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There are many reasons to pursue homeownership, from obtaining a yard for your dog to painting the bathroom whatever darn color you want. But one of the biggest financial reasons to own your own home is to start building home equity.

Home equity is considered one of the most common and accessible ways to build wealth over time, thanks in large part to the appreciation of real estate over time. You can even leverage your home equity to take out loans and fund your retirement. But what exactly is home equity, and how does it work?

What Is Home Equity?

Home equity is the amount of your home value that you actually own. It’s calculated by subtracting your mortgage balance from the market value of your property. For example, if your home is worth $350,000, and you’ve paid enough toward your down payment and home loan that your mortgage balance is $250,000, you have $100,000 in home equity. (Keep in mind that the $350,000 value might not be what you initially purchase your home for — that figure may have increased over time, which is part of how equity is built!)

Once you have home equity, you can borrow against it. If you sell the home, your equity is the amount of cash you will walk away with (minus any costs associated with the sale).

In short, home equity is pretty great to have. But how is it built?

How to Build Home Equity

Home equity is primarily built in two ways: paying down your mortgage and seeing the value of your home appreciate over time. Both of these can be nudged a bit to help you build equity faster. Here’s how.

Making a Larger Down Payment

Many buyers, especially first-time homebuyers, take advantage of programs that allow small down payments — sometimes as little as 3% of the home purchase price. But when it comes to building equity, a higher down payment could help. The more you put down when you’re first purchasing your house, the more equity you have right out of the gate — and if you put down 20% or more, you’ll be able to avoid the additional cost of private mortgage insurance, commonly called PMI.

When calculating mortgages, you’ll also see that the higher the down payment you can afford, the lower your monthly mortgage bill. That said, substantial down payments can be prohibitive for many buyers, and it may make more sense to get in with a lower down payment and start building equity rather than waiting a long time to save up tens of thousands of dollars.

Paying Off Your Mortgage

If making a larger down payment isn’t possible, you might also be able to speed up your equity earnings — and save money on interest over time — by paying off a mortgage early. Of course, you’ll need to consult your mortgage documentation to ensure that your lender doesn’t charge a prepayment penalty, or if it does, that it would still be a cost-efficient decision to make. Only some lenders charge a prepayment penalty, and of those that do, typically only within the first few years (usually up to three).

Making Extra Mortgage Payments

If you can’t afford to pay off your mortgage early in its entirety all at once, you can chip away at the loan over time by making more than the minimum monthly payment. It’s a good idea to ensure that the additional funding is going directly toward your principal balance (the amount of money you borrowed in the first place). That way, you’re dialing down the amount of interest you’ll pay before it can even accrue.

Staying in Your Home for Five or More Years

Along with chipping away at the amount you owe, the other function that increases equity is allowing your home to appreciate. Although that rise in value isn’t guaranteed, if it’s going to happen, it takes time. Thus, staying in your home for a longer amount of time (typically at least five years) gives you a better chance at building enough equity for all the other costs of homeownership to be worth it.

Increasing Home Value Through Renovations

Allowing your home to naturally increase in value over time is one thing, but you can also take matters into your own hands and help drive up the value by renovating or remodeling. (Not sure about renovations vs. remodels? Essentially, remodels are more extensive — and expensive.)

While even lower-cost renovations, such as painting, can increase the home value a little, major repairs may have major costs associated with them. Sometimes, though, the equity increase you’d gain makes it worth going to the expense in the short term. Home improvement loans can help make these efforts more accessible (but again, always look ahead to ensure that debt won’t eclipse the equity you’d stand to build).

That said, it’s important to think through the pros and cons of reverse mortgages, as borrowing against your home equity comes with risk. (For example, if the loan total ends up being more than the value of the home, heirs might lose the house or need to refinance if they can’t pay off the reverse mortgage in full.)

How to Use Home Equity

Once you’ve built up a significant amount of equity in your home, you may be able to use it as collateral to get a loan or line of credit. How much is significant? It varies by lender and situation, but typically at least 15%-20%. But remember that while drawing on your equity can be tempting, you will have to pay back whatever money you take out as well as continue to make your original mortgage payments. That’s why it’s a good idea to consider tapping your home equity carefully in the context of your larger financial goals.

Buying a New Home

It may seem counterintuitive, but you can borrow against your home equity value to help purchase a new home. In fact, some people end up taking out home equity loans to purchase a second or investment home.

