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If you’re wondering whether to get a new or used car in the year ahead, sorry: Neither is bound to be a bargain. Car prices have been high lately, thanks to inflation, semiconductor shortages, and other forces. Unfortunately, prices aren’t likely to drop in 2024, but they may stabilize vs. creeping higher still. That fact may push some shoppers towards more affordable used cars vs. chasing that new car smell.

But each car shopper’s situation is likely to vary, and you need to make the decision that best suits you and only you. To help you decide where to spend your cash if you do plan to buy some wheels, read on. You’ll learn the pros and cons of new and used cars, plus learn about some other options.

Benefits of Buying a New Car

For some people, there’s nothing that can compete with the allure of a bright and shiny new car. Consider the benefits of buying brand new as you answer the question, “Should I buy a new or used car?”:

Pristine Condition

With a new car, you don’t have to kick as many tires. New vehicles arrive on dealer showroom floors (and at online auto sales platforms) in pristine condition with very few miles on the odometer, so you don’t have to spend time checking for vehicle inefficiencies and maintenance or repair issues.

Multiple Auto Financing Choices

It’s often easier to get a good financing deal with a new car vs. a used car. That’s because the vehicle hasn’t been driven, has no structural problems, maintenance, or repair issues, and should hold its value if the new owner takes good care of the vehicle. That’s important to auto loan financers, who place a premium on avoiding risk.

State-of-the-Art Features

Some people may feel “the newer the car, the better.” Here’s why: The auto industry is doing wonders with new vehicle construction, with features like better gas mileage and technological advancements that improve vehicle performance. Those upgrades come most notably in car safety, cleaner emissions, and digital dashboards that improve driving enjoyment.

Warranty and Service Benefits

New car owners are typically offered a manufacturer’s warranty when they buy a new car, which typically grades out better than third-party warranty coverage on a used car. Additionally, extended car warranties may be available, and auto dealers are more likely to offer services like free roadside assistance or free satellite radio to lock down a new car sale. Those services and features are harder to get with used vehicles.

Drawbacks of Buying a New Car

Some disadvantages of a new car purchase might sway a buyer’s decision.

Immediate Depreciation

The moment you drive a new car off the dealer lot, it loses several thousand dollars and an estimated 20% in the first year of ownership and then 15% annually for the next few years afterward, which is not a fun fact when you are making car payments at the same level month after month.

Price

Saving up for a car is a big undertaking, and you may owe a lot of money on a new vehicle. The average price for a new car is currently $48,000, which is a significant figure.

Higher Insurance Costs

Auto insurers typically deem new cars as being more valuable than used cars and assign auto insurance premiums accordingly. Research recently found that the average cost of minimum auto insurance was $622 per year and full coverage was $2,014. Since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage.

Recommended: 10 Personal Finance Basics

Benefits of Buying a Used Car

Used cars offer buyers value and savings, which are attractive benefits to drivers who may not have a big budget, but still want to drive a quality vehicle.

Lower Price

No doubt about it, most used cars sell for significantly less than a new car with the same make and model. You learned above that the average new car is retailing for just under $50,000. How about used cars? The average is currently about $30,000, a considerable saving.

Slower Depreciation Rate

New cars tend to lose value quickly, as noted above, especially if they’re not properly cared for. But used cars tend to depreciate more slowly, especially if they’ve had regular maintenance, and their sustained value makes them a good resale candidate if the owner wants another vehicle, but still wants to make a good deal when selling the vehicle.

Your Down Payment May Go Further

Buyers who can manage a robust down payment on a used vehicle can bypass a good chunk of the debt incurred in purchasing the vehicle. It comes down to simple math — if a buyer purchases a $30,000 used vehicle with a down payment of $15,000, there’s only $15,000 left to pay on the vehicle. If a buyer purchases a new vehicle for $48,000, and puts $15,000 down, that buyer still owes $33,000 on the auto loan.

Drawbacks of Buying a Used Car

When deciding whether to buy a used car or not, these issues may be worth considering.

Reliability Can Be an Issue

With a used car, an owner may be getting a quality vehicle — or maybe not. A used car may have spent years on the roads and highways, incurring a fair share of dings, dents, and general wear and tear that may have aged it prematurely, particularly if it hasn’t been maintained well.

Less Choice

You may not get the exact make and model you want. The options can dwindle when it comes to buying a used car. Whereas auto dealers can offer a wide range of makes, models, and colors for a new vehicle, those choices can be significantly limited with a used car, truck, or SUV. That could mean that a used vehicle buyer may have to compromise on different factors, in contrast to someone who is buying new and can often get their dream car, down to the last detail.

Maintenance Costs

You may pay more for vehicle maintenance. Auto repairs often cost more over time and become more frequent too as a car ages. So you may well pay more for maintenance and repairs with a used car. With a very old car, finding parts to complete repairs may also be a challenge.

Top Considerations When Choosing to Buy a New or Used Car

As you make your decision between buying a new or used car, you likely will have your own set of needs and preferences. However, these are among the key concerns to think over:

•   Budget: How much can you afford?

