designed to cover the cost of certain repairs that occur after the manufacturer’s warranty — typically three years or 36,000 miles (whichever comes first) — comes to an end.

Extended warranties can offer peace of mind and, if you end up needing an expensive repair down the line, they can cover some, or all, of the cost.

However, extended warranties often come with a high price tag you may not have counted on when you were saving up for a car, and they generally don’t cover everything that could go wrong.

Read on to learn more about extended car warranties and their pros and cons to help you decide if it’s worth getting one for your car.

What is an Extended Car Warranty?

While all new cars (and some used cars) come with a manufacturer’s warranty, an extended warranty is an optional plan you can buy to help you pay for the cost of certain repairs your vehicle may need while you own it.

Extended car warranties, also called extended service contracts, typically cover the price of major repairs or replacements (with exclusions) for a certain number of years or number of miles.

The extended warranty usually begins when the manufacturer’s warranty expires, but sometimes the two overlap.

While these plans are often offered at the point of sale, you can typically purchase them any time until the original manufacturer’s warranty expires.

Extended warranties are also offered by third-party vendors. If you’re interested in getting an extended car warranty, it can be worth going online to compare policies from independent providers to see exactly what each one covers, what’s excluded, and how much it costs. This can help you decide which warranty would work best for you and whether it is worth getting.

What Does an Extended Car Warranty Cover?

Exactly what the policy covers will vary with every provider and the type of warranty you choose.

The only way to know for sure is to carefully read the extended warranty policy agreement, but here are some general rules of thumb.

What it Covers

Extended warranties typically cover the major mechanical parts of your car, such as the engine, transmission, steering, suspension, clutch, air-conditioning, and electricals, including in-car audio and navigation systems.

So if your engine blows or oil starts leaking, it will likely be covered. Coverage may not be 100 percent, however, and you may have to pay a deductible before coverage kicks in.

Some policies also offer add-ons like 24/7 roadside assistance, rental car reimbursement, trip interruption service, and tire protection.

What it Doesn’t Cover

Generally, extended warranties won’t cover routine maintenance or damage caused by normal wear and tear, such oil changes, replacing the timing belt (unless it fails before the recommended replacement time), new tires, new brakes, windshield wipers, and more.

If an item isn’t listed in the policy, you can assume it’s not covered.

How Much Does An Extended Car Warranty Cost?

Pricing will vary depending on the type of vehicle, what the plan covers, what the deductible is, and the length of the contract. The upfront cost of the warranty can range from $1,000 to $3,000 or more.

If you purchase a car warranty from a dealer and include it in your financing, you are likely also going to pay interest, which will increase the total cost of the warranty.

You might have to pay a deductible every time you submit a claim, plus kick in money for a portion of the bill.

Recommended: Smarter Ways to Get a Car Loan

Is an Extended Car Warranty Worth it?

Whether you should get an extended car warranty or not is a personal decision. It will depend on how reliable the car is and, if you’re buying a used car, how old the car is. It will also depend on how well you would be able to manage if your car encountered a problem that will be costly to fix.

Here are some pros and cons you may want to consider when making the decision.

Pros of an Extended Car Warranty

•   You may save money. If your car needs a very costly repair that’s covered under your extended warranty, you could save money. Instead of paying the entire bill out of pocket, you’d only be responsible for covering the deductible (if you have one) and then the warranty provider would pay for all or most of the rest.

•   It provides peace of mind. If you’re worried about how you’d cover a car repair bill, having an extended warranty can make you feel less stressed about something going wrong with your car. If your plan also incorporates roadside assistance, you won’t have to worry about breaking down on the road.

•   It can make your car more attractive to a future buyer. If you plan to sell your car down the road, a transferable warranty can make your car more appealing to prospective buyers.

Recommended: Is it Smart to Buy Your Leased Car?

Con of an Extended Car Warranty

•   You may never use it. Many people who purchase an extended car warranty don’t end up using it. And if they do, the cost of the repairs they need may be less than the cost of the warranty.

•   There may be overlap. If the coverage period of the extended warranty overlaps with the manufacturer’s warranty, you may end up paying for coverage you’re already getting at no cost.

•   Exclusions and limitations. Every contract comes with fine print that specifies how you can use the warranty. For example, the provider might deny coverage for a problem caused by normal wear and tear or reduce the payout based on your car’s depreciation. You may also be required to take the car to certain auto repair shops to be covered.