Borrowing Against Home Equity

There are several equity home loan types that can be used to liquefy the cash wrapped up in your home and make it spendable. Just be aware that these loans come with costs and risks. For example, if the housing market suddenly shifts and your home’s value decreases substantially, you may find yourself in a hole. And if you can’t make the payments, you could even lose your home. Your home, after all, is the collateral for these loans.

Here are a few of the most common ways to borrow against your home equity:

•  A home equity loan offers a borrower a lump sum up front, based on their home equity. In return, they pay it back, typically through regular fixed payments throughout the term of the loan. There are generally closing costs.

•  A home equity line of credit (HELOC) works much like a credit card. A homeowner who takes out a HELOC has the opportunity to draw out cash as needed, up to a certain maximum limit. During the draw period (typically the first 10 years), they may be able to pay only the interest on what they’ve withdrawn. After the draw period comes the repayment period, when they will have to pay back any principal, plus interest. Interest rates and payments are usually not fixed. Closing costs may be lower than those for a home equity loan and sometimes waived entirely if the borrower keeps the credit line open for a number of years.

•  With a cash-out refinance, a borrower takes out an entirely new mortgage while borrowing a portion of their existing home equity in cash. There are generally closing costs.

💡Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

How to Calculate Your Home Equity

Phew! That’s a lot of information. To recap, here’s how to calculate your home equity:

Keep in mind, again, that “home value” isn’t the same as “purchase price.” To know for sure what your home value is in the current market, you’d need an up-to-date appraisal, but you can use estimates from your favorite real estate site or agent.

The Takeaway

While nothing is a surefire ticket to wealth, building home equity is one of the most historically reliable ways to grow your net worth. And down the line, home equity can be leveraged for a variety of loans.

SoFi now offers home equity loans. Access up to 85%, or $750,000, of your home’s equity. Enjoy lower interest rates than most other types of loans. Cover big purchases, fund home renovations, or consolidate high-interest debt. You can complete an application in minutes.

FAQ

What is a home equity loan?

A home equity loan provides the borrower with a lump sum of cash up front in return for fixed payments on a regular basis throughout the life of the loan. The borrower’s equity in the home serves as the collateral for the loan, so if the homeowner defaults, the lender may foreclose on the house.

How does a home equity loan work?

A home equity loan lets you use the equity you have in your home to secure a loan. You receive a lump sum, and to pay it back, you make regular, fixed payments for the duration of the loan term. If you can’t or won’t make the payments, the lender may be able to foreclose on the house.

How does a home equity line of credit work?

A home equity line of credit (HELOC) lets you use the equity you have in your house to create a line of credit, much like a credit card, and once you’ve set it up, you can borrow (or “draw”) funds up to your HELOC’s maximum during the draw period. As you pay back what you’ve borrowed, the credit line replenishes, and you can draw more again until the repayment period, when you are paying back principal and interest. Typically, HELOCs have adjustable interest rates, and your payments will depend on how much you choose to borrow.

Is it a good idea to take equity out of your house?

Whether or not taking equity out of your home is a good idea depends on your financial situation and motivations. Taking out a home equity loan for a month-long luxury cruise is not practical for most long-term financial goals. But taking out a home equity loan to pay for renovations or improvements to your home that will increase its value can potentially increase the worth of the equity you have in your home.

Do you pay back home equity?

When you take out a home equity loan, you start making payments, but technically, you’re paying back the loan you took out and not paying back home equity. That said, you must pay back the loan, or the lender may be able to foreclose on your house.

Photo credit: iStock/PC Photography

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A black credit card is a financial product extending a line of credit to wealthy, high-spending consumers. Colloquial references to a black credit card typically refer to the American Express Centurion Card that launched in 1999. It quickly developed a reputation for being more than a credit card — rather, it became a status symbol of ultra-wealth and almost limitless spending power.

Here’s a look at what a black credit card is in detail, how to get one, and the card’s benefits and drawbacks.

What Is a Black Credit Card?

A black credit card is an ultra-luxury private banking credit card product that’s designed to support the credit needs of the world’s wealthiest individuals, which can include A-list celebrities, professional athletes, and multimillionaires. These are individuals who likely spend six figures a year using their credit card.

Although the black credit card meaning was originally derived from the Amex Centurion Card, it now includes other luxury cards that have since come to the market. The list of exclusive card products includes the Dubai First Royale Mastercard and the J.P. Morgan Reserve Card.