•   Which model car you truly want: If you really need a vehicle with a third row of seats but can’t afford one brand new, that may lead you to a used car.

•   Financing options: You want to feel certain that you’ll be able to get the car you want with affordable terms, so thinking about how to get a car loan makes sense.

•   Maintenance profile: Factors such as vehicle reputation and repair history matter as well.

By weighing your choices on these fronts, you will likely be able to make the right move, both in terms of the car you buy and how well it fits into your household budget.

Recommended: How to Automate Your Finances

Other Car Purchasing Options

Auto consumers don’t have to be limited to a “buy new or used car” purchase decision. There are other valid options that go beyond the question of “should I buy a new or used car”: buying a pre-owned car or leasing a vehicle.

Certified Pre-Owned Cars

Car buyers who want to know that a vehicle is ship-shape, but who don’t want to spend a great deal of cash on a new set of wheels can compromise with a certified pre-owned vehicle.

A certified pre-owned vehicle means just what it says — it provides buyers with a vehicle that has low mileage, has no significant damage, has passed a battery of auto shop maintenance and performance tests, offers a new warranty, and likely costs thousands of dollars less than a new car. While you won’t be getting a brand-new car, you are likely getting a vetted and trustworthy vehicle at a decent price, which fits the bill for legions of would-be car owners.

Leased Cars

By leasing a car, you’re not buying it, you’re just renting it for a fixed period of time, usually with the option to buy the vehicle at the end of the lease.

Most auto leases average three or four years, and upfront costs are typically less than purchasing a new car (lease owners pay an upfront fee plus regular monthly payments for the duration of the lease period.)

Car leases do come with restrictions on key performance elements like mileage, and also require that the vehicle is returned in top condition when the lease period ends. Ignoring those issues can lead to hefty fees charged by the lease provider and owed by the leasing customer.

About 20% of all new cars are leased in the US, with the average lease being $487 per month vs. the average of $548 for a new car payment.

The Takeaway

Are you wondering, “Should I buy a new or used car?” Like any major purchase decision, prospective auto buyers are advised to shop around, check the book value of favored vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition, and (if it’s a used car) make sure it’s inspected by a trusted mechanic.

By doing these things, the choice between a new and used car can get easier and enhance your chances of driving away in the vehicle that best fits your auto needs and your financial needs. As you think about the latter, you may want to make sure that your banking partner is the right one, too, and is helping your money work harder for you.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Do used cars require more maintenance vs. new cars?

You may pay more for maintenance on a used car vs. a new one. Typically, older cars need more work than their younger counterparts.

Are used cars a better deal than new cars?

Used cars can be more affordable than new ones, from the sticker price to the insurance costs.

What should be expected from new and used car prices in 2024?

Car prices have been high, and currently they are expected to stabilize, but not drop, in 2024.

Photo credit: iStock/Ivanko_Brnjakovic

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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

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Three out of five U.S. consumers report living paycheck to paycheck, with no money left at the end of the month to save or invest, according to a June 2022 PYMNTS survey. (And that figure applies to people in all income brackets, even high earners.)

With so many of us just barely paying our bills, you may wonder if living below your means — or spending less money than you make — is even possible. The answer is yes, with a sound budget, determination, and some smart strategies.

Financial experts say the chances of living on less than you make increase if you haven’t yet bought a house or started a family, but don’t stop reading if you’re already in the thick of those responsibilities. Even with those commitments, you can still live below your means, gaining financial freedom with the right mindset and goals.

What Does ‘Living Below Your Means’ Mean?

If you live below your means, you get by on less money than you earn every month. For example: If your household income is, say, $40,000, but you make ends meet by spending $5,000 less than that amount, you’re left with money to save or invest for important goals.

How Much Money Qualifies as Living Below Your Means?

No set amount of money qualifies as living below your means vs. living beyond your means. No matter what your income, living below means is defined as spending less than you earn. If you earn $4,000 every month, but only spend $3,500, then you are living $500 below your means. This makes it possible to build wealth. If you spend $3,900 per month, then you are living $100 below your means.

Benefits of Living Below Your Means

Living beneath your means can be a wise financial move — one that pays off in an array of ways. Here are a dozen good reasons to start living on less than you make so you can enjoy the benefits of financial independence.

1. Being Prepared for Emergencies

If you have wiggle room in your finances, you can put a set amount of money in an emergency fund every month and build a safety cushion. This gives you peace of mind when unexpected expenses arise, such as a flat tire, broken washing machine, or a major dental bill.

Recommended: How Much Money Should be in Your Emergency Fund?

2. Saving for Larger Purchases

Planning a family beach vacation or girls’ weekend away? Will you need a new laptop soon? If you live below your means (for example, driving your trusty old car rather than financing a new model), you will have more breathing room in your budget to save for key expenses. Ordering takeout for your family’s dinner every two weeks vs. every week could add up to $100 or more in monthly savings, which could be better used elsewhere.