Recommended: Leasing vs. Buying a Car: What’s Right for You?

How to Choose an Extended Car Warranty

If you decide an extended warranty makes sense for you, it’s a good idea to look at the policy contract closely — this is where you’ll find the fine print that spells out all the rules and exceptions — and not just the glossy brochure or the online advertising.

If the seller won’t show you this info before you sign on the dotted line, it can be wise to take your business elsewhere.

Here are some things you may want to look for in a contract before you sign:

•   Is there a deductible for each visit? You might have to pay $100 or more out of pocket every time you get a repair.

•   Is the service contract transferable to another owner? This is a consideration if you are thinking of selling your car down in the future. Typically, these contracts aren’t transferable if you sell to a dealer.

•   Does the service contract pay the repair shop? In some cases, you may have to foot the bill and then file a claim to get reimbursed. With this scenario, it’s possible that after you pay for a repair, the claim can be rejected.

•   What are the exclusions and requirements? You will need to read the fine print to find out what repairs are and aren’t covered and other limitations or restrictions.

•   Where can you go for repairs? Manufacturer-backed contracts typically require that you go to a dealer. Third-party vendors may have restrictions on where you can take your vehicle, or let you choose the repair shop.

The Takeaway

An extended warranty could add thousands of dollars to the purchase of a new or used car and may or may not be worth the price tag.

If you would have trouble covering the cost of a major repair and/or worrying about car expenses keeps you up at night, the cost of one of these contracts might be worth the peace of mind it can bring.

If you’re buying a vehicle with a reliable track record, however, it might make sense to skip the warranty and, instead, set aside the money you’d spend on it, then use the funds for needed repairs.

If you don’t end up using all of it for your car, you can keep saving it or use it for something else.

With a SoFi Money® cash management account, you can actually create a separate savings “vault” for car repairs (or any other savings goal), then set up automatic transfers so you have a solid back-up when and if you need it.

Learn how SoFi Money can help you save for unexpected expenses.

Photo credit: iStock/Pekic


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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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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How Do Student Loans Work? Guide to Student Loans

If you are thinking about going to college, it can be important to understand how student loans work. With the cost of higher education rising quickly, you may need financial assistance to pay for tuition, fees, room and board, and more. The likelihood of college seniors now graduating with student loan debt is pretty high, with over $1.5 trillion in student debt from 42.9 million borrowers.

Taking out student loans may be one of the first major financial commitments you’ll make. And it’s a decision that has the potential to affect your financial situation for years to come. Understanding the terms you’re signing up for and which options are right for you is crucial.

To help you get started, here’s a quick guide to student loans detailing some need-to-know basics on how student loans work.

What Is a Student Loan?

Student loans are loans that are intended to help a student pay for their education. Like most other types of loans, this money is usually borrowed with the requirement that it will be repaid in the future, with interest.

Student loans can be borrowed by the student pursuing education or in some cases, by their parents. When a student loan is borrowed by a parent to pay for their child’s education, it may be called a parent loan.

The way student loans work is similar to other loans but the application process may be a little different, especially when it comes to borrowing a federal student loan (more on that below). Federal student loans are funded by the federal government and for the most part, do not require a credit check.

When borrowing a private student loan the application process is similar to the process for other types of loans in that potential borrowers will file an application directly with the lender of their choice.

What Can Student Loans Be Used For?

Student loans can be used to pay for a student’s qualified educational expenses. These include things like tuition, room and board, books and supplies for classes, and other fees charged by the school.

They can also be used to pay for expenses related to transportation or the cost of a laptop or computer used for school.

Recommended: Using Student Loans for Living Expenses and Housing

The Two Main Student Loan Categories

The first student loan basic to understand: Student loans fall broadly into two main categories, federal and private. Federal loans, which as mentioned, are funded by the federal government, offer some advantages and borrower protections.

These include interest rates that are fixed and generally lower than private student loans, income-driven repayment plans, and temporary relief to those who are facing unemployment or other challenges.

Federal Student Loans

While federal student loans are backed by the government, the way college loans work is that your payments and loan management are usually handled through a student loan servicer.

To see if you qualify for a federal loan, and other federal student aid, you need to fill out the Free Application for Federal Student Aid – commonly referred to as FAFSA®. The application needs to be filled out every year you want to apply for federal student aid.

