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Looking to buy a manufactured home, a boat, or a piece of equipment for your business? You may need a chattel mortgage.

Chattel mortgages are used to finance movable assets separately from the land they occupy. They come with a higher cost than a traditional mortgage, so manufactured home dwellers who qualify for a standard mortgage will save money by choosing that route. (Note: SoFi does not offer chattel mortgages at this time. However, we do offer many conventional loan options.)

Here’s what you need to know about how chattel loans work and when you might want to look for alternative financing.

What Is a Chattel Mortgage?

First of all, a chattel mortgage is used for personal property, not real property. Real property includes land and property that cannot be easily removed from the land.

When a chattel mortgage is used for a large, movable asset like a manufactured home — called a mobile home before June 15, 1976 — or a piece of equipment (the “chattel”), the asset is held as collateral on the loan. If the borrower defaults on the loan, the lender can recoup costs by selling the asset.

A chattel loan may have a lower interest rate than an unsecured personal loan but a higher rate than a traditional mortgage.

How Does a Chattel Mortgage Work?

Chattel mortgages are used in two main instances: when an asset can be moved or when the land the asset sits on, or will, is leased. (In fewer cases, a chattel loan may be used when a borrower doesn’t want to encumber their owned land with a loan, as when land is owned jointly in a trust.)

Applying for a chattel loan is similar to applying for other types of loans, such as home equity loans and personal loans. The lender will look at your creditworthiness and ability to repay the loan before making a decision.

Chattel loans are typically small, with relatively short terms but usually require no appraisal, title policy, survey, or doc stamps (the documentary stamp triggers a tax in certain states).

Recommended: First-Time Homebuyer Guide

What Are Chattel Loans Used For?

Here are some of the most common applications for chattel loans.

Manufactured Homes

Manufactured homes are built in a factory on a permanent chassis and can be transported in one or more sections. Formerly known as mobile homes, they’re designed to be used with or without a permanent foundation but must be elevated and secured to resist flooding, floatation, collapse, or lateral movement.

Many are titled as personal property. Manufactured housing that’s titled as personal property or chattel is only eligible for chattel financing.

When a manufactured home is titled as chattel, you’re also going to pay vehicle taxes to the Department of Motor Vehicles instead of property taxes.

Many consumers may encounter a chattel loan at the sales office of a manufactured home builder. They’re convenient with quick closing times but come with a higher interest rate and a shorter term than most traditional mortgages.

This makes the financing cost of the manufactured home high, even if the payment is low, thanks to the lower cost of a manufactured home compared with a site-built home. Around 42% of loans for manufactured homes are chattel loans, according to the Consumer Finance Protection Bureau.

When you own a manufactured home and rent the land it occupies, such as in a mobile home park, you will need a chattel mortgage, except when an FHA Title I loan is used.

Tiny Houses

A chattel mortgage may be used for tiny house financing when the tiny house isn’t affixed to a permanent foundation and/or when the land is leased.

Tiny houses are usually too small to meet building codes for a residential home, so even if the home is on a foundation and on owned land, a traditional mortgage is almost always out of the question. Even if Fannie Mae or the FHA allows the property, the lender won’t.

Tiny houses on foundations are usually classified as accessory dwelling units.

Vehicles

A chattel loan may finance assets that aren’t permanently affixed to the property, such as vehicles. Dump trucks and construction vehicles may qualify.

Equipment

A chattel loan can be used to purchase large equipment for a business, such as a forklift or a tractor. Even livestock can be purchased with a chattel loan.

How Much Does a Chattel Mortgage Cost?

Chattel mortgages are more expensive than many other different mortgage types. The Pew Charitable Trusts concluded that chattel loans were substantially more expensive than non-chattel loans. Owners of manufactured homes would spend thousands more in interest compared with a traditional mortgage.

These types of mortgages aren’t being purchased by Fannie Mae or Freddie Mac on the secondary mortgage market. When a conventional mortgage is purchased by one of these entities, the loan originator obtains more liquidity and can provide more loans to more people. This drives the cost of the mortgage down.

A chattel mortgage, on the other hand, must stay on the books of the lender, making the loan riskier and more expensive.If you qualify, you might want to consider refinancing your chattel mortgage into a traditional mortgage.

Recommended: Home Loan Help Center

Chattel Mortgage vs Traditional Mortgage

To qualify for a conventional or government-backed mortgage instead of a chattel mortgage, you must own the land your home sits on, the home must be permanently affixed to a foundation, and it must have at least 400 square feet of living space (600 for Fannie Mae’s conventional loan for manufactured homes).

Mobile homes built before June 15, 1976, will not qualify for a mortgage loan. A personal loan is about the only option.