3. More Financial Freedom and Confidence

A major benefit of living below your means is gaining financial freedom. When you aren’t living paycheck to paycheck, you won’t feel that money stress. You won’t watch your credit card debt continue to climb upwards. You may, however, see your savings grow.

Living beneath your means can help you be a responsible spender and saver. Achieving this financial discipline will give you a feeling of control and confidence, and it can also open the door to more possibilities.

4. Having a Healthier Lifestyle

Living below your means typically gives you the room to be more mindful about both your spending and your lifestyle. When you watch your pennies, you’re more likely to make meals at home, which can be healthier and have more reasonable portion sizes than, say, a stuffed pizza or bucket of fried chicken delivered to your door.

You may also avoid high-priced gas or Ubers and walk or bike more, which is better for you and the planet.

5. Less Stress and Worry About Money

A recent survey found that 73% of Americans said their number-one worry was, not too surprisingly, money. When you are living below your means, you may well eliminate some of this stress. Having some room in your budget means you don’t have to break out your plastic to buy groceries or see your checking account balance head towards negative territory. Phew!

6. Spending Less Money on Consumerism and Materialism

When you are focused on living beneath your means, you may recognize that constant consumerism is bad for the planet and your pocketbook. More and more of us are embracing the minimalist way of life, bypassing new jeans in favor of thrift-shop pairs. Same goes for cookware, furniture, and books.

Reduce, reuse, recycle is a mantra that’s gaining ground. Too often, our need for new goods is short and they end up in a landfill, where they never die. Buying used can help prevent this while padding out your savings.

7. Having Funds for a Rainy Day…or a Sunny One

Maybe your favorite armchair’s upholstery rips. Wouldn’t it be nice to have funds available to fix it without feeling money anxiety? Or perhaps the kids would love an overnight stay at a lodge with a water park. If you have been living below your means and setting aside some cash, this may be your moment to forge ahead.

That’s where your rainy day fund or splurge savings come in. Neither of these situations are good uses of an emergency fund, but they can be worthwhile expenses drawn upon other cash cushions.

Recommended: Ways to Be a Frugal Traveler

8. Having the Ability to Build Wealth

When you live below your means, you have a surplus of cash that you can invest to build wealth. One smart move: If your employer has a 401(k) program, sign up. Money will be swept from your paycheck (before you even see it) into a retirement investment account. This is an example of paying yourself first and is also one of the best ways to build future wealth.

Another idea: If you get a raise (nice work!), invest it rather than amping up your spending to account for the extra money, which is called lifestyle creep. Also, if you are not living paycheck to paycheck, when you get a windfall (say, a tax refund), you can also invest that, rather than using it to buy necessities.

10. Developing a Stronger Money Mindset

Quick, how do you think about money? With shame, because of debt burdens? Or with pride and contentment, knowing you have cleared the deck and are even socking away some money by living below your means? The more you take control of your finances and improve your money mindset, the better your outlook on life is likely to be.

11. Having Financial Security

When you live below your means, you know you can handle bills without worry and dread over late notices, collection agency phone calls, fees, and service interruptions. Living on a leaner budget also means you can save extra dough for unexpected expenses that pop up. These might include, for example, new clothes for your college roommate’s wedding or fees for a professional class you really want to take.

By living below your means, you are likely taking a giant step or two toward achieving financial security and not feeling on the brink of money trouble.

12. Being Able to Invest Your Money

This is empowering. When you have some extra cash, contact a financial advisor (ask friends and relatives for a referral or see if your bank has one on the team) and consider investing in the stock market, which can be both fun and financially wise.

Historically, the market returns approximately 10% per year, which can boost your long-term savings, such as your retirement fund.

Tips for Living Below Your Means

If you’re convinced of the value of living beneath your means, the next step can be to take action to do so. Here are some strategies to make that happen.

Tracking All of Your Spending

Recording where your money goes is the first step to living below your means. For one month, track every dollar that leaves your wallet, from a tip at the coffee place to a gift for your sister. Not just rent and gas, but also pharmacy co-pays, the juice you got on your way to work, and parking meter charges. Look into a free budgeting app to help you stay on task; many banks provide these for their clients, or there are plenty available online.

Budgeting

Once you know what you spend in a given month (including debt payments), compare this to your take-home income. Re-evaluate what you truly need and what can be eliminated in your quest to live below your means.

Some expenses are fixed, like a monthly mortgage or commuter fare. But others are more variable. Take a close look at grocery bills, streaming services, dining out, and shopping. Consider a town library card vs. buying books; making your own iced tea vs. spending $4 to have the barista pour one; and perhaps give up your gym membership in exchange for free online-taught workouts or jogging in a local park.

Recommended: The 50/30/20 Budget Rule, Demystified

Creating a Financial Plan

Take time to consider your lifestyle and goals; you can do this solo or with a financial planner. Things to consider are your short-, medium-, and long-term aspirations (from funding a wedding to building a robust retirement fund), boosting an emergency savings fund, having an investment portfolio, and possibly an estate plan.

When you trim expenses and live below your means, you can sock money away to achieve all this and more.

