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As nice as a spa day or yoga class is, sometimes the best form of self-care doesn’t cost anything at all. It’s financial self care, and practicing it may help you manage your money.

Financial self-care involves taking steps to avoid financial stress and meet financial goals. Given that 73% of Americans say money is their number-one stressor in life, practicing financial self-care can be a very good thing.

But what exactly does financial self-care mean and how do you do it? Read on to find out.

What Is Financial Self-Care?

Financial self-care is a form of self-care that focuses on financial wellness. Essentially, instead of more traditional self-care activities (like getting massages or enjoying dinners out), you learn the best way to manage your finances and improve your financial situation. This may not sound fun, but worrying about debt, paying the bills, and falling short of savings goals can all lead to a lot of stress that can be draining both physically and mentally. Self-care and money can go hand in hand.

Here’s another perk: Once you get your financial life under control, you’ll have more money to put towards the more exciting areas of self-care. Whether that means finally splurging on that cleaning service or a new puppy is up to you.

Tips for Practicing Financial Self-Care

Self-care and money can combine in the pursuit of financial self-care. Here are some strategies to help incorporate this form of self-care into daily life.

Creating Realistic Financial Goals

To make strides in the area of financial self-care, it’s important to set reasonable goals. That way, you can make progress and feel a positive boost when you finally do reach a goal. Here’s an example: Paying off your student debt in a single year would likely be hard even on a high salary. Instead, having a goal of paying off your highest-interest debt (perhaps a credit card balance) in a year may be more obtainable. Look at your income versus your monthly necessary expenses (the “musts” in your life), and see if you can begin funneling some of the funds left over after bill-paying towards your debt.

Tracking Your Expenses Daily

Impulse spending can feel good in the moment, but it can do a lot of harm. You can be more mindful about your spending by reviewing your personal finances daily, focusing on where your cash was spent. You may not realize just how much money flows away from you on a typical day. Expense tracking will reveal that. On days that you don’t spend much or anything at all, give yourself a big pat on the back. You’ve just taken care of yourself financially.

Checking Your Banking Accounts Frequently

Good cash management is an important part of hitting your financial goals. Alongside tracking your daily spending, it can be helpful to check bank account balances daily or at least a couple of times a week. You’ll see where you stand financially and won’t be caught unaware by a low balance. This process will also give you a deeper look at how any automatic bill payments are impacting your cash flow.

After all, most of us don’t see the money we earn or spend in cold hard cash, so it can feel less tangible. Your paycheck may be directly deposited into your checking account, for example. When you know exactly where you stand financially, it can empower you and help better inform your purchasing decisions.

Making Any Needed Changes to Budgets

After keeping an eye on spending habits and account balances, it’s a good idea to review your monthly budget goals and see how you’re doing. Perhaps you put a reminder in your calendar to do a quick check-in on the last day of every month and see how things look. Maybe eating lunch out on weekdays has made it hard to stick to your food budget for the month. Perhaps having too many subscription services left no wiggle room in the entertainment section of the budget.

The end of the month is the perfect time to reevaluate spending habits, to see where you can cut back on spending, and to figure out how to increase savings.

Focusing On Getting Rid of Debt

Debt is likely part of your life, but it can also cause a lot of worry. Thanks to interest charges, debt can mount and be hard to pay off. So when you have some extra money, sure, you might spend it on a new outfit or a weekend getaway and lift your spirits that way. Or you could pay down your debt instead.

By prioritizing debt, you’d be a step closer to eliminating some money stress from your life. Getting rid of debt can be a key aspect of financial self-care and can boost your peace of mind.

Improving Your Mindset on Money

Self-care has just as much to do with our mental health as our physical health. Feeling negative about money can really drag a person down. That’s why it can be helpful to focus on what you have instead of what you don’t have.

If you are feeling as if you can’t compete with other people’s lifestyles, it may be that your comparison framework is skewed. It may be beneficial to take a break from social media (or unfollow certain luxury accounts), stop watching reality TV, or skip hanging out with that friend who earns and spends big.