Although the Mastercard Black Card might have the phrase black card in its name, it’s more accessible and arguably not in the same caliber as the aforementioned cards. That’s because consumers can submit an application online for this card without first being invited, which is more in line with typical credit card rules.

How Black Credit Cards Work

Unlike other consumer credit cards, the most exclusive black credit cards aren’t available for online applications. Card issuers publish very limited details — if any at all — about how to apply for the card or what it takes to receive an invitation. All of the elusiveness can enhance the allure of black cards.

Aside from their exclusiveness, black cards are generally known for having no credit limit, allowing members to spend freely. However, credit card issuers have already determined who they feel is financially capable of wielding the black card’s limitless buying power.

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

Requirements for Getting a Black Credit Card

Specific black credit card requirements and thresholds vary between black card products. However, they generally include the following factors:

•   Minimum annual spending

•   Income and/or net worth

•   Creditworthiness

If you believe that you meet the criteria for a black credit card, you can reach out to the card issuer directly to see if you’re eligible. American Express, for instance, may offer existing members an online form for its Centurion Card for those who want to request consideration.

Worth noting: The Centurion Card is currently said to have a one-time $5,000 initiation fee and an annual fee of $5,000 thereafter.

Recommended: The History of Credit Cards

What Kinds of Perks Do Black Credit Cards Offer?

Whether you’re still learning how credit cards work or are experienced with credit, you likely know that different cards offer varying benefits, including rewards, travel and shopping credits, and more. The perks of a black credit card also differ depending on the type of black card.

For example, the Amex Centurion Card offers the following black card benefits:

•   VIP airport lounges: Access to Amex’s Global Lounge Collection, including the coveted The Centurion Lounge network.

•   Travel accommodation enhancements: Upgraded bookings and credits through Amex’s Fine Hotels + Resorts program, with 1,900 hand-selected, iconic properties, alongside elite status with additional hotel programs.

•   Airline loyalty status: Complimentary top-tier status through airline partner loyalty programs.

•   Unique experiences: Access to one-of-a-kind travel experiences around the world.

•   Travel insurance and protection: Premium trip cancellation and interruption coverage up to $10,000 per trip, along with worldwide medical evacuation and repatriation services.

•   Rental car insurance: Up to $75,000 in car rental loss and damage insurance.

•   Saks Fifth Avenue credit: Quarterly $250 shopping credit, up to $1,000 per year.

•   Equinox fitness club membership: Access to clubs in multiple countries.

•   Additional buying protection: Purchase protection, return protection, and extended warranty for goods purchased on the card.

•   Personalized support: Access to personal shoppers and 24/7 personal concierge service.

As noted above, fees, benefits, and spending requirements will vary among different types of credit cards, including those that fall into the ultra-luxury category.

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Pros and Cons of Using a Black Card

As a card that’s not intended for the masses, the card’s pros and cons highly depend on which side of the eligibility spectrum you fall under. Here’s a closer look at black credit card benefits and drawbacks:

Is a Black Credit Card Worth It?

With a reputation of having excessively high annual fees and high minimum spending criteria, a black card can carry a high price tag. It’s important to consider if you can afford this kind of credit card — that is, assuming you’ve received an invitation in the first place.

Weigh the black card benefits, and consider if you’d actually be using a credit card in such a way that it would be worth it for your needs.

Recommended: When Are Credit Card Payments Due?

The Takeaway

Black cards are typically reserved for wealthy customers who have demonstrated the ability to spend hundreds of thousands on a credit card and repay that amount with ease. If you’re an everyday consumer or it’s your first time getting a credit card, a pricey black card probably isn’t a practical credit card solution.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What does it mean to have a black credit card?

Being invited as a black card member means that you’ve met the card issuer’s underwriting criteria in terms of having a high income, high net worth, high spending activity, and more. It’s perceived as being a card that’s only accessible to ultra-wealthy individuals.

How much does a black credit card cost?

Black credit card fees vary between card products but often cost hundreds to thousands of dollars in annual fees each month. The Amex Centurion Card, for example, has a $5,000 initiation fee and a $5,000 annual membership fee thereafter.

Are black credit cards actually black?

Generally, black credit cards are designed with a black color scheme. However, some of these cards that fall into the exclusive black card category aren’t black. For example, the J.P. Morgan Reserve card is made of brass and palladium and has a silver metal finish.

What is the difference between a black card and a platinum card?