There are a few different types of federal student loans. The main federal student loans are:

• Direct Subsidized Loans, available to eligible undergraduates with financial need. The interest that accrues while students are enrolled in school and during the grace period and other times of deferment are covered by the U.S. Department of Education.

• Direct Unsubsidized Loans, available to eligible undergraduates and graduate students regardless of financial need.

• Direct PLUS Loans, available to parents of undergraduate students and to graduate or professional students for expenses not covered by financial aid.

Check out our breakdown on the different types of federal student loans for further details on how these student loans work and the distinctions between them.

Private Student Loans

Private student loans are issued by non-government lenders, such as banks, credit unions, or other financial service companies. A potential borrower’s eligibility and terms will depend on their credit history and other factors.

Parents or even family friends can co-sign with a student who may not be able to qualify for a private student loan on their own. Unlike federal loans, repayment on private student loans may start while the borrower is still enrolled in school.

Recommended: Can You Get a Student Loan With No Credit History?

It should be pointed out, though, that, unlike their federal counterpart, private student loan lenders may not offer the same safety net protections in cases of financial hardship or unemployment. So be sure to understand the terms before taking a private student loan. Private student loans tend to be the last option for paying for college after all other methods of financial aid have been exhausted.

Recommended: Guide to Private Student Loans

Understanding How Student Loans Work

Understanding the difference between federal and private student loans is the first step in navigating how college loans work. Here are other essentials:

Student Loan Application Process

Applying for federal student loans requires students to complete the Free Application for Federal Student Aid (FAFSA®) every year they are attending college. Some people assume they won’t qualify for federal aid because of how much their parents make or a low GPA, but that’s not always the case.

Everyone who may need help paying for college should fill out the FAFSA — aside from federal student loans, there are state or school-related scholarships, grants, and work-study programs that you may qualify for. The FAFSA form is generally available on October 1 for the following school year and can be completed online.

If you’re opting for private student loans, find a reputable lender and make sure your school and program are eligible for their offerings. The application process may or may not have a fee, depending on the lender.

Most private lenders typically want applicants to provide basic personal and financial details, and may also consider credit history. As we mentioned above, lenders may allow potential borrowers to apply for a private student loan with a co-signer, such as a parent. Adding a co-signer can potentially improve an applicant’s chance of getting approved with a competitive interest rate.

Recommended: Do I Need a Student Loan Cosigner? – A Guide

Understanding Student Loan Interest Rates

Interest is a percentage of the unpaid principal loan amount that is paid to the lender in exchange for borrowing money. Federal student loans have fixed interest rates and interest is accrued on a daily basis. Interest rates on federal direct subsidized and unsubsidized loans for undergraduates for the 2021-2022 school year is 3.73%. Interest rates on federal student loans are set annually by Congress.

Fixed-rate student loans have an interest rate that stays the same over the life of the loan. Although the rate might start off higher than on variable-rate loans, it won’t change as general interest rates fluctuate.

The way interest on private student loans works is different from federal student loans. Private student loans may have either fixed or variable interest rates. Variable-rate loans, also called floating-rate loans, have an interest rate that can vary every month, quarter, or year. Rates usually start off lower than a fixed-rate loan, but can fluctuate dramatically over the life of the loan.

If you expect to pay off your student loans quickly, a variable-rate loan may be an option to consider. But if you’re not sure how much you’ll be making after you graduate, you don’t think you’ll be able to pay your student loans off ASAP, or are risk-averse, a fixed-rate loan might be a better choice.

Private student loans will have different interest rates depending on the lender and the borrower’s credit history (and other financial factors).

Repaying Your Loan

As long as you’re still in school at least part-time, borrowers aren’t required to make payments on federal student loans. The exception for federal student loans is PLUS Loans, which require borrowers to start making payments as soon as they receive the entire loan amount. But it is important to note that if on an unsubsidized loan, interest starts accruing while the borrower is enrolled in school.

Recommended: What Is a Federal Direct Subsidized Loan?

Your federal loan servicer should give you a student loan repayment schedule that will tell you when your first payment is due and how much you owe. There are a few different repayment plans available for federal student loans. Borrowers can change their repayment plan at any time without incurring additional fees.