Recognizing what your money can do for you rather than feeling deprived is an important step. It can be a very empowering mindset to adopt.

Improving Financial Literacy

Money can be intimidating in part because most of us lack a basic financial education. While you may not have learned about money management in school, you can teach yourself the financial basics and beyond. Knowledge is power, after all.

From learning about how credit scores work to the investing basics, take some time to read up on the financial topics that seem confusing. Also look into apps that help you with budgeting, saving, and tracking your spending. These tools can be part of financial self-care, helping to boost your financial literacy and wellness.

Visualizing Retirement and Investing in It

Financial self-care means taking care of today’s and tomorrow’s needs. Retirement can seem like a distant concept, so try picturing your future self at retirement age and how you’d want to live then. That way, you may feel more motivated to save even though retirement is far away. Look at your budget again to see if there is room to improve your retirement savings. Even saving an extra 1% a month can make a major impact.

Respecting Money

Money is a tool and a very valuable one at that. Embracing financial self-care means recognizing that money isn’t just about buying things. That may be the easy and fun part, but saving and investing it is what really makes the most of your cash. Educating yourself on saving and investing or seeking professional advice may help you harness the full power of the money you make. Money is a force to be reckoned with; respecting its importance could help you achieve your financial and lifestyle goals.

Why Financial Self-Care Is Important

Financial self-care is equally important, if not more so, than more traditional forms of self-care like heading to the spa or taking a personal day off of work. When you prioritize financial self-care, you can work to reduce money stress and move closer to your short- and long-term goals.

Banking With SoFi

Financial self-care can be a way to help reduce money stress and make the most of what you earn. Being smart about your cash and building your savings can unlock the good things in life today and in the future. Try practicing some financial self-care ideas, and see if you don’t feel more in control of your money and less stressed about it.

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

FAQ

Why is financial self-care important?

Financial self-care can help reduce the financial stress in your life. Specifically, prioritizing financial self-care may make it easier to reach financial goals like paying down debt or saving for retirement.

How do you take care of yourself and your money?

Budgeting, focusing on debt repayment, and setting clear savings goals are all good ways to take care of yourself and your money. Not having to worry about too much debt or overdue bills are other potential benefits of financial self-care.

How do I respect my money?

Respecting money involves not wasting it and instead looking for ways to make the most of it. Being mindful about purchases, sticking to savings goals, and not taking on high-interest debt are all ways someone can respect their money.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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.

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

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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

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

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

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

SOBK-Q224-1939955-V1

Good news for drivers with excellent credit: The average auto loan interest rate for consumers with an 800 credit score is 5.25% for a new car and 7.13% for a used car, according to Experian’s 2024 State of the Automotive Finance Market report.

Consumers with high credit scores tend to secure the best loan rates and terms for any lending products, including auto loans. But many different factors impact the interest rate a borrower receives when they apply for a car loan.

Let’s dive into what auto loan interest rates you can expect, how they differ among lenders, and some steps you can take to get the best deal.

Average Used Car Interest Rate for 800 Credit Score

As mentioned, the average interest rate for a car loan with an 800 credit score is going to be 7.13% for a used car. Experian’s 2024 report found that borrowers with a credit score of 781 or higher access those rates on average.

Having a higher credit score generally leads to getting your hands on the best loan rates and terms. If a borrower has a credit score of 800, that means they have good credit habits that lenders like to see. If you’re just starting your credit journey, there are ways to help build your credit over time.

Factors That Affect Auto Loan Interest Rates

When you apply for an auto loan, lenders take a few factors into consideration when determining the loan amount, interest rate, and loan terms. Here’s a closer look.

Credit Score

Lenders evaluate your credit score to get an idea of how likely you are to make your loan payments on time. Having a high credit score shows that you know how to manage credit responsibly, and as a result, you can often secure a better interest rate. Borrowers with lower credit scores can make lenders nervous, so they’re often charged higher interest rates to balance out the risk.