The Amex Platinum Card is more accessible to consumers than the Amex Centurion Card, also dubbed the black credit card. Members who want to apply for a Platinum Card can do so on their own online, while the black card is offered by invitation only. The requirements and annual membership fees of both cards also vastly differ, with the black category charging higher fees and having higher spending requirements as well as more robust perks.

Photo credit: iStock/Lemon_tm

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Most people know that after an accident, they’ll likely need to use the car insurance they’ve been diligently paying for. Car insurance can protect you from financial liability that has the potential to be devastating.

Being protected by a car insurance policy that is appropriate for your needs and your budget is vital.

What Is Car Insurance?

A car insurance policy is an agreement between you and your insurance company. At regular intervals — typically every six months — you pay the cost of the policy. In return, the car insurance provider pays for damages that occur when an accident happens, whether that damage is to your car or someone else’s car. What and how much the insurance will pay depends on the type of car insurance coverage you purchase.

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How Does a Car Insurance Deductible Work?

If the time comes to put in a claim, you’ll most likely have to pay a deductible first. The deductible for car insurance works in a similar way to that for medical insurance. It’s the amount of money you will pay out of pocket on a claim, up to the limit you agreed to, before your policy picks up the rest.

If you sign up for a high deductible, then your policy payments will be lower. A policy with a $1,000 deductible will not cost as much every month as a policy with a lower deductible. But if you find you need to put in a big claim to have your car fixed, you’ll have to come up with that $1,000 up front. If that is too big a hit for your bank account, then you may want to consider a lower deductible.

Most deductibles range from $250 to $2,000.

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Types of Car Insurance Coverage Options

Car insurance coverage varies by type of coverage, amount of coverage, and amount of deductible. Some drivers may want to purchase specialty coverage that will be priced separately, such as coverage for antique automobiles or vehicles driven for commercial purposes or ride-share insurance.

Insurance companies will pay up to the limits of the policy, after any deductible.

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Liability Coverage

A basic car insurance policy is liability coverage that will pay if there are bodily injuries to people in the other car or vehicular damage to the other car, and you are at fault.

Uninsured or Underinsured Motorist Coverage

Sometimes included in a liability policy package but also available as a separate part of a policy is uninsured or underinsured motorist coverage. If someone without their own liability insurance coverage hits your car, this type of insurance pays for your bodily injuries and physical damage to your car.

Emergency Road Service Coverage

If your car breaks down, your battery dies, you lock your keys in your car, or you are left stranded from other incidents, emergency road service coverage can be helpful to have. This type of coverage, sometimes called roadside assistance coverage, may pay for a tow truck or a locksmith or may even bring gas to you so you can make it to the next gas station. This is generally very affordable coverage to add to a policy.

Comprehensive and Collision Coverage

Comprehensive insurance covers repairs to a car that is damaged outside of an accident or stolen. Damage could be things such as vandalism, a broken windshield, a fallen tree on your car, or other occurrences out of your control.

Collision coverage will pay to repair or replace your car if it’s damaged in an accident with another car or even an object such as a fence or tree.

These two coverages are sometimes listed together as “comp and collision” on a policy, but they are available as separate purchases in most cases. Both may be required by a lender if you’re leasing a car or still paying an auto loan. They’re the most common types of car insurance to include in a deductible.

Personal Injury Insurance

Personal injury insurance, or medical payments coverage, will pay for your and your passengers’ medical expenses after an accident, no matter which driver was at fault.

Gap Insurance

If you are still making auto loan payments or you’re leasing a car, gap insurance might be something to consider. This type of coverage will pay the difference between the amount the car insurance company pays and what you still owe on the purchase or lease in the case of a total loss after an accident.

Understanding car insurance terms will help you make a smart decision about what types and amounts of coverage to purchase.

Recommended: Average Cost of Car Insurance in California

Do You Need Car Insurance?

In most states, you must have at least some form of liability coverage. In fact, to legally register and drive your car, you’ll have to establish and maintain a minimum level of coverage.

New Hampshire is the exception. New Hampshire drivers are not required to carry any automobile insurance unless they have had their driver’s license revoked or were unable to prove they can pay for damages in the case they were at fault in a car accident and were uninsured, among other stipulations.

In all U.S. states, driving without at least minimum liability coverage may result in being fined and even losing your driver’s license.

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How Much Car Insurance Do You Need?

After you’ve purchased liability coverage, other coverage may be optional. But just how much auto insurance do you need? An older car whose value is lower than the coverage costs, including any deductible, might just need liability coverage instead of comprehensive and collision coverage.