You must also meet all other requirements set forth by the lender to qualify for a traditional mortgage. A mortgage calculator tool can help with this.

For some types of assets, a chattel mortgage may be a good option to consider. Take a look at the major differences.

Pros and Cons of a Chattel Mortgage

A chattel mortgage is more expensive than a traditional mortgage, so anyone who can qualify for a traditional mortgage may wish to pursue that option first. It’s not all bad news for chattel mortgages, though, especially for other types of property where a chattel loan is desirable.

Consumer Protection and Chattel Mortgages

Chattel mortgages on manufactured homes are a special concern to the Consumer Financial Protection Bureau because that type of housing:

•   Serves an important role in low-income housing

•   Is typically taken on by financially vulnerable people

•   Has fewer consumer protections

Manufactured home sellers often have an on-site lender where borrowers can walk away with a chattel loan the same day as the home purchase. In certain scenarios, though, better financing options might be available.

The Takeaway

Buying a manufactured home or a piece of heavy equipment? A chattel loan could be the answer. If, though, you are buying a manufactured home and own the land, a traditional mortgage makes more sense than a chattel mortgage.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Where can I get a chattel loan?

Lenders specializing in chattel or manufactured housing loans will offer this type of loan. You may be offered an option when at the sales office of a manufactured home builder.

How much does a chattel mortgage cost?

The interest rate of a chattel mortgage could be several percentage points higher than that of a standard mortgage loan. Compared to a traditional mortgage, owners of manufactured homes might have to spend thousands more in interest.

What happens at the end of a chattel mortgage?

When a chattel mortgage is paid off, the borrower receives legal title to the property or asset borrowed against. It’s also possible for landowners with permanently affixed manufactured homes to refinance into a traditional mortgage to end their chattel loans.

Is a chattel mortgage tax deductible?

A chattel mortgage qualifies for the same tax deductions that a traditional mortgage does. This includes a deduction on mortgage interest paid throughout the tax year.

Photo credit: iStock/MicroStockHub

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q126-116

Car refinancing is a financial tool that allows you to change the terms of your existing auto loan. It can offer benefits such as lowering your monthly car payment and reducing the interest you pay, but it also comes with potential drawbacks, such as added costs and longer loan terms. Below, we’ll explore what car refinancing entails, its advantages and disadvantages, and alternative options to help you make the best choice for your financial situation.

What Is a Car Refinance?

Car refinancing involves replacing your current car loan with a new one, typically from a different lender. You use the new loan to pay off the balance of your existing loan, and you begin repaying the new lender based on updated terms.

The main goal of car refinancing is typically to secure better loan terms, such as a lower interest rate, reduced monthly payments, or a shorter loan term. But refinancing also comes with costs and risks, so it’s important to weigh the benefits and drawbacks carefully before you jump in.

Pros of Refinancing a Car Loan

Here’s a look at some of the key benefits of refinancing your current auto loan.

You May Reduce Your Rate.

A major pro of refinancing is the potential to secure a lower interest rate. If interest rates have decreased since you took out your original loan or your credit score has improved, refinancing could help you score a better rate and lower the total interest you pay over the loan’s life. Also, if you took out dealer financing and didn’t shop around for a loan when you bought your car, you may be paying a higher rate than necessary. Reducing your interest rate by just two or three percentage points could help you save over the life of your loan.

Recommended: Smarter Ways to Get a Car Loan

You Can Lower Your Monthly Payment.

Refinancing can also decrease your monthly payments, either by lowering your interest rate, extending the loan term, or both. This can free up funds in your budget for other expenses, providing much-needed financial relief. It can also keep you from falling behind on your payments, which can lead to late fees and negatively impact your credit.

Just keep in mind that going with a longer term can also have drawbacks, as it can incur higher overall costs (more on that below).

You Might Be Able to Access Quick Cash.

Some lenders offer cash-out auto refinance loans using your car’s equity (the value of your car minus the amount you owe on it). On top of the new loan that pays off your current one, you receive a lump sum of cash based on your equity. For example, if your car is worth $15,000 and you have $8,000 left on your loan, you might get a refinance loan for $11,000 and take $3,000 in cash. You’ll pay interest on the full $11,000, and cash-out refis come with some risks, so, in general, you should only consider this option for financial emergencies or to pay off high-interest debt.

You Can Change Your Loan Terms.

Refinancing may allow you to switch from a variable interest rate to a fixed rate, offering more stability and predictability. It can also allow you to modify your loan term to better suit your financial circumstances. For example, if your income has increased or your monthly expenses have decreased since you took out the original loan, you might be able to refinance for a shorter term and pay off your loan earlier than you originally planned.