Most federal student loans have a six-month grace period, which gives you a break after you leave school before you have to start paying your loans back. (PLUS Loans don’t offer this perk.) Some private lenders also offer grace periods, but it’s not a guarantee. Unless the loan is a federal unsubsidized loan, it will likely accrue interest during the grace period.

Private lenders determine when repayment begins on a private student loan, so review your student loan agreement closely before signing.

Many lenders offer interest rate reductions if you have your student loan payments automatically deducted from your checking account. Be sure to look into that — who doesn’t like a discount?

The Takeaway

Student loans can make it possible for students to attend college, but just like other types of loans, student-borrowers are charged interest. Federal loans have fixed interest rates and generally have a six-month grace period following a student’s departure from school. They also come with borrower protections and benefits like income-driven repayment plans and deferment or forbearance.

Private student loans can be helpful if a student did not receive enough federal aid in the form of federal student loans, scholarships, grants, and work-study, to pay for college. Lenders determine the rate and terms usually based on factors including the borrower’s credit history. Interest rates may be either fixed or variable, depending on the lender. Private student loans do not carry the same federal borrower benefits.

Students interested in borrowing private student loans may want to shop around to find the best rates and terms for them. SoFi’s private student loans have absolutely no fees and the application process is entirely online.

Check out your interest rate in just a few minutes—with no strings attached.


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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Bitcoin Fees: How to Save on Bitcoin Transaction Fees

Bitcoin Fees: How They Work and 3 Ways to Save on Them

Bitcoin is a decentralized digital currency based on blockchain technology with an overall value approaching $1 trillion. Currency can be exchanged without an intermediary like a bank or payment processor and there’s no central government or central bank in charge of creating new currency or affecting its value.

But that doesn’t make Bitcoin transactions free.

Recommened: How to Invest in Bitcoin

What are Bitcoin Fees?

There are two types of Bitcoin fees and costs. Most exchanges and brokerages will charge a fee for trading Bitcoin (as they would charge a fee on any other trade), and on top of that there are also Bitcoin transaction fees.

How Do Bitcoin Transaction Fees Work?

When a Bitcoin transaction occurs, the network usually keeps a small percentage of the transacted amount.

Traditional bank or money transmitters might charge a fee on a transaction to help pay for the cost of maintaining the network, increase profit margin for the company, to protect against legal or reputational risk by working with the customers that are transferring money, or to cover the risk of having to reverse the transfer or have it not be accepted.

For Bitcoin, much of this does not apply — there’s no company that controls the network and the transfers are final and irreversible. So why are there Bitcoin transaction fees? The Bitcoin fees exist because the Bitcoin network is maintained by its users and because Bitcoin mining needs to be incentivized by the system itself.

Bitcoin miners, which are essentially networks of computers which power the network through “proof of work” (i.e. solving hard math problems), maintain the network and power through the transactions. The more computing power coursing through the network, mining new blocks of Bitcoin, authorizing, and authenticating transactions, the higher the Bitcoin hash rate. That’s a good thing, and to fund this, incentives are required.

Bitcoin miners are incentivized in two ways: they earn new Bitcoin through mining, and they earn transaction fees.

Why Do Transaction Fees Go Up and Down?

Transaction fees depend on several factors, but the most important one is the overall use of the Bitcoin blockchain. Basically, it’s a matter of supply and demand.

When there is a relatively large amount of computer power dedicated to mining a relatively small amount of Bitcoin transactions, fees go down.

When there are lots of transactions being initiated simultaneously, fees can go up, as the network can only process so many at any given time. Miners will work harder to authenticate and process transactions with higher fees.

3 Strategies to Save on Bitcoin Transaction Fees

There are ways to save on Bitcoin transaction fees. While you may not avoid them outright, these strategies may help you incur smaller fees.

1. Know What You’re Paying — or Will Pay

The first step to avoiding high Bitcoin transaction fees is to know exactly what they are. Websites like BitInfoCharts are dedicated to tracking Bitcoin transaction or transfer fees, and these fees are also a frequent topic of conversation and news coverage in the cryptocurrency-focused media. So it’s possible to keep track of fees and wait to do a transaction when the fees are lower.

2. Use a Wallet With a Set Fee

Bitcoin transactions happen through a crypto wallet — the software or hardware that allows you to store, send, and receive Bitcoin. Many popular, mainstream exchanges also have wallets and will calculate and pass on Bitcoin transaction fees.