Some things to consider when purchasing insurance are the value of your car, your driving history, how far and how often you drive the car, and how much you could afford to pay out of pocket if you are in an accident.

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How Much Does Car Insurance Cost?

According to Experian, the average full-coverage car insurance policy costs $2,924 per year or about $244 a month. However, these averages vary widely by state. Maryland, Connecticut, and New York reportedly have the most expensive car insurance policies.

Other factors that go into car insurance policy prices are what kind of driving record you have, your age and gender, and the type of car you’re insuring, among others. If you get a speeding ticket or you’re at fault in an accident, your insurance policy is most likely going to go up in cost.

Car insurance is highly competitive, so comparison shopping can be a wise move.

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How to File a Car Insurance Claim

It’s recommended that claim filing should happen as soon as possible after an accident. Call your insurance company and be ready to inform your insurer which vehicle was involved, who was driving, the exact location and time of the accident, the description of the damage, and the name and insurance of the other driver.

If the incident you report is covered, your insurer will pay, up to the policy limits, for the cost of the damage you caused, or the damage to your car, minus the deductible if you have one. Your insurer may pay you directly. Or payment may be made to the other driver or to the repair shop working on your car.

Some insurers request a copy of the police report filed on an accident. If you didn’t call the police at the scene, you can still go to the local police precinct to file a report.

Recommended: Car Insurance Guide for New Drivers and 3 Ways to Save

The Takeaway

Car insurance companies pay a claim when there are injuries to people and damages to a vehicle from an accident that has occurred. Types of coverage vary from minimal liability coverage to more broad-spectrum comprehensive and collision coverage, in addition to some coverage for special situations.

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

FAQ

How does paying for car insurance work?

When you have car insurance, you pay a fee at regular intervals to keep the policy active, then when it comes time to submit a claim, you will have to pay a deductible, the amount of money you have agreed to pay out of pocket. This typically falls in the $250-$2,000 range. Your insurance policy then covers the rest of the costs.

Is $300 a month for car insurance bad?

Car insurance that costs you $300 a month is on the higher end. The current national average for a full-coverage policy is $2,924 a year, which comes out to about $244 a month.

What determines the insurance cost for a car?

Car insurance costs are determined by your driving record, your age and gender, and the type of car you’re insuring, among other factors. They also vary by location. According to the most recent data available, Maryland, Connecticut, and New York have the most expensive car insurance policies.

What state has the cheapest car insurance?

According to 2026 Experian data, the cheapest states for car insurance are Vermont, Maine, and New Hampshire. The monthly costs for each are over $100 lower than the national average of $244.

Photo credit: iStock/Melena-Nsk

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Should you get into a car accident and harm someone else or yourself with your car, your car insurance may cover the costs of medical bills. Depending on the coverage included in your policy, car insurance could also cover damage to your car while it’s parked, such as if a large tree branch were to fall on it.

Ultimately, what your auto insurance will cover — and how much — depends on what type of car insurance you have and the amount of coverage you select. Read on to learn more about how exactly auto insurance works.

How Car Insurance Works

When you purchase auto insurance, you can choose different types of insurance and policy amounts. Depending on the state where you live, there are certain car insurance requirements you’ll need to meet — more about this later on.

Adding more types of insurance and higher coverage limits provides greater coverage, but it also raises your premiums. Having a lower deductible can also bump up your rates. On the other hand, a higher deductible can lower your rates.

A deductible is a common auto insurance term that means how much you would need to pay up front before insurance coverage kicks in.

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Car Insurance Requirements

Most states require car insurance, with the type of insurance and minimum coverage amounts depending on the state.

The only state that does not require car insurance is New Hampshire. While auto insurance is not mandatory in New Hampshire, if you’re at fault in an accident, you would need to show that you have enough funds to meet the state’s motor vehicle financial responsibility requirements.

If you’re not sure what the minimum requirements for car insurance are where you live, you can check your state’s DMV site. Keep in mind that while you can squeak by with the minimum coverage, how much car insurance you need varies. Depending on your situation, it may be a good idea to get more coverage.

Types of Car Insurance

When comparing car insurance, there are six main types to keep in mind.

Bodily Injury Liability

If you get into a car accident and are found to be at fault, bodily injury liability coverage can help cover medical bills and wages lost for taking time off of work because of bodily harm. It can also cover named drivers, such as family members, on your policy or drivers who are using your car with your permission.