What affects your credit score? Make consistent on-time payments, avoid hard credit inquiries, and keep your credit utilization ratio low to improve your score over time.

Lender

Whom you choose to borrow money from can impact the interest rate you receive. In general, you’re more likely to secure a better deal by getting a loan from a bank, credit union, or online lender than from a dealership — even if you have a lower credit score.

Amount Borrowed

The amount you borrow can impact your auto loan interest rate. A larger down payment helps lower your loan-to-value (LTV) ratio, which can lead to better loan rates and terms. A money tracker app can help you track and manage your finances.

Length of the Loan

If you can choose the loan term, you may be tempted to pick a long one. After all, the longer your loan term is, the lower your monthly payments will be. While lower payments can help you manage your monthly budget, you’ll end up paying more interest over the life of your loan. Longer loan terms are also often associated with higher interest rates, since there’s an increased risk a borrower defaults or pays off the loan early. You can use a spending app to create a budget that accommodates larger loan payments.

Economic and Market Conditions

Some factors that impact loan rates are out of your control. For example, current economic and market conditions affect the Fed rate, which in turn influences auto loan rates. Lenders also take certain market conditions into consideration, like vehicle demand and how well their current borrowers are repaying their loans on time.

How to Get a Better Auto Loan Interest Rate

If you want to spend as little as possible when you borrow money to finance a car purchase, there are a few ways you can help secure a lower interest rate.

To start, spend some time improving your credit score. Borrowers with a high credit score tend to access better interest rates because they pose less risk to the lender. Regular credit score monitoring can help you find ways to continuously improve your score.

It takes time to build credit, but making a large down payment can help immediately. You can also shop around for a lender to see who can offer you the lowest interest rate.

Recommended: What Is the Starting Credit Score?

How Often Do Auto Loan Rates Change?

Interest rates on lending products like auto loans change daily, so check the current loan rates before you walk onto a car lot. It’s also a good idea to get prequalified or preapproved ahead of time. That way, you have a better idea of what you can afford.

How to Use Average Car Interest Rates

It’s important to remember that average rates are just a helpful guidepost, not a guarantee. Understanding what the average car interest rate looks like can help you evaluate if you’re getting a good deal when shopping around for a car loan.

Where Are Auto Loan Rates Heading?

Unfortunately, there is no crystal ball that can help you predict exactly what auto loan rates will look like in the future. However, making an educated guess is possible. Thanks to recent interest rate cuts by the Federal Reserve, some economists believe we should continue to see auto loan rates drop in late 2024 into 2025.

Ways to Get a Better Car Loan Rate

If you’re looking for ways to get a better car loan rate, consider taking these steps:

•  Buy a more affordable car. Expensive cars come with more expensive car loans. If you can’t make a large down payment on a pricey car, look for a more affordable option.

•  Shop around. Apply for a car loan with a few different lenders to get an idea of which one can offer you the best terms at the right price.

•  Pay off your revolving credit. One quick way to get a credit score boost is to lower your credit utilization ratio by paying off any revolving forms of credit like a credit card or home equity line of credit.

•  Check your credit report for errors. You can check your credit score and report without paying. Once a year, check for errors that are harming your credit report and dispute any that you believe should be removed.

Recommended: How Often Does Your Credit Score Update?

The Takeaway

In 2024, the average used car loan interest rate for an 800 credit score is 5.25% for a new car and 7.13% for a used car. That said, these are just averages. The car you choose to buy, your down payment amount, your credit score, and the lender you work with can all impact what your actual interest rate ends up being. It’s a good idea to spend some time working on improving your credit score and to shop around for the right lender to avoid overspending on interest.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What car loan interest rate can I get with an 800 credit score?

You can expect to find an average interest rate of 5.25% if you have an 800 credit score and are applying for a new car loan. Buying a used car? You can expect to encounter an average interest rate of 7.13%.

Is 800 a good credit score to buy a car?

Having a credit score of 800 is considered excellent. As a result, you can expect to access favorable auto loan rates and terms.