Downsizing

Could you consider downsizing? Moving to a smaller space or more affordable city, trading in your gas guzzler for a greener car? These moves can reduce the cost of your monthly needs and deliver the wiggle room in your budget you seek.

You might also consider selling things you no longer want or need, whether that’s gently worn clothing, furniture sitting in your basement, or an iPad you haven’t touched in months. Depending on the item, you might be able to sell it on eBay, Etsy, Facebook Marketplace, Poshmark, or thredUP, among others.

Eliminating Unnecessary Expenses

Get serious about axing unnecessary expenses. In addition to ditching a cappuccino-a-day habit, scroll through your monthly credit card statement and cancel any excess services. You may have forgotten how many streaming services you signed up for during the early days of the pandemic, or perhaps you are paying for a fax or postage service you almost never use, or a meal-kit plan that keeps raising its prices. Keep what you cannot part with, and trim the extras to bring your spending in line. It’s a key aspect of living within your means.

Having Multiple Streams of Income

While cutting costs is one way to help live beneath your means, another tactic is to increase your income. More money coming in, minus your current spending, should yield some spare cash. Perhaps you could take in a roommate for a while, or start a part-time gig (whether dog-walking or website design) in your free time. One of the benefits of a side hustle in bringing in extra funds.

Organizing Bills and Monthly Expenses

Above all, when learning to live below your means, stay organized at tracking money in and money out. Use an online finance tool (easy to find from your bank, in the app store, or online). This can help you always know where you stand financially as unexpected expenses and bills pop up.

Improving Your Money Mindset

Take stock of, and pride in, what you do day by day to live below your means. Recognize your progress, no matter how minor. Every dollar you don’t spend is helping you live below your means.

Hopefully, you can bid farewell to money shame (which can lead to overspending and still more money shame), FOMO, and spending regrets. You will be more aware of where your money goes and hopefully on a path to building wealth.

The Takeaway

Living below your means, or spending less than you earn, is possible with the right budgeting steps and a healthy money mindset. Following a trimmer budget on your existing income can help you put away funds for important milestones, from a 401k investment plan to a nest egg account for your first house. It can also help you get past living paycheck to paycheck and accumulating credit card debt.

To help you budget better and save more, it can be wise to have the right banking partner. When you open a bank account online with SoFi with direct deposit, you’ll have access to terrific tracking tools, a competitive APY, and no account fees, which can help your money grow faster. What’s more, our Checking and Savings account makes it easy to spend and save in one convenient place.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is considered living above your means?

Living above your means is defined as spending more money than you earn. Three signs of this pattern: Running out of money and having to use credit cards to get through the month; not having an emergency fund; and not having money in savings.

Why is it important to live below your means?

Living below your means is important for your mind and your finances. Instead of overspending, you’ll be able to set money aside for tangible goals, from a savings cushion to a college fund. When you conserve money rather than blowing it, you can reap the reward of watching it grow, building your wealth, and reducing your financial stress.

Does living below your means deprive you of fun?

Living below your means does not deprive you of fun. You can save for and budget for splurges like vacations and dining out; the important part is making that intentional and not going into debt. You’ll also find plenty to see and do for free or at a low cost, from bike rides to free town concerts.

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Photo credit: iStock/fotostorm

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. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Buying a car is often a major purchase, whether you opt for new ($48,000 on average) or used (typically about $26,000). If you’re in the market, you may well be exploring your financing options, which could include a loan. In fact, you may be deciding between a car loan and a personal loan.

If that’s your situation, it’s worth taking a closer look at your options and the pros and cons of each. Here, you’ll learn more about this topic, so you can make the best decision for your situation and needs.

Types of Loans That Can Be Used to Buy a Car

Can you use a personal loan to buy a car? Yes. But is it the right option? There are a few things to take into consideration when thinking about buying a car with a personal loan or a car loan.

•   Are you buying a new car or a used car?

•   Are you buying a car from a private individual or a dealership?

Are You Buying a New or a Used Car?

If you’re buying a new car from a dealership, the benefits of using dealer financing might outweigh the drawbacks. Automakers offer financing on cars purchased through their dealerships, with low or sometimes even 0% annual percentage rates (APRs) for well-qualified buyers in an effort to compete with banks and other financial institutions.

Is the Seller an Individual or a Car Dealer?

An individual who is selling a used car is not likely to offer financing, so a car buyer in that situation would likely need to find their own source of funds. As the name implies, a personal loan can be taken out for a variety of personal expenses — including to pay for a car. In this way, personal loans to buy a car can work well if you’re shopping from friends, neighbors, or other individuals.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Getting a Personal Loan for a Car

Funds from a personal loan can be more flexible than funds from an auto loan — they can be used not just for purchasing a car but for the other costs of owning a car as well.

Personal loans can be secured or unsecured, with either fixed or variable interest rates. If you choose to purchase a car with an unsecured personal loan, collateral is not needed. There is no asset for a lender to seize in the case of default, as with a secured personal loan, although lenders can pursue you in court.