Bodily injury liability is typically must-have coverage. According to the most recent data available from the Insurance Information Institute (III), the average claim for bodily injury was $26,501 in 2022. Having enough coverage could help protect your property, assets and home.

Collision

If you crash into another car or an object, or if your car gets damaged from driving over a pothole, collision coverage can pay for the costs to repair any damages to your car. It can also cover damages should your car flip over. Once your deductible is paid, the coverage will kick in.

If the other driver is the one at fault, then typically a claim can be filed with their insurance company and they’ll cover the costs. In the case where the other driver’s coverage amounts aren’t enough, and if you don’t have uninsured motorist coverage (sometimes called underinsured coverage), then your own collision policy can step in.

If you’re taking out a loan and still paying off your car, lenders will likely require you to have full coverage, which includes liability, collision, and comprehensive insurance.

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Comprehensive

While collision coverage can cover the costs of damage during a car crash, comprehensive liability includes everything else — such as a deer running into the front of your car, riots and vandalism, a tree branch falling on your car, hail damage, or other natural disasters. Comprehensive coverage can also pay for a broken windshield (though whether it makes sense to file a claim depends on your policy and deductible). It can also cover theft, of either your entire car or a piece of your car, such as a hood ornament.

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As mentioned before, if you’re still making payments on your car, you most likely are required to have both comprehensive and collision insurance in addition to liability coverage.

Personal Injury Protection (PIP)

Should you, as the driver, or your passengers get harmed in a car accident, personal injury protection (PIP), also known as medical payments coverage, can help pay for medical bills, lost wages and sometimes funeral costs. It can cover these costs no matter who is at fault, which is why it’s sometimes called no-fault insurance.

Depending on your policy, PIP can also help pay for bodily harm should you get injured while walking or riding a scooter or a bike.

Property Damage

As with bodily injury liability, property damage coverage is also usually required in most states. Let’s say you or a named driver on your policy damages another vehicle or property, such as the side of a building. In these situations, property damage can reimburse the cost of repairs.

Uninsured or Underinsured Motorist

In the case of a hit-and-run, uninsured or underinsured motorist coverage can foot the bill for covered damages. Or, should someone who hits you not have adequate insurance, this type of policy can help pay for any shortfalls.

Special Considerations When Choosing a Policy

Besides the standard types of policies, there are some additional considerations to keep in mind when it comes to choosing an auto insurance policy.

Roadside Assistance

While not a type of insurance, roadside assistance can come in handy should you get a flat tire, or if your battery dies while on the road. While you can usually attach this to your existing auto policy as an add-on, what exactly is covered might vary by carrier.

Outside of purchasing roadside assistance as an add-on to your car policy, you can also shop around for companies that offer roadside assistance as a standalone service.

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New Car Replacement Coverage

If your new car gets totaled, new car replacement coverage can replace the vehicle in its entirety. This is usually available as an add-on if you purchased a policy with collision and comprehensive insurance.

Depending on the insurance company and carrier, this might cover cars that are no more than two years old. Plus, restrictions and limitations might differ.

Rental Reimbursement Coverage

If your car is getting repaired and those repairs are covered under a car insurance claim, a policy might include an add-on to cover the fees for getting a rental car or other transportation while your vehicle is in the shop. Whether you take public transit, rent a car, or take a rideshare, what exactly is covered depends on your specific policy and limits.

Rideshare Coverage

If you’re a rideshare driver for a company like Uber or Lyft, you’ll need to meet the minimum coverage amounts for that particular company. Some insurance companies provide rideshare coverage in their policies. If not, you might need to get a rideshare endorsement or a separate rideshare insurance policy.

Car Rental Coverage

If you have liability and comprehensive coverage on your car, then that coverage can typically carry over to when you rent a car within the country. As mentioned before, depending on the particulars of the policy and car insurance company, this might not be applicable in every state, and the amount of coverage can also vary.

What Does Car Insurance NOT Cover?

While auto insurance can cover a lot of things, it doesn’t cover normal wear and tear or routine maintenance. And unless it’s a rental car, it doesn’t provide coverage when you’re driving someone else’s car.

A policy also doesn’t pay for lost personal belongings in your car, such as headphones or gym gear. This could be covered by a homeowners or renters insurance policy.

At the end of the day, not all policies are alike, nor are they created equally. It’s important to check to see what your policy will cover.