What is the average interest rate on a 72-month car loan?

It can be difficult to gauge exactly what a 72-month car loan interest rate will be, but it is safe to say it will cost more than a shorter-term loan. Choosing a 72-month car loan will result in lower monthly payments, but also in paying more interest.

Is 7% interest rate high for a used car?

A 7.00% interest rate for a used car is about average for borrowers with good credit.

What is a bad APR for a car?

As of Q3 2024, the average 60-month new car loan APR is 8.40%, according to the Federal Reserve Board. If you are offered an interest rate higher than that amount, you may want to work on improving your credit score before accepting a loan offer.

Is 5.90% APR good for a 72 month car loan?

If you can manage to secure a 5.90% APR for a 72-month car loan, you likely have a great credit score and a large down payment on your side.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

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

SORL-Q424-019

Overall, ATMs (automatic teller machines) can be a safe way to access money en route to a cash-only restaurant, say, or to conduct other banking transactions. But that doesn’t mean that theft, fraud, or other issues never crop up. They can and sometimes do.

That’s why it’s important to practice safe habits when using ATMs. Learn the ground rules here.

What Are the Pros of Using ATMs?

ATMs can really come in handy in a pinch. For example, if someone is heading to a tag sale or farmer’s market, there’s often an ATM on the way where they can take out some cash.

Here’s a closer look at why people use ATMs and what their advantages are:

•  Easy to locate; accessible in banks, stores, airports, and other locations

•  Make cash accessible when going to the bank isn’t possible

•  Can be free to use when the ATM is in-network

•  Depositing cash and checks at an ATM can be possible

•  Can check account balance on the go

For these reasons, ATMs can play an important role in facilitating your access to cash on an everyday basis.

Recommended: ATM Cards vs Debit Cards: What’s the Difference?

What Are the Risks of Using ATMs?

As helpful as ATMs can be, people do look to take advantage of consumers using these machines. Unfortunately, ATM fraud and theft is common enough that consumers need to approach these devices with a measure of caution.

These are some of the risks associated with using ATMs that consumers need to be aware of to ensure their safety and financial wellbeing:

•  Fraudsters can attach a card skimmer (thin plastic devices that slip over the card slot) to an ATM that collects debit card information, which can lead to financial loss.

•  Errors can occur such as deposits being counted incorrectly or checks being read wrong, which can cause problems with bank accounts.

•  Power outages in the midst of a transaction can make technical glitches occur and deposits not register.

•  ATMs can dispense too much money, which may seem like a money windfall for the user, but can result in legal trouble if the consumer fails to report the error.

•  Because thieves know the person using the ATM has the ability to access cash quickly, this can make them a target for robbers (especially late at night or at locations without much foot traffic).

•  It’s possible to hit an ATM withdrawal limit or to overdraft, which can lead to fees and other issues with your financial institution.

It’s wise to keep these downsides in mind so you can take steps to avoid them.

Keeping Yourself Safe While Using an ATM

To stay safe when using an ATM, consumers can practice these habits to protect their financial health:

•  Use ATMs within bank branches, where card skimmers are much less likely to be found.

•  Cover the keypad when entering a PIN to block anyone from seeing the code.

•  Scope out any ATMs that aren’t inside a bank before use to see if there are any misaligned card readers or other signs of tampering.

•  Always try to use ATMs during the day or in well-lit and trafficked locations.

•  Visit ATMs with another person or when other people are around, which can reduce the likelihood of being a robbery target.

•  Using these devices can result in ATM fees, which can add up and harm someone’s budget.

•  Do a cardless withdrawal, which relies on mobile phone technology instead of a debit card. This means you’re not vulnerable to card skimming.

These steps can help you keep yourself and your money safe when using an ATM.

Are ATMs Safe From Being Hacked?