Car buyers who have a personal loan approval in hand before they go to the dealership can negotiate, knowing exactly how much they can spend. If you don’t think your income would qualify you for an auto loan from a dealership, you could consider looking for personal loans based on income.

Refinancing a car loan with a personal loan might be an option in some cases. Perhaps your credit score was bad when you purchased your car, but you’ve built it since taking out your car loan and you can now qualify for a lower interest rate. Or you’d rather have a shorter-term loan than you currently have, and refinancing with a personal loan might accomplish that.

Recommended: How Does Collateral Work with a Personal Loan?

Determining the Value of a Car

Whether the car you’re considering is new or just new to you, there are a number of well-respected pricing guides to consult for an appropriate price range once you narrow down your car choices. Having an idea of the car you’re considering buying may give you more confidence while negotiating a price.

•   Edmunds offers a True Market Value guide.

•   Kelley Blue Book has suggested price ranges for various cars (particularly useful for used cars).

•   J.D. Power offers information about new and used cars, including classic cars.

•   Consumer Reports provides detailed reviews and reports about specific makes and models.

These resources simply provide a price range for the car you want. Calling car dealers for price quotes or estimates and looking for any purchase incentives or dealer financing offers are good ways to be prepared as you consider your financing options.

Pros and Cons of Using a Personal Loan for a Car

Once you know which car you want and what you can afford, how do you pay for it? If you’re considering different ways to get a car loan — and a personal loan is one option — there are some pros and cons to weigh. Here, details that can help when you know that you can use a personal loan to buy a car but wonder if it’s the right move.

Pros of Using a Personal Loan for a Car	Cons of Using a Personal Loan for a Car
Prequalification for a personal loan means you know exactly how much you can spend.	Capping your spending at the amount of your personal loan will limit the pool of cars you can afford.
You don’t need a downpayment.	Interest rate may be higher than for an auto loan.
Funds can be used for other expenses, not just the car purchase.	May be more difficult to qualify for than an auto loan.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

Pros and Cons of Using an Auto Loan To Buy a Car

In essence, a car loan works much like a mortgage. It’s a secured loan paid for in monthly installments, and the asset isn’t fully yours until the final payment is made. The car is the asset that secures the loan, which means if you default on payments, the lender could seize your car. The car’s title typically remains with the lender until the loan is paid in full.

Pros of Using an Auto Loan To Buy a Car	Cons of Using an Auto Loan To Buy a Car
May be easier to qualify because it’s a secured loan.	If you default on the loan, the lender can repossess your car.
Auto loans are structured specifically for vehicle purchases.	Lenders may restrict purchase to a newer car.
May be easier to qualify for an auto loan than a personal loan.	May need a good or excellent credit score to qualify for favorable interest rates.

Things to Consider When Using a Personal Loan to Buy a Car

After comparing the general factors of using a personal loan vs. using an auto loan to buy a car, you might want to look at some more specific things. “Can you get a personal loan for a car?” is a question that can be answered differently depending on your financial situation and other factors. Learn more about the ins and outs of personal loans for cars here.

Credit Score

Since a personal loan for a car is an unsecured loan, you typically need a higher credit score to qualify for a favorable interest rate. Unsecured loans are generally riskier for lenders than secured loans because there is no collateral to back the loan.

Bank Account

Having a bank account may make it easier to get a personal loan. Lenders tend to see a bank account as evidence that an applicant has sufficient cash flow to make payments. Getting a personal loan with no bank account may mean having a higher interest rate or less favorable terms — or both.

Interest Rate

Generally speaking, personal loan applicants who are approved for lower interest rates have higher credit scores. Personal loan interest rates tend to be higher than auto loan interest rates because there is no collateral to secure the loan.

Other Fees

Personal loan fees that potentially can be charged are usually higher than auto loan fees. Origination fees are one example — they’re commonly included in personal loans and can range from 1% to 10% of the loan amount. Some auto loans may include an origination fee, but the range is typically lower than the personal loan range, at 1% to 2% of the loan amount.

Loan Term

The term of a loan is the length of time the lender allows for repayment of the loan. Personal loan terms tend to be shorter than auto loan terms. One reason for this is due to the unsecured nature of a personal loan. If a lender doesn’t have an asset to secure a loan, they may want to make sure they get their money back as soon as possible. Personal loan terms typically range from two to seven years.

Collateral

Personal loans are usually unsecured, which means no collateral is required. As mentioned before, however, that tends to equate to higher interest rates and shorter terms than secured loans offer. Collateral gives a lender more confidence that the borrower is serious about repaying the loan.

Ease of Application and Approval

Online applications for personal loans are fairly common. Completing an online application is usually quick and easy, especially at the pre-qualification stage. After that, a lender will likely ask for more detailed information to move forward in the process.

At this point, the lender will likely run a hard credit check on your credit report, which will affect your credit score (in contrast to a soft credit check, which doesn’t affect your credit score). You may be asked what the purpose of the loan is, and you’ll need to fill out a complete loan application. Lenders will also ask you to provide proof of identity, Social Security number, and current address, and will verify your employer and income.