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The Takeaway

There are six main types of insurance: bodily injury liability, collision, comprehensive, personal injury protection, property damage, and uninsured or underinsured motorist coverage. The type of coverage and limits required vary by state. When choosing a policy, you’ll also want to consider whether additional coverage such as roadside assistance, car rental coverage, or new car replacement coverage is right for you.

Taking the opportunity to compare car insurance companies before committing to a policy can be a smart move that might save you money on your insurance rate.

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

FAQ

What is the difference between collision and comprehensive coverage?

Collision coverage helps pay for repairs to your vehicle if you crash into another car or object. Comprehensive coverage covers noncollision incidents, such as theft, vandalism, or natural disasters.

Does car insurance cover medical bills?

Yes, car insurance can cover medical bills through certain types of coverage like bodily injury liability and personal injury protection (PIP). Bodily injury liability covers others’ medical expenses if you are at fault, while PIP can cover your own medical bills regardless of fault.

What is a car insurance deductible?

A deductible is the amount you agree to pay for damages before your insurance coverage kicks in to pay the remainder. Generally, choosing a higher deductible can lower your monthly premiums, whereas a lower deductible typically results in higher insurance rates.

Does my car insurance cover me if I rent a car?

If your current policy includes liability and comprehensive coverage, that protection can often carry over when you rent a car within the United States. However, coverage limits and applicability can vary significantly by state and your specific insurance company’s policy terms.

Photo credit: iStock/tommaso79

All insurance products shown on SoFi are underwritten and provided by licensed insurance carriers, not SoFi Agency. SoFi Agency does not underwrite or price insurance policies. Insurance products presented may not be available in all states, and your rates and savings will vary based on individual factors. The rates or savings advertised are not necessarily available from all providers or advertisers. Not all carriers or options in the marketplace are shown.

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Long-term personal loans can be an attractive borrowing option if you’re facing large expenses, like significant medical bills or home repairs. Paying off a personal loan long term allows borrowers to spread out repayment into manageable installments. Long-term loans often allow for lower monthly payment amounts that can make major costs more affordable.

However, long-term loans can have drawbacks, too. They may have higher cumulative interest than short-term loans. What’s more, they can be difficult to qualify for since they’re often unsecured. Learn the full story here.

What Is a Long-Term Personal Loan?

As you explore what are long-term loans, you’ll quickly see that personal loans aren’t the only example of this type of lending. Mortgages and private student loans are also examples of long-term loans. Mortgages, for instance, are frequently repaid over as many as 30 years.

How Long-Term Personal Loans Differ from Short-Term Loans

As its name suggests, a long-term loan is one whose repayment period, or term, is fairly lengthy. Generally, long-term personal loans carry terms between 60 and 84 months, or five to seven years, though some lenders may offer terms up to 10 years.

In this article, the focus is on long-term, unsecured personal loans, which borrowers can use for a variety of purposes. These loans can allow consumers to make big purchases or pay expensive bills by paying the total off over several years’ time.

Pros of Long-Term Personal Loans

There are plenty of reasons why a long-term loan might be a worthy consideration for large expenses.

Large Loan Amounts

While short-term loans and credit cards may cap out at a few thousand dollars, long-term, unsecured personal loans are available at much higher amounts — up to as much as $100,000. So depending on what you need the money for, a long-term personal loan might give you more leverage than other types of funding.

Lower Monthly Payments

Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan. However, that doesn’t mean a long-term loan is less expensive in the long run. To compare costs, it’s important to look at total interest paid over the life of the loan.

Flexibility

Unlike secured loans, which are tied to a physical piece of collateral or the need to be used for a specified purpose, unsecured personal loans can be taken out for a wide range of uses. Common reasons borrowers take out personal loans include:

•   Home renovations or repairs.

•   Medical expenses.

•   Wedding loans or funeral expenses.

•   Debt consolidation.

Cons of Long-Term Personal Loans

Like any form of consumer debt, long-term personal loans have some potential drawbacks worth considering.

Potentially Higher Interest Rates

Although long-term, unsecured personal loans may have smaller monthly payments, they can sometimes carry higher interest rates than shorter-term, unsecured personal loans. And unsecured loans typically have higher interest rates than secured loans.

Personal loan interest rates currently range from about 6.50% to as much as 36.00% annual percentage rate, or APR. The average personal loan interest rate in mid-2026 is 12.38%.

For example, imagine you take out a $10,000 loan at an interest rate of 10%. To repay the loan in a single year, you’d have to pay $879 per month, but you’d only pay a total of $550 in interest over the lifetime of the loan.