The practice of card skimming is a principal reason why some consumers wonder if ATM machines are safe from hacking. As briefly noted earlier, ATM machines can have card skimmers attached to them. These devices collect debit card information and can allow fraudsters to access the associated bank account. Unfortunately, skimmers can be quite sophisticated and hard for consumers to detect. Some ways to protect yourself:

•  Using an ATM located within a bank can significantly lower the odds of interacting with a skimmer compared to accessing more isolated ATMs. Examples of isolated ATMs would be those located outside gas stations or similar sites.

•  It’s also possible to find ATMs in other safer locations, such as busy grocery stores and airports, where fraud may be less common due to the ATM machines being too visible or there being good security measures in place.

It’s worth noting that freestanding ATMs, the kind you might find at a convenience store or outside at a self-service gas station, may be hacked by criminals with wifi scanners and other ways of getting past any less-than-optimal security protocols. For this reason, it’s wise to use ATMs that are part of a major network and securely built into a location whenever possible.

Recommended: What Is a Contactless Payment?

The Takeaway

ATMs can offer a convenient way to quickly access essential banking services (and get cash) when on the go. While usually a safe option, using an ATM does come with some risk of fraud and theft. Because of this, it’s important to practice safe habits when using an ATM, such as only visiting one at a well-trafficked location and/or during the daytime.

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

FAQ

Can you use an ATM at any time?

Some ATMs are open 24 hours a day, seven days a week; it’s often possible to find one accessible at any time. But because other ATMs are located within larger retail spaces (such as malls) or banks, they can have limited operating hours. ATMs may also be closed during less popular hours (such as the middle of the night) due to higher crime rates in an area.

When is the safest time to use an ATM?

The safest time to use an ATM is during the daylight hours, in well-trafficked locations when there are many people around. Whenever possible, try to avoid using an ATM after dark. If you must, it’s best to park close to the ATM and to only use it if it is in a well-lit area. Ideally, you should also bring someone else with you, to help you appear less vulnerable to a would-be thief.

How can ATMs be made safer?

ATMs are safest when they are in highly visible, well-lit areas that make committing a crime less appealing due to an increased likelihood of being caught. Having security cameras surrounding the ATM can also help discourage criminals, including those who may want to apply a card-skimming device. In general, it’s wise to use ATMs that are inside financial institutions or built into well-trafficked locations (such as your supermarket) vs. the freestanding ones or devices that are found outside, say, self-service gas stations.

One other note: Using cardless withdrawal methods can help you avoid the threat of card skimmers stealing your data.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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

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

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

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

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

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

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.

SOBK1222055

There’s a saying that you have to spend money to make money. But what if you can’t get the money you need for a significant purchase, such as a car or a house?

Accessing credit can be challenging for borrowers who haven’t established a credit history or have mismanaged debt in the past. One option to consider: credit-builder loans.

This financial product is designed to help people with limited or poor credit histories access a modest loan amount and increase their credit scores by repaying it over time. A credit-builder loan doesn’t require a credit score for borrowers to qualify. And it provides an opportunity to restore your credit through affordable loan payments.

Here’s a closer look at this type of loan.

How Does a Credit-Builder Loan Work?

Credit-building loans use monthly repayments to help credit-challenged borrowers build credit. In other words, it’s a personal loan to build credit. Here’s a breakdown of how they work.

First, the primary purpose of a credit-builder loan is for borrowers to demonstrate responsible borrowing behavior over time. As a result, this loan type doesn’t give the borrower a large sum to immediately use, as with a traditional loan.

Instead of providing an upfront lump sum to the borrower, a credit-builder loan requires the lender to deposit the loan amount in an interest-bearing account. The borrower can’t access the funds until they pay off the loan through monthly installments. These loans range from amounts of $300 to $1,000.

Remember, credit-builder loans usually have an interest rate and fees. Therefore, your monthly payment will incorporate the principal, loan origination fees, and interest. The lender might return some of the interest to you at the end of the loan, but every lender differs on the specifics. Therefore, it’s vital to carefully read the terms and conditions of the loan agreement to understand the loan’s total cost and the perks.