Down Payment

Typically, a down payment is not required when using a personal loan to purchase a car. This factor can be the deciding one for some people looking for auto financing. If you’re getting a personal loan for part of the cost of the car and paying for the remainder with your own funds, you could think of the latter as your unofficial down payment.

The Takeaway

Choosing what type of loan — auto loan or personal loan — generally corresponds to what type of car you’re buying, what interest rate and terms you might qualify for, and what works best for your specific financial situation. Getting prequalified for a personal loan before you begin shopping for a car may help direct your car search toward vehicles that are affordable and fit your lifestyle.

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

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

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

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

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

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.

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The value of a car depends on a lot of factors, from the make and model to age, condition, and mileage. How quickly you want to sell and where you live can also play a big part in how much money you get for your car.

It’s important to understand these factors as you appraise your vehicle. Here’s a closer look at resources you can consult as you determine how much your car is worth.

What Is a Good Price for My Used Car?

In 2023, the average used car price hovered around $29,000. Whether you’re able to sell your car for above or below that price will depend on a lot of things. First of all, mileage has a big impact on price. The more you’ve driven your car, the less it will be worth.

A car’s condition is also important. Are there repairs that have to be made or parts that need replacing? Does the car have an accident history? If so, the value of the car may be negatively impacted.

The older a car is, the more wear and tear it’s likely to have experienced. As a result, older cars usually cost less than newer counterparts.

Some factors that can impact car price are more surprising, such as where you live and how quickly you need to sell it. The weather in your area can take its toll on your vehicle. Harsh New England winters and salted roads, for example, can cause metal components to rust. Sunny climes have their own issues; too much sun can cause paint and other finishes to lose their luster.

Last, if you need to sell your car quickly, you may find yourself accepting less money than you would have if you’d the time to wait for a buyer willing to pay full value.


💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

Understanding the Different Estimated Values

There are a few different ways to calculate estimated car value. (Keep in mind, these terms apply only to cars you own outright; different calculations go into valuing a leased car.) Here’s a look the most common terms:

Market Value

The market value of a used car is a reflection of how much buyers are usually willing to pay for a given vehicle. It will depend on factors such as location, make and model, mileage, and condition. See below for resources to determine market value.

Recommended: How to Save Up for a Car

Trade-In Value

Trade-in value comes into play when you’re considering buying a used car or a new vehicle. It’s the amount of money a dealer is willing to give you for your old car that you can then put toward the purchase price of another vehicle.

The trade-in value is often lower than top market value. That’s because the dealer needs to turn a profit when they resell the vehicle.

If you’re trading in your car for a new or new-to-you model, your credit score will impact how much your next car really costs including interest. There is generally no baseline credit score required to qualify for auto financing, but lower scores will pay significantly higher interest rates. Similarly, higher credit scores will get better deals on auto leasing.

Recommended: What Credit Score Is Needed to Buy a Car?

Private Party Value

You may encounter the phrase “private party value” as you research how much your car is worth. This usually means the fair market value when selling your vehicle to an individual rather than a dealership.

Instant Trade-In Dealer Quotes

Brick-and-mortar dealerships and websites, such as Kelley Blue Book, Vroom, TrueCar, and Carvana, may offer instant cash or instant dealer trade-in quotes.

The process is similar to looking up the value of your vehicle online. You often need to share only a few details about your car, such as vehicle identification number (VIN) or your license plate number, and the company will come back to you with an offer of cash for your car.

Once you receive an offer, there will likely be an in-person follow-up to review your vehicle before you receive any money.

Recommended: What Is The Difference Between TransUnion and Equifax?

Common Car Value Estimate Resources

There are a variety of resources available where you can research car prices and estimate the value of your vehicle.

Kelley Blue Book

The Kelley Blue Book, or KBB for short, is an online resource for finding the value of new and used vehicles. It dates back to the 1920s, when the company published an actual blue book dealers would look at to establish pricing information and car values.

To research your car’s value, you can provide your vehicle identification number (VIN), license plate number, or year, make, model, mileage, and zip code. You can also input the equipment that is included on your vehicle and the color of your car to further narrow down the value.

Black Book

Similar to the KBB, Black Book offers VIN-specific valuations. However, it also integrates vehicle history report data from Autocheck, such as reported damage to the vehicle. The company then offers an adjusted valuation based on this information.

National Automobile Dealers Association

The National Automobile Dealers Association (NADA) provides resources for shoppers looking for new and used vehicles. Use the website to compare prices on similar vehicles to your own to help determine what the going market rates are. The company also provides shopping guides that can help you learn more about the car buying and selling process, and glean tips for what buyers are looking for in a used vehicle.

Edmunds

Edmunds offers an “Appraise My Car” tool that also allows you to search vehicle values by VIN, license plate number, and year, make, and model. The California-based company was founded in 1966 “for the purpose of publishing new and used automotive pricing guides to assist automobile buyers.”

Who Gives the Most Accurate Car Value Estimate?