There are a variety of wallets that allow you to set your own fee — though that can mean that a transaction you wish to make may not be prioritized or go through immediately. This may not be important to you if you’re doing a small number of transactions or just one transaction, but the option may be valuable if you’re looking to save on Bitcoin transaction fees.

Recommended: Cold Wallet vs. Hot Wallet: Choose the Right Crypto Storage

3. Use the Lightning Network

Bitcoin transactions are slower and more expensive than many transactions that happen with fiat currency like U.S. dollars. To fix this, a group of developers created the Lightning Network, a protocol that sits on top of the blockchain and allows users to transfer Bitcoin much faster and with far lower fees than normal, “on-chain” transactions.

Using Lighting Network for transactions has not yet reached mass adoption in the Bitcoin community, largely because it’s more complicated and requires more technological know-how than typical transactions. However, for anyone with that know-how who’s doing frequent Bitcoin transactions or transfers that are time-sensitive, it may be an option to reduce Bitcoin fees.

The Takeaway

The problem of Bitcoin transaction fees is a long-lamented subject in the Bitcoin community. But the way the network is set up, these fees are a necessary evil. They incentivize miners to devote computer power to verify the transactions and keep the blockchain growing.

Ready to initiate your first Bitcoin transaction? With SoFi Invest®, you can trade dozens of cryptocurrencies including Bitcoin, Litecoin, Cardano, Dogecoin, Solana, Enjin Coin, and Ethereum.

Find out how to get started with SoFi today.

Photo credit: iStock/happyphoton


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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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When Do Student Loans Start Accruing Interest?

Student loans — federal or private — begin accruing interest when they’re disbursed, and the borrower is responsible for paying the interest on all but subsidized federal student loans during grace periods or deferment.

The grace periods for each kind of student loan repayment are good to know. So are the various loan interest rates and what happens during any period of deferment or forbearance.

The Basics of Student Loan Interest

A student who takes out a student loan (or a parent who takes out a parent-student loan in their own name) signs a promissory note outlining all the terms of the loan, which include the loan amount, interest rate, disbursement date, and payment schedule.

Federal student loans issued after July 1, 2006, have a fixed rate. The repayment default is the standard 10-year plan, but there are options, such as income-based repayment or a Direct Consolidation Loan, that can draw out repayment to double that or more.

Private student loan interest rates may be fixed or variable, and are based on your — or your cosigner’s — financial history. The repayment term can be anywhere from five to 20 years.

With federal student loans and most private student loans, payments are deferred until after you graduate. Interest will have accrued, and in almost all cases you’re responsible for paying it.

Interest and Grace Periods by Loan

With the exception of subsidized federal student loans, any unpaid loan interest during grace periods will be capitalized, or added to the loan balance, when repayment begins. Capitalized interest on student loans can significantly increase how much a borrower owes.

Here are details about different kinds of student loans. Congress approves interest rates for Department of Education loans that span July 1 to June 30 the following year. These are the rates and loan fees (deducted from each disbursement) as of this writing.

Recommended: Types of Federal Student Loans

Unsubsidized Student Loans

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students with no regard to financial need.

Rate and loan fee: 3.73% for undergraduates and 5.28% for graduate students, with a loan fee of 1.057%.

Grace period: While you’re in school at least half-time and for six months after graduation.

Subsidized Student Loans

Federal Direct Subsidized Loans are available to undergraduates with financial needs.

Rate and fee: 3.73%, with a loan fee of 1.057%.

Grace period: While you’re in school at least half-time and for six months after you leave school. The government pays the interest during those grace periods and during any deferment.

Direct PLUS Loans

Taken Out by a Parent

A Parent PLUS Loan acquired to help a dependent undergraduate is unsubsidized.

Rate and fee: 6.28%, with a loan fee of 4.228%. In the past decade, the rate for Direct PLUS Loans has been as high as 7.90%.

Some private lenders refinance Parent PLUS loans at what could be a lower rate.

Grace period: First payment is due within 60 days of final disbursement, but a parent can apply to defer payments while their child is in school at least half-time and for six months after.

Taken Out by a Graduate Student or Professional Student

Grad PLUS Loans are available to students through schools participating in the Direct Loan Program.

Rate and fee: 6.28%, with a loan fee of 4.228%.