The credit-building loan term typically ranges from 6 months to 2 years. Once the loan matures and you’ve made all the required payments, you’ll receive the amount (minus any interest or fees per the loan terms) in the collateral account.

Lastly, building credit takes time, so patience and consistency are key. Improving your credit through this loan can open up opportunities for future loans, credit cards, and other financial products. However, only some financial institutions offer credit-builder loans, so you may need to shop around to find one.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

How Can a Credit-Builder Loan Help You Build Credit?

When you take out a credit-building loan, you make monthly payments towards the total amount. Your lender reports your payments to the credit bureaus, contributing to a higher credit score.

The low borrowed amount (also called the principal) makes the payments small and manageable. This feature helps borrowers with limited resources successfully pay the loan. Late payments and failure to pay the loan will hurt your credit, so it’s crucial to pay on time and take on a loan with affordable payments.

How to Apply for a Credit-Builder Loan

Applying for a credit-builder loan involves gathering information and choosing the option that best fits your circumstances. Here are the steps you should take.

Check Your Credit Report

Before applying for a credit-builder loan, it’s a smart move to check your credit report. You can get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year through AnnualCreditReport.com. Reviewing your report will help you understand your current credit situation and set goals.

Research Lenders

Not all financial institutions offer credit-builder loans, so you’ll need to research various banks, credit unions, and online lenders. It’s recommended to find a lender that reports to all three credit bureaus to ensure the loan gives you the maximum benefit.

Then, you can ask each lender for information about their credit-builder loan products. Carefully read and understand the terms and conditions of the available loans. Pay attention to details such as the interest rate, fees, monthly payment amount, length of the loan term, and how much accrued interest you’ll receive at the end.

Gather Necessary Documents and Apply

Different lenders have different application requirements, but generally, you will need to provide:

•   Personal identification (e.g., driver’s license, passport)

•   Social Security number

•   Proof of income or employment

•   Information about your current financial situation

•   Monthly housing payment amount

•   References

Remember, a conventional credit check might not be necessary to qualify. Instead, the lender can review your banking history. Positive banking activity such as a checking account with a consistent balance can help your application. On the other hand, a history of bounced checks and unpaid loans can hinder your application.

Make On-Time Payments

If the lender approves your application and sets up the credit-builder loan, you’ll start making monthly payments on the agreed-upon date. Doing so will allow you to build a positive credit history.

Repay the Loan in Full

If you repay the loan successfully, you’ll finish in a span between six months and two years, depending on the loan. After you make the final payment, you’ll receive the principal plus any applicable interest. In addition, your credit history will reflect the on-time payments you worked hard to make.

Credit-Builder Loan Requirements

There are no credit score requirements for credit-builder loans because the goal is for borrowers to improve substandard credit histories. That being said, lenders may charge fees to provide the loan and impose requirements regarding your banking habits.

With credit-builder loans, lenders prefer borrowers with a banking history that demonstrates healthy financial practices. For instance, writing checks that clear instead of bounce is helpful for your application. In addition, little debt and a positive bank account balance are favorable markers. Lenders usually use a borrower activity report from a company like ChexSystems to review this information.

Is a Credit-Builder Loan a Good Idea?

A credit-builder loan can be a good idea for individuals with limited or poor credit histories. It’s essentially a personal loan to build credit. For example, if you’re new to credit and have little or no credit history, a credit-builder loan can help you establish a positive credit history.

Similarly, if you’ve had past financial difficulties that have resulted in a lower credit score, a credit-builder loan can be a tool for gradually boosting your credit score.

However, existing high debt balances may disqualify you from a credit-builder loan. This type of loan may also be insufficient in these situations and exacerbate your current problems because it adds another monthly payment to the pile.

Remember, using a personal loan to build credit can take time, so it’s crucial to be patient and not expect immediate results. It may take several months or even longer to see significant improvements in your credit score with this loan type.