Kelley Blue Book and Edmunds are two of the most widely used and trusted general reference sites when it comes to valuations of particular makes and models of used cars and trucks.

Each site may show different values for the same vehicle, but no site consistently provides higher or lower estimates than the other.

Car Brands With the Highest Resale Value

The brand of a car, also known as its make, can have a big impact on resale value. Some makes are more popular than others, often due to a reputation for safety, fuel economy, or durability.

According to research by iSeeCars, the following 10 cars had the lowest depreciation in 2023.

	Make and Model	5-Year Depreciation
1.	Porsche 911	9.3%
2.	Porsche 718 Cayman	17.6%
3.	Toyota Tacoma	20.4%
4.	Jeep Wrangler/Wrangler Unlimited	20.8%
5.	Honda Civic	21.5%
6.	Subaru BRZ	23.4%
7.	Chevrolet Camaro	24.2%
8.	Toyota C-HR	24.4%
9.	Subaru Crosstrek	24.5%
10.	Toyota Corolla	24.5%

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Importance of Add-On Options

Pricey add-ons, such as splash guards, alarm systems, and tinted windows, don’t always add value to used cars. In fact, once a car is two or three years old, they may have little effect on value at all.

Recommended: Does Net Worth Include Home Equity?

The Takeaway

The value of your car will change from year to year as it ages, and supply and demand shift. Staying on top of your car’s value can help you make informed decisions about your net worth, as well as decisions about when to sell or trade in your vehicle for a new car.

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.

With SoFi, you can keep tabs on how your money comes and goes.

FAQ

How do you estimate the value of a car?

You can estimate the value of your vehicle using online tools such as Kelley Blue Book, Edmunds, or Black Book.

How do I find the fair market value of my car?

You can estimate the fair market value of your vehicle using online tools such as Kelley Blue Book, Edmunds, or Black Book.

What is the difference between market value and fair market value?

Fair market value is an estimate of what a potential pool of buyers might pay, while the market value is what they are actually willing to pay.

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Photo credit: iStock/DjordjeDjurdjevic

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

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

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“In trust for” (ITF) and “payable on death” (POD) are two designations that you can use to pass on bank accounts or other financial accounts after you’re gone. The main difference between in trust for vs. payable on death is that the former has a trustee while the latter does not.

Which one you opt for can depend on your personal wishes for passing on those assets. Understanding how each one works can make it easier to choose between a POD vs. trust account when crafting an estate plan.

This guide will help you learn the pros and cons of each type of financial account and compare them.

What Is Payable on Death (POD)?

A payable on death account allows the owner to pass the assets in that account to a named beneficiary once they die. For example, you might open an online savings account and name your adult child as the beneficiary.

During your lifetime, you’d be able to use the account however you wish. You could make deposits or withdrawals, and the beneficiary would have no rights to the account. Once you pass away, the beneficiary would inherit the account from you. You can use POD designations with multiple bank accounts to name different beneficiaries.

How Payable on Death Works

Payable on death works by allowing the owner of a financial account to choose one or more beneficiaries to inherit the account. The account owner would fill out a POD form or beneficiary designation form with their bank or the financial institution that holds the account.

When the POD account owner passes away, the bank would be required to release any assets in the account to the individual or individuals named as beneficiaries. The beneficiary will typically need to present a death certificate first to prove that the account owner has passed away.

In a sense, payable on death is similar to designating a beneficiary for a 401(k) plan or Individual Retirement Account (IRA). For example, 401(k) beneficiary rules do not allow access to the account while the owner is alive. Once the owner passes away, however, the beneficiary would be entitled to receive all the funds.

Payable on Death Rules

The main rule to know about payable on death is that the beneficiary has no access to the money in the account until the account owner dies. So again, say that you name your adult child as the beneficiary to your savings account. Even though they’re listed as the beneficiary, they would not be able to go to the bank and withdraw money from the account as long as you’re still living.

Additional rules apply when there are multiple beneficiaries. All beneficiaries would be entitled to an equal share of the assets in the account. For example, assume that you have four children instead of just one. If you name all of them beneficiaries on a savings account, they’d each be entitled to 25% of the account’s assets when you pass away.

What Is In Trust For?

An in trust for, or ITF, account allows a grantor to designate a trustee who will manage financial assets on behalf of one or more named beneficiaries. The grantor is the person who owns the account; they can also be the trustee during their lifetime. The beneficiary is the person who will inherit the account assets when the grantor passes away.

After the grantor dies, the trustee can continue to manage the assets in the account on behalf of the trustee. An in trust for arrangement offers a greater degree of control than payable on death in this way: The trustee is obligated to carry out the wishes of the trust grantor.

Recommended: Putting Your House in a Trust

How In Trust For Works

An in trust for arrangement works by allowing the owner of a financial account or asset to establish a trust to hold those assets. In trust for can apply to savings accounts, checking accounts, or other bank accounts, as well as investment accounts.