You Can Remove a Cosigner.

If your initial auto loan required a cosigner, refinancing can allow you to remove them once your financial situation improves. This can simplify your financial obligations and release your cosigner from sharing responsibility for your auto loan.

Cons of Refinancing a Car Loan

If you are debating whether to refinance your car loan, you’ll also want to keep these potential downsides in mind.

You Could Pay More in Interest.

If you refinance to a longer loan term to lower your monthly payment, you’ll likely end up paying more in interest over the life of the loan. Even scoring a lower interest rate may not make up for the additional months of interest you’ll pay. While the short-term relief may be helpful, it may not be worth the added cost.

Refinancing Comes With Fees.

Refinancing is generally not free. Your new lender may charge an application or origination fee, and your current lender may charge a penalty for paying off your loan early. In addition, your state may charge a fee to re-register your car or transfer the title after refinancing. These fees can diminish or eliminate the potential savings of refinancing.

You Could End Up Upside Down.

Refinancing to extend the term of your car loan or cash out equity could put you in a position of owing more than what your car is worth. This is known as negative equity or being upside-down on a loan. This can be problematic if you need to sell the car or if it’s totaled in an accident.

For example, if you want to trade in or sell your vehicle, you’ll need to cover the difference between what the buyer/dealer pays and what you owe your lender before you can transfer the title. If your car is totaled, your insurance agency will pay out the value of your vehicle. However, you’ll still owe the full amount of the loan (a higher amount) to your lender.

It Can Impact Your Credit Score.

Refinancing triggers a hard credit inquiry, which will appear on your credit reports and can temporarily lower your credit score. While the impact is usually minor and short-lived, it’s important to consider if you’re planning other financial moves, such as getting a mortgage or personal loans, in the near future.

There Are Limited Savings for Older Loans.

Generally, if you have less than 24 months remaining on your car loan, the potential savings from refinancing may not justify the effort and cost. You typically pay the most interest in the first few years of the loan, which limits the benefit of refinancing toward the end of the repayment period.

Alternatives to Car Refinancing

If refinancing doesn’t align with your financial goals, there are other ways to manage your car-related debt.

Balance-Transfer Credit Card

If your lender allows it, you may be able to transfer your auto debt to a balance-transfer credit card. If you can qualify for a transfer card with a 0% introductory rate and pay off the balance within the promotional timeframe (typically 12 to 21 months), you could save significantly on interest. You might even earn rewards from your new credit card in the process.

However, balance transfers often come with fees, usually 3% to 5% of the transferred amount. And if you fail to pay off the balance before the promotional period ends, the interest rate can jump, potentially costing you more than your original loan. This option generally works best for small loan balances and disciplined borrowers.

Personal Loan

A personal loan can be used for a variety of expenses, including paying off your car loan. These loans often come with fixed interest rates and predictable payment schedules, making them a possible alternative to auto refinancing. Going this route also gives you the option of applying for more than you need to pay off the car loan and using any additional cash you borrow for other expenses.

However, personal loans often have higher interest rates than auto loans, particularly for borrowers with average or below-average credit scores. Before opting for a personal loan, you’ll want to compare rates and calculate whether this approach would save you money compared to your existing loan.

Recommended: Personal Loan Savings Calculator

The Takeaway

Car refinancing can be a smart financial move under the right circumstances, such as securing a lower interest rate or reducing your monthly payments. However, it’s not without potential downsides, including fees, extended loan terms, and the risk of negative equity.

If refinancing doesn’t seem like the best fit for your situation, alternatives such as balance-transfer credit cards or personal loans may offer other ways to manage your car loan or give you more financial flexibility.

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 are the advantages of refinancing your car?

Refinancing your car offers several advantages, such as lowering your interest rate, which reduces the total cost of the loan. It can also decrease your monthly payments by extending the loan term, improving your cash flow. In addition, refinancing provides an opportunity to change your loan terms, such as switching from a variable to a fixed interest rate or removing a cosigner from the loan. However, refinancing also comes with costs and risks, so you’ll want to weigh the pros and cons before you proceed.

When should you refinance a car loan?

You might look into refinancing your car loan when interest rates have dropped, your credit score has improved, or you need to lower your monthly payments. Refinancing can also be a good option if you want to adjust your loan terms for more stability, such as moving from a variable to a fixed interest rate. However, it’s important to consider potential fees and ensure that the savings outweigh the costs before you proceed.

How soon can you refinance your car loan after purchase?