In addition, the payments will work against you if you’re late, so the loan is only beneficial if you can afford the extra monthly expense. Lastly, you can’t access the borrowed funds until you pay off the loan, meaning you won’t receive money for immediate expenses after applying. So, if you’re looking for an infusion of cash to shore up your bank account or consolidate debt, a different loan product is likely a better idea.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

The Takeaway

A credit-builder loan is an effective tool for individuals aiming to build their credit profile. By emphasizing responsible borrowing behavior over time, this type of loan differs from conventional loans, as the loan amount is securely held in an interest-bearing account until you pay it off through monthly installments.

This loan type can benefit new borrowers without a credit history. However, it may not be suitable if you have existing high debt balances or need immediate financial assistance. Ultimately, understanding your financial circumstances and goals will help determine whether a credit-builder loan is the right choice for you.

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.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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.

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A bank draft (which SoFi doesn’t offer at this time) is a document that looks like a check, but the payer’s bank guarantees the funds, making them extremely reliable. Since bank drafts have no limit, their increased security makes them ideal for hefty transactions, such as purchasing a car. They are often used in business transactions as well.

Bank drafts can foster trust in a deal involving large sums of money since there’s no worry about a bounced check or handing over piles of physical cash. Here’s how a bank draft works and what to expect when you use one.

Bank Draft Definition

A bank draft is a financial instrument used to make payments — frequently large ones — that have your bank’s financial backing. Bank drafts look like typical checks but can’t bounce because the bank ensures the payment will go through, usually within 24 hours. In addition, bank drafts can be for any amount you like, unlike the situation with wrangling, say, ATM withdrawal limits.

You typically obtain a bank draft either by visiting a bank branch in person or making a request in writing. You’ll usually pay a fee of $0 or $10 to get a bank draft drawn on your checking account. While bank drafts technically don’t expire, financial institutions may refuse to process a bank draft that is more than a few months old.

Money Orders vs Bank Drafts

You can use both money orders and bank drafts to make payments, but these tools differ in several ways.

•   Money orders sent domestically must be less than $1,000, while bank drafts don’t have limits.

•   You must have a bank account to draw upon in order to get a bank draft, but you can get a money order from a bank, U.S. post office, and select grocery stores and retail locations. Money orders are often bought with cash, a debit card, or a traveler’s check.

•   You can cancel a money order and get a refund if your payee hasn’t cashed it yet, but banks usually won’t cancel a bank draft.

Knowing these differences can help you determine which financial tool is best suited for your situation.

How Do Bank Drafts Work?

To get a bank draft, you will typically follow these steps.

•   Ask your bank or credit union to issue a bank draft for the desired amount. You can do so in person at a branch or in writing.

•   Next, your financial institution confirms your account has sufficient funds for the bank draft and moves the money from your account into its reserve account. This way, they can guarantee the bank draft, meaning your payee can be sure of receiving payment.

•   Lastly, your financial institution creates the physical document with the payee’s name on it. Typically, you get a bank draft in person at a branch, though they can also be obtained via mail.

Like ATM fees, your financial institution may charge a nominal fee for bank drafts (as noted above, typically close to $10). However, you might receive the first several bank drafts for free at your bank. In addition, using a specific amount of bank drafts per month might eliminate the fee.

Pros and Cons of Bank Drafts

Bank drafts have pros and cons, just as checks, e-checks, money orders, and cash do. Keep the following in mind when using bank drafts:

Pros

First, the advantages of bank drafts:

•   Your financial institution acts as the intermediary for the transaction, making the payment secure and convenient. It adds a level of trust.

•   A bank draft is safer than carrying thousands of dollars in cash.

•   Bank drafts can’t bounce since your financial institution guarantees the payment.

•   Bank drafts have no limit in terms of the amount.

•   Therefore, they’re helpful for sizable transactions, such as a down payment for a home.

•   The Federal Deposit Insurance Corporation, or FDIC, insures most financial institutions, meaning the government will fulfill the bank draft’s value in the rare instance of a financial institution failing. This insurance covers up to $250,000 per depositor, per account category, per institution.