The grantor sets the terms of the trust, and the trustee is responsible for ensuring those terms are carried out. For example, the grantor may specify that the beneficiary cannot receive assets from the account until they turn 30 or get married. The trustee would manage the assets in the account until either one of those events comes to pass.

In Trust For Rules

In trust for rules allow for flexibility, since the grantor can decide:

•   Who should serve as trustee

•   Who will be named as beneficiaries

•   How assets in the trust should be managed

•   When and how beneficiaries will have access to those assets.

An in trust for arrangement could allow the beneficiaries access to trust assets while the grantor is still alive, if that’s the wish of the grantor. Meanwhile, trustees are required to follow a fiduciary duty when managing trust assets. In simpler terms, they must act in the best interests of the beneficiaries.

If the trust is revocable, the grantor has the power to change its terms or revoke it while they’re living. Once they pass away, the trust becomes irrevocable and cannot be altered.

In Trust For vs. Payable on Death

When choosing between in trust for vs. payable on death, it might seem a little confusing since they both allow you to designate a beneficiary for financial accounts. Comparing them side-by-side can make it easier to see how they overlap and where they differ.

Similarities

First, consider the similarities:

•   Whether you designate a financial account as a POD vs. trust, the end goal is the same: to pass on assets in the account to one or more named beneficiaries. As the owner of the account, you have the power to decide who to name as a beneficiary to your accounts. If you’re creating an in trust for account, you can also choose who should act as trustee.

•   Whether you choose payable on death vs. in trust for, the assets in the account avoid probate. Probate is a legal process in which a deceased person’s assets are inventoried, any outstanding debts owed by their estate are paid, and remaining assets are distributed to their heirs.

Going through probate can be costly and time-consuming for heirs. Naming a beneficiary, whether it’s through an in trust for or POD arrangement, allows those assets to bypass the probate process.

Differences

Next, look at how these two kinds of accounts vary

•   The main difference between a beneficiary in trust vs. payable on death account is that one has a trustee and the other doesn’t. When you name a trustee, you’re essentially choosing someone to manage assets on behalf of your beneficiary rather than handing them over directly.

The upside is an in trust for arrangement allows you to have greater control over what happens to the assets that you’re passing on. Setting up an in trust for arrangement usually requires a little more paperwork than establishing a POD account.

Depending on the value of the assets in question, you might need an estate planning attorney’s help to set up an in trust for account.

Pros and Cons of POD

Payable on death accounts have advantages and disadvantages. Here are the main benefits to know:

•   Account owners can decide who gets their assets, without needing to include them in a will.

•   Beneficiaries can bypass the probate process.

•   Naming beneficiaries means that heirs don’t have to go looking for lost bank accounts when you pass away.

Are there some cons? It depends.

•   If you’re the account owner, you may appreciate the fact that you can leave assets to heirs and still have the use of them during your lifetime.

•   Beneficiaries, on the other hand, may be unhappy about having to wait to gain control of those assets until you pass away.

Pros and Cons of In Trust For

In trust for arrangements have similar pros and cons. On the plus side:

•   You’ll be able to pass money on to named heirs. If you’ve ever been in a situation where you’re trying to track down unclaimed money from deceased relatives, then you might appreciate an in trust for situation which would eliminate any questions about who gets what.

•   This kind of arrangement could also be helpful in situations where it’s likely that heirs may dispute the division of assets. By creating an in trust for agreement, you can decide who will get the assets, who will manage them as trustee, and when beneficiaries can receive the assets.

•   Again, both POD and in trust for accounts can be excluded from probate.

Also be aware of the potential cons:

•   Trusts can be costly to establish if you’re working with an attorney.

•   The trustee is also entitled to collect a fee for overseeing the trust, which can add to the total cost.

Recommended: What Is the Difference Between Will and Estate Planning?

The Takeaway

In trust for and payable on death are designed to make the process of passing on bank accounts and other financial accounts easier. You might consider setting up either one if you’d like to ensure that your assets go to the right people when you pass away. Your bank accounts typically have value, and you probably want to make sure that those assets you tended to during your lifetime get into the hands of the right people with a minimum of effort and expense.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Is In Trust For or Payable on Death better?

Whether it’s better to choose in trust for vs. payable on death can depend on the specifics of your situation. In trust for is usually better when you want to maintain a greater degree of control over the financial assets that you’re passing on. Payable on death may be preferable when you simply want to ensure that a specific beneficiary inherits a financial account.

Is ITF the same as POD?

ITF stands for in trust for, which is an arrangement in which a grantor establishes a trust to hold assets on behalf of one or more beneficiaries. POD stands for payable on death, which means that assets in a financial account are payable to one or more named beneficiaries when the account owner passes away.

What is the difference between In Trust For and a beneficiary?

In trust for means that a financial account or asset is being held in trust on behalf of one or more beneficiaries. A trustee is responsible for managing the assets for the beneficiaries, according to the terms set by the person who created the trust. A beneficiary is someone who stands to benefit financially from the death of another person, either by inheriting assets or receiving proceeds from a life insurance policy.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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 article is not intended to be legal advice. Please consult an attorney for advice.

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