You can refinance your car loan as early as a few months after purchase, but it can be a good idea to wait at least six months to a year. This timeframe allows your credit score to recover from any temporary drop (due to the original lender’s hard credit inquiry). It also gives you time to establish consistent payments on the loan and shows potential refinance lenders that you are a responsible borrower. Also, some lenders require six to 12 months of on-time payments to even consider a refinancing application.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q126-049

Sometimes you need a loan for a venture that a traditional bank might not approve. In these instances, a peer-to-peer (P2P) loan might be what you’re looking for. Peer-to-peer lending, also known as social lending, gained popularity after the 2008 financial crisis. When banks stopped lending money as freely as they had in the past, potential borrowers had fewer loan options. At the same time, low interest rates meant lower returns from savings accounts or Certificates of Deposit (CDs).

Enter P2P lending sites. P2P lenders essentially cut out the middleman (banks and traditional lenders) and created a space for borrowers and investors to do business. Since then, the concept of lending person-to-person has taken off, with the rise of a number of peer-to-peer lending platforms.

Wondering if a P2P loan is right for you? Or if investing in P2P lending is a smart way to diversify your portfolio? Let’s take a look at some of the pros and cons.

What Is Peer-to-Peer (P2P) Lending?

P2P lending links up people who want to borrow money with individual investors who want to lend money. P2P lending sites like Prosper, Upstart, and Kiva — three prominent P2P lenders — provide low-cost platforms where borrowers can request loans and investors can bid on them.

The most common type of loan available through P2P lending is a personal loan, which provides borrowers with a lump sum of money they can use for virtually any purpose. However, other types of loans, including car loans, business loans, and home loans, are also offered.

Personal loan amounts offered on P2P platforms range anywhere from $1,000 to $50,000 and repayment periods are typically 12 to 60 months. Interest rates can vary widely, from around 6.20% to 35.99%, depending on factors including the individual’s credit history and perceived risk, as well as the purpose of a loan.

The lending platforms make money from serving as the intermediary in this process. In exchange for keeping records and transferring funds between parties, they charge a fee — typically 0.5% to 1.5% of the interest earned — to the investors lending the money. Some platforms also charge origination or closing fees to the borrowers, which typically range from 1% to 12% of the loan amount.

Is Peer-to-Peer Lending Safe?

The bulk of the risk of P2P lending falls onto investors. It’s possible that borrowers will default on their loans, and that risk increases if the investor opts to lend to those with lower credit ratings. If the loan were to go into default, the investor may not get paid back.

Further, P2P lending is an investment opportunity, and returns are never guaranteed when investing. There is the risk that investors could lose some or all of the amount they invest. Unlike deposit accounts with a traditional bank or credit union, P2P investments are not FDIC-insured.

How Does Peer-to-Peer (P2P) Lending Work?

The basic P2P lending process works like this: A borrower first goes through a quick soft credit pull with the P2P lending platform of their choice to determine initial eligibility. If eligible to continue, the lender likely will conduct a hard credit pull and then assign a borrower a loan grade, which will help lenders or investors assess how much of a risk lending to them might be. The borrower can then make a listing for their loan, including the interest rate they’re willing to pay.

Next, lenders can bid on the listing with the amount they can lend and the interest rate they’d be willing to offer. After the listing has ended, the qualified bids are combined into a single loan and that amount is deposited into the borrower’s bank account.

Peer-to-Peer (P2P) Lending Examples

Here are some examples of popular P2P lending sites:

•   Prosper: Prosper can provide loans in amounts anywhere from $2,000 up to $50,000. Loan terms are two to five years, and funding can happen in as little as a few days.

•   Upstart: Upstart is an AI lending marketplace that can offer borrowers loans of up to $50,000, with loan terms of either three or five years. It’s possible to check your rate in minutes, and most loans are funded within one business day after signing.

•   Kiva: Kiva connects borrowers in need of money to fund their small businesses with a network of lenders who aren’t seeking to make a profit. Kiva requires borrowers to get some funding from their social network. Once a certain threshold amount is met, their loan becomes available for public funding.

Peer-to-Peer (P2P) Lending for Bad Credit

It is possible to get a P2P loan with a bad credit score (meaning a FICO score below 580). However, those with lower credit scores will almost certainly pay higher interest rates.

Additionally, those with bad credit may have more limited options in lenders, though there are P2P lending platforms for bad credit. Many platforms have minimum credit score requirements, which tend to be in the range of fair (580-669) to good (670-739). For instance, Prosper requires a minimum score of 600.

If you have bad credit and are seeking a P2P loan, you might first work to improve your credit profile before applying. Or, you could consider getting a cosigner, which can increase your odds of getting approved and securing a better rate if you’re finding it hard to get a personal loan.