Grace period: Automatic deferment while in school and for six months after graduating or dropping below half-time enrollment.

Student loan refinancing could potentially
lower the interest your loans accrue.


Private Student Loans

Some banks, credit unions, state agencies, and online lenders offer private student loans.

Rate and fee: Rates can be fixed or variable, and rates and fees vary by lender

Grace period: Interest begins when a private student loan is disbursed, but payments may be deferred while a borrower is in school.

How Is Interest on Student Loans Calculated?

Student loans generate interest every day. Your annual percentage rate is divided by 365 days to determine a daily interest rate, and you are then charged interest each day on the total amount you owe.

That interest is added to your total balance, and you’re then charged interest on the new balance — paying interest on interest until the loans are paid off.

If you don’t know what your monthly payments will be, a student loan payment calculator can help. This one estimates how much you’ll be paying each month so you can better prepare for your upcoming bills.

The amount you pay each month will be the same, but the money first goes toward paying off interest and any fees you’ve been charged (like late fees); the remainder goes to pay down the principal of the loan.

As you pay down your loan, because the principal is decreasing, the amount of interest you’re accruing decreases. And so, over the life of your loan, less of your monthly payment will go toward interest and more will go toward the principal. This is known as amortization.

Interest Accrual During Deferment or Forbearance

If you can’t afford payments on federal student loans once they begin, deferment and forbearance may allow you to hit pause.

The big difference is that interest always accrues during forbearance (except in the case of Perkins Loans), while during deferment, interest on some types of loans usually does not accrue.

They are:

•   Direct Subsidized Loans

•   Perkins Loans

•   The subsidized portion of Direct Consolidation Loans

•   The subsidized portion of Federal Family Education Loan Consolidation Loans

Some private student loan issuers offer deferment or forbearance for specific reasons. Any unpaid interest will likely accrue and be added to the principal after the payment pause.

How You Could Save on Interest

Because interest can add up so quickly, it’s important to pay attention to the interest rates you’re paying on your student loans.

Refinancing — taking out a brand-new loan that pays off your current loans — can lower the amount of interest your loans accrue if you qualify for a lower interest rate or a shorter term. To see how refinancing might save you money, take a look at this student loan refinance calculator.

Even a small difference in interest rates could help you save a substantial amount of money paid in total interest over the life of the loan, depending on the term you select.

It’s important to know, though, that refinancing federal student loans will make them ineligible for federal benefits like income-driven repayment plans and Public Service Loan Forgiveness.

The Takeaway

When does student loan interest start accruing? The minute the loan is disbursed, and you’re usually responsible for paying it. It’s important for borrowers to understand and pay attention to capitalized interest.

Interested in seeing if you could get a lower rate or different term by refinancing? If so, look into SoFi refinancing.

There are no fees.

Check your rate and check out the perks of refinancing with SoFi.


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What is DAO? How it Works

DAOs and How They Work

One of the strongest trends in technology has long been decentralization — from the creation of the internet connecting academics across the world, to the world wide web providing a platform for strangers to connect with one another. The advent of cryptocurrency has spurred another round of decentralization, the decentralized autonomous organization, or DAO.

What Is a DAO?

Decentralized autonomous organizations (DOAs) are innovative and potentially promising models for bringing blockchain technology to new areas of organization, beyond issuing and transferring value across the blockchain (aka currency). For example, DAOs could be used to develop blockchain in insurance or blockchain in real estate.

The goal of DAOs is to remove expensive and time-consuming processes and democratize how organizations are conceived and run, by doing everything in code. DAO stands for:

•   Decentralized: This means no one person or group is in charge of the organization by virtue of a title. Instead, decisions are made by the members of an organization by virtue of how big a stake they have in it.

•   Autonomous: The DAO is run entirely according to its smart contracts and the decisions of its members.

•   Organization: DAOs can still act as a single entity, producing things and acting on behalf of all its members.

While DAO typically refers to projects using Ethereum (aka Ethereum DAOs), some scholars have suggested that Bitcoin itself is a DAO.

It’s important when discussing Ethereum DAOs or DAOs in general not to get them confused with “The DAO,” a group that raised money to invest in cryptocurrency projects. The organization was hacked and more than $50 million of about $160 million worth of Ethereum raised was stolen.

How Do DAOs Work?