•   Bank drafts generally clear within 24 hours.

•   Financial institutions can usually convert bank drafts into the payee’s preferred currency, from U.S. dollars to euros and beyond.

As you can see, bank drafts can be a very useful tool to make a large payment.

Cons

Next, the downsides of bank drafts:

•   Your financial institution might charge you to issue a bank draft.

•   The bank draft isn’t an electronic transfer; it’s a physical document you must deliver to your payee.

•   Since it’s a physical document, your bank draft might become lost, stolen, or damaged.

•   It’s typically impossible to cancel a bank draft and receive a refund.

•   It may be challenging (but not impossible) to recover your money if it is lost.

•   Fees could be higher than other methods.

In these ways, there are some negative aspects to bank drafts that may mean they are not appropriate for every situation.

Canceling a Bank Draft

Generally, you can only cancel a bank draft in dire situations. Theft or fraud are usually the only reasons a financial institution will cancel a bank draft. However, your financial institution may have a policy stating they won’t cancel bank drafts under any circumstances.

That said, if you want to cancel a bank draft for a reason other than theft or bank fraud, you could have the payee cash the bank draft and give you the money. This option requires trusting the payee to agree to and provide the refund.

Bank Draft Alternatives

While bank drafts may suit some payment scenarios, they are just one among many ways to send money.

•   One alternative to bank drafts is automatic clearing house (ACH) payments. The ACH network allows banks, credit unions, and financial institutions to transfer funds to each other electronically. ACH payments are usually free but may have transfer limits. Also worth noting: They are solely for domestic transactions.

•   You could use a wire transfer, another electronic payment type that usually completes the payment within 24 hours. As with ACH payments, wire transfers have limits, such as $10,000 or $100,000. However, wire transfers are viable for foreign transactions.

•   Checks are another option. Receiving a large sum via a standard check involves the risk of it bouncing, so payees may hesitate to accept this form of payment. You could pay for a cashier’s check from your financial institution. This means the bank uses its funds to guarantee the payment. A certified check, in which the bank verifies that you to have the necessary funds in your account, is another possibility.

•   Money transfer apps, including such P2P platforms as PayPal and Venmo, are a financial tool that can offer speed and security as you move funds. (Instant accessibility may be available if the recipient pays a fee.) These apps may charge transaction fees and usually have daily transaction limits.

Money transfer apps link to your bank account, making their use seamless and convenient. However, depending on the app, your transaction might not have FDIC insurance, meaning a botched transaction could result in the permanent loss of money. In addition, the payer and payee need to have the same app to conduct a transaction.

As you see, there are many ways to transfer funds if a payment by bank draft doesn’t suit your needs.

The Takeaway

A bank draft is a financial tool typically used for large transactions, such as the payment for a home, a vehicle, or the purchase of office equipment. The bank guarantees payment to the payee by using its own reserves after verifying and transferring the issuer’s funds into a reserve account, which adds a layer of security and trustworthiness. However, because bank drafts are physical documents that you can’t easily cancel and that are subject to damage or theft, it’s best to handle them carefully and perhaps consider alternatives, such as electronic payments.

FAQ

How long does it take for bank draft to clear?

Bank drafts usually take 24 hours or less to clear because the payer’s financial institution guarantees the funds. However, the receiving bank may have its own policies about when it makes funds available to the account holder, so check with your financial institution about timing if you are receiving a bank draft.

Is a bank draft available immediately?

Bank draft funds generally become available within 24 hours of the payee depositing them. However, the payee’s financial institution might take up to a few business days to make the funds available, depending on its policies.

What do you need for bank draft?

You need a bank account to issue a bank draft. In addition, you need your account to have funds equal to or greater than the payment amount. You may also need to pay a small fee for the bank draft; typically, the cost is $10 or less.

Does a bank draft require a signature?

Neither the issuer nor the payee need to provide a signature for a bank draft. The sole party that signs a bank draft is an employee of the issuer’s bank or financial institution.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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.

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