Peer-to-Peer (P2P) Lenders Fees

Peer-to-peer lending platforms can charge fees to both borrowers and investors. Which fees apply and the amount of these fees can vary from lender to lender.

A common fee that borrowers may encounter is an origination fee, which is typically a percentage of the loan amount. Other fees that borrowers may face include late fees, returned payment fees, and fees for requesting paper copies of records.

Investors, meanwhile, may owe an investor service fee. This is generally a percentage of the amount of loan payments they receive.

Recommended: Fee or No Fee? How to Figure Out Which Loan Option Saves You the Most

Pros of Peer-to-Peer (P2P) Lending

There are upsides to P2P lending for both borrowers and investors. However, the benefits will differ for both parties involved.

Pros of P2P Loans for Borrowers

•   Easier eligibility: The biggest advantage for a borrower getting a personal loan P2P is being eligible for a loan they might not have been able to get from a traditional lender.

•   Faster approval and competitive rates: P2P lenders might approve your loan faster and offer a more competitive rate than a traditional lender would.

•   Possible to pay off credit card debt: One way that people are using P2P loans is to crush their credit card debt. People with high credit card balances could be paying up to 24.37% APR or higher in interest charges. If they can wipe it out with a P2P loan at a lower interest rate, it can save them a lot of money.

•   Option to finance upcoming expenses: Those who are facing a lot of upcoming expenses might find it more cost-effective to take out a P2P loan rather than put those expenses on a high-interest credit card.

Pros of P2P Loans for Investors

•   Promising alternative investment opportunity: Some see P2P lending as a promising alternative investment. When you lend money P2P, you can earn income on the returns as the borrower repays you. Those interest rates can be a few percentage points higher than what you might earn by keeping your money in a savings account or a CD. While there is some risk involved, some investors see it as less volatile than investing in the stock market.

•   Option to spread out risk: P2P lenders also offer many options in terms of the types of risk investors want to take on. Additionally, there are ways you can spread the amount you’re lending over multiple loans with different risk levels.

•   Sense of community: For borrowers and investors, the sense of community on these sites is a welcome alternative to other forms of lending and investing. Borrowers can tell their stories, and investors can help give their borrowers a happy ending to those stories.

Cons of Peer-to-Peer (P2P) Lending

Though there are upsides to P2P lending, there are certainly drawbacks as well. These include:

•   Risk for investors: The biggest disadvantage of P2P lending is risk. Since P2P are unsecured loans, there’s no guarantee an investor will get their money back. The borrowers on a P2P site might be there because traditional banks already declined their application. This means investors might need to do extra legwork on their end to evaluate how much risk they can take on.

•   Potentially higher rates for borrowers: While P2P lenders might approve a loan that a traditional bank wouldn’t, they might offer it with a much higher interest rate. In these cases, it could be wiser to search for alternatives rather than accept a loan with a costly interest rate.

•   Relatively new industry with evolving regulations: Then there’s the risk of P2P lending itself. The concept is still relatively new, and the decision on how best to regulate and report on the industry is still very much a work in progress. Some lending platforms have already hit growing pains as well. As regulations around the industry change and investors are tempted elsewhere, the concept could lose steam, putting lending platforms in danger of closing.

Recommended: 11 Types of Personal Loans and Their Differences

Peer-to-Peer (P2P) Loans vs Bank Loans

When it comes to P2P loans compared to bank loans, the biggest difference is who is funding the loan. Whereas bank loans are funded by financial institutions, P2P loans are funded by individuals or groups of individuals.

Further, bank loans tend to have more stringent qualification requirements in comparison to P2P loans. This is why those with lower credit scores or thinner credit histories may turn to P2P lending after being denied by traditional lenders. In turn, default rates also tend to be higher with peer-to-peer lending.

The Takeaway

Peer-to-peer lending takes out the middleman, allowing borrowers and investors to do business. For borrowers, P2P loans can offer an opportunity to secure financing they may be struggling to access through traditional lenders. And for investors, P2P loans can offer an investing opportunity and a sense of community, as they’ll see where their money is going. However, there are drawbacks to consider before getting a P2P loan, namely the risk involved for investors.

Whether you’re getting a P2P loan or a loan from a traditional lender, it’s important to shop around to find the most competitive terms available to you.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is peer-to-peer lending safe?

There are certainly risks involved in peer-to-peer lending, particularly for investors. For one, borrowers could default on their loan, resulting in investors losing their money. Additionally, there’s no guarantee of returns when investing.

What is peer-to-peer lending?

Peer-to-peer lending is a type of lending wherein individual investors loan money directly to individual borrowers, effectively cutting out banks or other traditional financial institutions as the middlemen. This can allow borrowers who may have been denied by more traditional lenders to access funds and provide investors with a shot at earning returns.