While there have been procedures for more open and democratic organizations for as long as people have been gathering to make decisions, DAOs are an innovation that specifically hinges on blockchain technology.

DAOs are typically built on top of the Ethereum blockchain, which supports the second-most popular and valuable cryptocurrency in the world and is designed specifically to support “smart contracts” or agreements that execute automatically and don’t require third parties to enforce.

Imagine a traditional organization as a bundle of contracts and agreements between the members: an employment agreement specifies what an employee is supposed to do in exchange for pay, contracts with suppliers, loan terms with banks, and so on. These contracts all need to be specified on paper and their execution can be up to third parties and legal systems to oversee. For the DAOs, these are problems to be solved with code.

How Are DAOs Funded?

Typically DAO contracts are also set up for the sale of a token, as a way of raising money for the DAO and for establishing who gets to be involved in the decision-making. Token holders vote based on a process specified and executed in the smart contracts themselves. The idea is that token holders will want to maximize the value of their tokens, thus ensuring the DAO does not work to the advantage of any one employee or group, but instead to the token holders as a whole.

DAOs: Pros and Cons

Pros

Cons

Change always happens by vote Can be hard to turn around in a crisis
Transparency through open-source Organizational discretion is difficult
Smart contracts avoid after-the-fact tinkering with agreements If contracts and code are poorly written, can be hard to change without consensus
Organizational roles specified in code Makes taking on responsibilities beyond what’s specified in code difficult
Decentralization means everyone in the organization is responsible for the organization’s decisions Lack of accountability for any one individual, like a central leader or chief executive
Open source means more eyes on critical functions and the best ideas rise to the top Legal ambiguity could make decision-making difficult or force DAOs to engage in more centralized, traditional behavior
Everyone involved in decision-making has a stake Token-based decision-making can make consideration of other stakeholders’ interests more difficult

Examples of DAOs

There are a variety of DAOs in operation right now. These are some of the well known ones.

MakerDAO

MakerDAO is one of the most prominent uses of the DAO structure and one of the most popular DeFi (or decentralized finance) projects that could serve as an example of how to use blockchain in the finance industry. MakerDAO produces a token, known as Dai, that has a steady $1 U.S. value and is used for financial products like loans. There’s also the MKR token, which is for governance of the overall project. This means that holders of MKR can “vote on changes to the protocol, like the addition of new collateral assets and protocol updates.”

Recommended: What is DeFi? Guide to Decentralized Finance

Augur

Augur is an Ethereum-based prediction market, meaning it allows people to place bets on events in the future. The platform is a bundle of smart contracts and OracleDAO was created to assist with its development.

Uniswap

Uniswap is a decentralized cryptocurrency exchange specifically for “ERC-20” tokens with a governance token called UNI. ERC-20 is a standard on the Ethereum blockchain that is used for applications and services built on top of Ethereum. In the ongoing dispute between centralized vs decentralized exchanges, Uniswap is decidedly on the side of the latter.

How to Invest in a DAO

Investing in a DAO isn’t that different from buying any other form of cryptocurrency. Here are the simple steps to do it.

1.    Have a wallet. A crypto wallet is a software program or hardware and software system that allows an investor to safely and effectively store and trade cryptocurrencies including tokens issued by DAOs.

2.    Do your research. There are new crypto projects starting every day. It’s important to have a detailed understanding of what the developers of the one you’re interested in are attempting to do, and that you are well aware of whatever rights you gain by investing in a DAO and purchasing a governance token.

3.    Find an exchange. Some exchanges host tokens, including MKR, which can be bought and sold using their tools. Uniswap, for example, hosts token exchange.

4.    Be an active participant. Study how governance works in the DAO you’ve invested in and be a conscientious and energetic participant.

The Takeaway

DAO stands for decentralized autonomous organization. In such organizations, there is no one person or small group of executives making decisions — instead, anyone holding tokens issued by that DAO has a say in policy and other organizational matters.

For investors ready to jump into the crypto world, or those looking to expand their crypto holdings, SoFi Invest® offers cryptocurrency trading in dozens of crypto like Bitcoin, Litecoin, Cardano, Dogecoin, Solana, Enjin Coin, and Ethereum, whose blockchain is the basis of smart contracts and DAOs.

Find out how to get started with SoFi Invest.

Photo credit: iStock/Pekic


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