To repay the loan in seven years, you’d pay only $166 per month, but you’d also pay $3,945 in interest along the way.

So while long-term, unsecured personal loans can make large purchases feasible, factoring in the total cost over the lifetime of the loan before you sign those papers is also important.

Long-Term Debt

Along with higher interest rates, long-term loans do, obviously, mean going into debt for a longer period of time — unless you plan to pay off your loan early. A thorough review of the loan agreement will disclose any personal loan prepayment penalty or other fees that can be costly in their own right.

Furthermore, the future is unpredictable. Five to seven years down the line, that promotion you were counting on might fall through or another life circumstance might leave you unable to repay the personal loan.

If you find yourself in a situation where you need to borrow more cash, it can be difficult to increase your personal loan amount.

Although unsecured personal loans can be helpful when life throws big expenses your way, they’re still a form of consumer debt, and, ideally, minimizing debt is a smart thing to do.

Qualification Difficulties

Long-term, unsecured personal loans may have more stringent qualification requirements than other types of credit. That’s because, from the lender’s perspective, they’re riskier than loans for smaller amounts or those that come attached to physical collateral.

Along with your credit score and history, a potential lender might also require proof of income and employment or a certain debt-to-income ratio (DTI). Depending on the stability of your financial situation, you may or may not qualify for the best interest rates and terms or be considered eligible to take out the loan at all, at least without a cosigner or co-borrower.

How to Compare Long-Term Personal Loan Offers

Don’t just look at the interest rate a lender is offering you. Consider the personal loan APR vs. interest rate. Including fees in your comparison by looking at the APR will help level the playing field between lenders.

Another factor to consider is the personal loan term length. Generally, the shorter the repayment term the higher the monthly payment will be — but the lower your interest costs will be over the life of the loan.

Alternatives to Long-Term Personal Loans

Ideally, the best way to pay for a large purchase is to save up the cash and pay for it without going into debt at all. Of course, this may not always be possible or realistic.

If you’re not sure about paying off a personal loan long term, there are other alternatives to consider. However, each of these comes with its own risk-to-reward ratio as well.

You might consider borrowing money from friends and family, but those important relationships can suffer if your repayment doesn’t go as planned. A written repayment agreement can go a long way toward making the transaction as transparent as possible, with expectations of both parties clearly outlined.

Another option might be saving part of the money you need and applying for a short-term, unsecured personal loan for the remainder. This means delaying a purchase until savings can accumulate, and might not work if the money is needed sooner rather than later.

What are long-term loans that aren’t personal loans? Home equity loans also have a lengthy repayment term. In this case the loan is secured by the equity the borrower has in a home that they own. These loans can have lower interest rates than personal loans, but if you can’t make your monthly payments, you risk losing your property to foreclosure.

Recommended: A Guide to Unsecured Personal Loans

The Takeaway

Long-term loans are those whose repayment periods generally span between five and seven years, which can help borrowers fund expensive purchases while making affordable monthly payments. However, the longer term can also mean more interest charges over time.

Your credit score and/or financial situation can suffer if you make late payments or miss payments altogether. That said, when used responsibly, long-term, unsecured personal loans can be a smart financial choice, particularly if you shop around for a lender who offers affordable, fixed interest rates, low fees, and great customer service to ensure you’ll always be in the know and in control.

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.

FAQ

What is a disadvantage of long-term borrowing?

When you take out a long-term loan, even one with a low interest rate, it can cost more because you’ll be paying interest for a longer period of time.

What is the risk of a long-term loan?

Aside from mortgages, that can help you build wealth, loans taken out over a long term mean you will take many years to repay the debt. This means you may wind up paying the creditor more interest, perhaps even more than the amount you borrowed.

What are the pros of a personal loan?

Personal loans can get you a lump sum of cash quickly to use for almost any purpose, from a major dental bill to a home renovation. They tend to have lower interest rates than credit cards.

Is a long-term personal loan a good idea?

A long-term personal loan can be a good idea if you have a specific need for funds (such as to pay off high-interest credit card debt) and you can obtain a personal loan with a loan term and interest rate that make your monthly payments manageable.

How do long-term personal loans differ from short-term loans?

Long-term personal loans have repayments terms that can stretch from five to seven years, while short-term loans have a tighter timeline. Monthly loan payments are usually lower with long-term loans than they are with short-term ones, however total interest costs on a long-term loan are often higher than those on a short-term loan.

Photo credit: iStock/Melpomenem

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