What is an example of peer-to-peer lending?

Some popular peer-to-peer lending sites include Prosper, Upstart, and Kiva. Borrowers can use peer-to-peer loans for a variety of purposes, such as home improvement, debt consolidation, small business costs, and major expenses such as medical bills or car repairs.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q126-066

If you are renting a home, renters insurance can cover your personal belongings against things such as fire damage or theft. In exchange for that protection, you pay a premium to your insurance provider.

Finding affordable renters insurance might be a priority if you’re living on a tight budget. Numerous companies offer affordable renters insurance that can provide you with the coverage you need for less money.

What Is Renters Insurance and How Does It Work?

What is renters insurance? If you live in an apartment, the owner of the building likely has landlord insurance, which covers damage to the property. This doesn’t offer protection to you as a tenant or your property. For this, you need renters insurance, which is also sometimes referred to as tenant insurance.

You’re typically not obligated to buy a policy unless your landlord requires renters insurance as part of your lease agreement. If you live with roommates, each of you can individually decide if you want to have this coverage.

Personal insurance planning is important for protecting yourself financially. Having renters insurance is a good idea if you’re concerned about your personal possessions being damaged or stolen, or about other situations that could result in financial losses.

Recommended: What Does Renters Insurance Cover?

What’s Included in Renters Insurance Coverage?

If you’re paying for renters insurance, it’s important to know what’s covered and what’s not, as this varies depending on the insurer and your level of coverage. Generally, renters insurance offers three layers of protection:

•   Personal property

•   Liability

•   Additional living expenses

The personal property coverage in a renters insurance policy is designed to protect your belongings against damage from wind, smoke, fire, vandalism, theft, explosions, and other disasters listed in the policy. Some types of water damage are covered, but you may need to purchase separate coverage for flood and earthquake damage.

Personal liability coverage protects you against lawsuits related to any injuries sustained by other people on your property. For example, if you host a party at your apartment and someone trips and injures their ankle, your liability protection could pay their medical bills.

Additional living expenses coverage can pay your costs if your apartment is damaged and becomes unlivable. Your policy can reimburse you for hotel expenses, meals, or temporary housing until you can move back in.

Renters insurance can cover you at home and away. If you take personal belongings on a trip, for example, and they’re damaged by a covered danger, you can get reimbursed for them through your policy.

How Much Does Renters Insurance Cost?

If you’re searching for affordable renters insurance for apartments, it’s important to understand the costs involved. But just how much is renters insurance?

There are two costs to consider: premiums and deductibles. Your renters’ insurance premium is the amount you pay to the insurance company, typically monthly, to receive coverage. Your insurer bases your premium on several factors, including your location, your deductible, your coverage limits, and your claims history.

According to a 2026 Forbes report, the average premium for renters insurance is $153 a year for a policy with $15,000 of personal property coverage. A policy with $30,000 of personal property coverage costs an average of $202, and a policy with $50,000 costs an average of $269. Costs can vary widely by state. For $15,000 of personal property coverage, renters pay the highest rate in Rhode Island, where it averages $346 per year, and the lowest in Wyoming, where premiums average $89 annually.

If you make a successful claim, you’ll also pay a renters insurance deductible. This is the amount you pay before the insurance company pays toward your covered damages. In this aspect, renters insurance is no different from auto, health, or homeowners insurance.

Different types of deductibles have different costs. Opting for a higher deductible typically results in a lower monthly premium, but you should make sure the deductible you choose will be easily affordable on your budget if you file a claim.

Recommended: Cheapest Renters Insurance Companies: Find Affordable Coverage

Most Affordable Renters Insurance Policies

Some renters’ insurance policies are more budget-friendly than others. When evaluating affordability, it’s important to consider the premium and deductible, as well as the coverage you’re getting in return.

To help you in your search, take a look at the average annual premiums for 10 large renters insurance companies that operate across various U.S. states. The rates are for a tenant with $30,000 in personal property coverage and $100,000 in liability coverage.

Source: Quadrant Information Services

*USAA renters policies are available only to active military, veterans, some federal workers, and their families.

None of these policies cost more than $18 per month but remember that these are baseline quotes generated using a hypothetical scenario. Your actual quotes will depend on where you live, the coverage limits and deductible you choose, and your claims history. Your insurance company may also consider your credit score when calculating your premium. Adding optional coverage, such as bed bug endorsement or cyber insurance, can raise your premium costs.

How Do You Find Affordable Renters Insurance?

Finding affordable renters insurance for apartments means doing some comparison shopping. You generally have two options for purchasing renters insurance: traditional insurers and online insurance companies.

Traditional insurance companies offer face-to-face interactions and personalized advice. They may also have the local knowledge needed to understand specific risks and insurance needs where you live.

Online insurers allow you round-the-clock access to quotes and customer service and often offer competitive rates due to their lower operational costs. It may also be easier to compare different insurance options online.

When comparing your options for affordable renters insurance, ask yourself these questions:

•   Can I bundle renters insurance with an existing insurance policy?

•   How much coverage do I need?

•   What kind of premiums and deductibles will fit my budget?

•   How easy would it be to file a claim if necessary?

•   What kind of customer support is available?

•   Are there any discounts or other incentives that could save me money?

•   What is the insurer’s overall reputation?

Reading online reviews of renters insurance companies can give you an idea of their pros and cons and how likely their customers are to recommend them. You can also get free quotes online to estimate your total costs before purchasing a policy.

The Takeaway

If you’re renting an apartment and something unexpected happens, having the right renters insurance coverage in place can give you financial protection against specific risks. Policies typically have three parts: property coverage in case of damage or theft, liability coverage in case someone sustains injuries on your property, and loss of use in case you need to find housing elsewhere while repairs are made to your rental. The national average premium for renters insurance is $171 annually.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

FAQ

What does renters insurance cover?

Renters insurance covers your personal belongings if they are damaged, stolen, or destroyed. It also provides liability protection if someone is injured in your rental and can cover temporary living expenses if your home becomes uninhabitable.

How can I find the most affordable renters insurance?

To find the most affordable policy, compare quotes from multiple insurers, consider coverage limits, and look for discounts or bundling options. Generally, increasing your deductible will decrease your premium, but make sure you keep it within budget.

Is basic renters insurance enough for most people?

Basic renters insurance often provides sufficient protection for typical personal belongings and liability. Review your specific needs to ensure adequate coverage for high-value items or special circumstances.

Photo credit: iStock/fizkes

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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

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Defensive driving courses aren’t just for motorists hoping to shave points off their driving record. For some people, especially teens and seniors, taking a defensive driving class can earn them discounts on their car insurance premiums.

But what is defensive driving? This guide looks at what these courses offer, who might benefit from them, and what kind of insurance discounts may be available to course participants.

What Is a Defensive Driving Course?

It isn’t the same thing as driver’s ed. In defensive driving, drivers learn strategies specifically designed to keep them safer on the road.

Experienced drivers can think of it as a refresher course or a tune-up of their existing skills. They may even learn that some traffic laws have changed since they first got their license. New drivers, meanwhile, can acquire strategies to reinforce and improve on what they recently learned, with a focus on staying alert to potential hazards.

Drivers often take a defensive driving course (sometimes referred to as “traffic school”) to remove violation points from their driving record and keep their insurance costs from going up. Other drivers may be able to use a defensive driving course to lower their car insurance costs.

These days, anything that offsets high gas prices and car maintenance costs is welcome.

Recommended: How to Get Car Insurance

Who Is Eligible for a Defensive Driver Training Discount?

Eligibility requirements for a defensive driver training discount vary by insurance company and by state. Some insurers may limit discounts to older drivers (starting at age 50 or 55), while others make discounts available to drivers below age 25.

It’s always a good idea to sit down for a personal insurance planning session once a year. You can ask your insurance agent whether there’s a defensive driver discount you might qualify for. You can also check the list of available discounts on your insurer’s website.

An insurer may want you to take a particular driving course that it has pre-approved. If you’re looking for a discount, be sure you’re familiar with all the requirements before signing up for a class. As anyone familiar with how car insurance works can tell you, it pays to read the fine print.

Recommended: Auto Insurance Terms, Explained

Defensive Driving Insurance Discount Exclusions

Don’t count on getting a discount if you’re taking a court-ordered defensive driving course or hope to have points removed from your driving record. Taking a defensive driving class can help keep your premiums from increasing (and/or lower your fine) if you’ve gotten a ticket, but you probably won’t see an additional reduction.

Your age can also exclude you from receiving a discount. Some states require insurers to offer discounts to older drivers who take a course. But if it isn’t state-mandated, an insurance company may not offer this discount to any of its customers, regardless of their age or driving experience.

How Much Can You Save With a Defensive Driving Insurance Discount?

Defensive driving discounts can vary depending on the state you’re in and the insurance company you choose. But generally, if an insurer offers a discount, it’s between 5% and 20% and typically lasts three to five years.

How Can You Renew a Defensive Driving Insurance Discount?

Be sure to find out how long your discount will last, and mark that anniversary on your calendar. You’ll have to take another defensive driving course before that date, or you may lose your discount, and your premiums could increase.

What Happens in a Defensive Driver Training Class?

Defensive driving is generally defined as using skills to minimize risk and avoid car accidents. The focus in a defensive driving course is your and your passengers’ safety and the safety of the people (and critters) on the roads you travel.

State course requirements vary, but you can expect the class to last about six to 10 hours and cover topics such as speeding, common distractions, anger management, reaction times, driving under the influence (DUI), crash prevention, passing and parking techniques, and your state’s traffic laws.

And yes, there will be a test. It might be a comprehensive final exam or quizzes on each separate unit, but you’ll have to pass to complete the course.

Online vs In-Person Driver Training Classes

Defensive driver courses are available in person or online, so you can choose whatever suits you. Some states and insurance companies require you to take a specific pre-approved class to get a discount (or have points removed), so if that’s your goal, make sure you’re meeting those requirements.

Beyond that, it’s really a matter of preference. There are pros and cons to both types of classes. Taking an online course offers convenience and flexibility: You can take the class whenever your schedule allows. An online course may be less expensive, but with an in-person class, you can engage with the instructor and your classmates in a way that makes the information more meaningful and memorable.

Recommended: How Much Does Insurance Go Up After an Accident?

Why Take a Defensive Driving Course?

There are a few good reasons why someone might take a defensive driving course:

•   Earn an insurance discount. Auto insurance is often one of the highest costs of car ownership. Even with just a 10% discount every month for three years, the savings can be significant.

•   Improve driving skills. If you’re a newbie behind the wheel, you may learn some techniques and behaviors that can help keep you safe. And if you’ve been driving for decades, you might be surprised at what you’ve forgotten — or never learned.

•   Shave points from your record. Taking a class may reduce the cost of a traffic ticket or remove points from your record, potentially keeping your insurance premiums from increasing. (Each insurance company has its own way of determining how your driving record affects your rate.)

•   Because you have to. If you’re convicted of a DUI or another serious offense, your course may be court-ordered.

Car Insurance Companies That Offer Defensive Driving Discounts

Many traditional and online insurance companies offer defensive driving discounts, but the eligibility requirements and discount amount vary by state. Here’s a look at what some insurers offer.:

States That Offer Defensive Driving Discounts

Some states encourage or mandate insurance discounts for motorists who take a defensive driving course. Here’s a sampling of what’s available across the country.

California

Older drivers can qualify for reduced insurance premiums after successfully completing an approved course. California law allows insurers to determine the reduction amount. Customers with a poor driving record can be refused the discount.

Delaware

Drivers who complete a Delaware DMV-approved course are eligible to receive an insurance discount of up to 10% for three years. If they take a refresher course within 180 days of the end of that period, they may be eligible to receive a discount of up to 15% for the next three years.

Florida

Florida drivers 55 and older can qualify for a discount, the amount of which is determined by the insurer, for three years. The state’s mandated discount applies to all insurance companies. Contact your insurance agent for your discount amount and eligibility requirements.

New Jersey

New Jersey drivers who complete a defensive driving course approved by the New Jersey Motor Vehicle Commission can receive a discount that applies for up to three years. The discount does not apply to the state’s Driver Improvement Plan or Probationary Driver Program course.

New York

The state of New York has a mandatory three-year, 10% insurance discount for motorists who complete a defensive driving course.

Texas

Texas does not require insurers to offer a defensive driving course discount, but many insurers in the state do so to motorists who take a state-approved class.

Virginia

Insurance providers in Virginia must offer a discounted rate to drivers 55 or older who complete an approved driving course.

The Takeaway

Defensive driving courses can be a (relatively) painless way to get a discount on your auto insurance premiums of between 5% and 20%. And it could make you a better, safer driver. But before you sign up for a class, make sure it’s approved by the state and/or your insurer. Most insurance companies offer several different types of discounts to customers, so if you’re looking to lower your premiums, shop around and compare auto insurance quotes.

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

Is a defensive driving course worth it?

Defensive driving courses typically cost $25-$100. If you can get an insurance discount for taking a class, you might be able to make that back in savings in less than a year, and many defensive driving course discounts are valid for two or three years after you take a class. Another plus: You’ll likely come away with some improved driving skills.

Does a defensive driving course lower insurance in California?

Yes, drivers 55 or older in California can qualify for reduced insurance premiums after successfully completing a state-approved defensive driving course. A completion certificate is valid for three years.

How hard is the defensive driving test?

If you pay attention in class, your defensive driving exam (or unit quizzes) shouldn’t be too difficult. But if you’re concerned, there are practice tests available online that can give you an idea of what a test might look like.

Photo credit: iStock/ljubaphoto

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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

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