Apr
18
2025

How to Budget for a Baby

By | Budgeting & Goals, Family Finances, money | Comments Off on How to Budget for a Baby

Having a baby can fill your house with love. It also can take a toll on your finances.

And you can expect the costs to keep growing right along with your baby. In fact, according to a 2025 estimate, it can cost almost $30,000 a year to raise a child.

That means you’ll likely have to reconfigure your household budget through the years (and then contemplate higher education expenses). If you break down the process and do a little at a time, it can make the task less daunting.

Read on for tips on getting started with the budgeting-for-baby process.

Key Points

•  Raising a child can cost up to $30,000 or more a year, so assess household income after taxes and deductions for accurate budgeting.

•  Consider loss of income and benefits if a parent stays home.

•  Use the 50/30/20 budget rule for needs, wants, and savings.

•  Prepare for upfront costs like nursery furniture and hospital bills.

•  Child care is often the biggest ongoing expense.

Assessing Your Income

As you create your budget, begin by looking at your household income after taxes and other deductions come out of your paycheck each month. That’s the money you have to work with, not the gross amount.

Also, if one parent plans to stay home with the baby full- or part-time, plan your budgeting accordingly. Be sure to consider the loss of any non-cash forms of employee compensation, such as insurance and retirement contributions. If those go away, the amount of money in your bank accounts will likely drop, which is something to plan for.

Looking at Your Current Expenses

Some things won’t change at all, but there may be costs that will go down or go away after you have the baby. For example, the amount you spend on date nights, dinners out, and travel might be reduced for a while.

If one parent decides to stop working, their wardrobe budget might drop. But you’ll also be adding plenty of expenses. And then there are some forgotten expenses, like maintenance for your home, yard and car, you’ll need to factor in.

This is a good time to identify your priorities and be prepared to make some trade-offs to curb spending. For instance, can you live without some of those streaming subscription services? Can you make coffee at home instead of going out?

Planning Ahead For Recurring New Expenses

Here are some of the expenses that will often turn up once you become a parent.

Child Care

Typically, child care is the biggest ongoing expense for a family with a new baby. The cost will vary depending on where you live, the type of care you choose, and whether you need part-time or full-time care, but according to the Care.com 2025 Cost of Care Survey, national averages ranged from $343 per week for a child-care center to $827 for a full-time nanny.

Feeding

Even if you plan to nurse the baby, you’ll need to prepare for the possibility that breastfeeding might not work out and formula could become a regular expense. A BabyCenter study in 2025 found that formula can cost $222 or more a month.

When your baby starts on solid foods, typically at about 4 to 6 months old, you’ll add to that expense.

Diapers

The average baby uses 2,500 to 3,000 diapers in the first year. That could add up to about $839 to $1,000 a year in disposable diapers.

House and Car

Maybe you’re lucky enough to have an extra room in your home that’s ready to be transformed into a nursery. And maybe a baby car seat will fit into your current ride without a struggle.

But if that’s not the case, and you have to make some adjustments for your growing family, you may have to add more expensive house or car payments to your get-ready-for-baby budget.

Recommended: How to Manage Your Money Better

Miscellaneous Expenses

You’ll need to furnish a nursery for your baby, which can range from several hundred to several thousands of dollars. You’ll also need a car seat; stroller; high chair; toys and books; pacifiers, tiny outfits and socks; lotions, shampoos, and creams — the list goes on and on. This is where you can prioritize.

You may get some of these items at your baby shower, and friends and family might supply you with some hand-me-downs, which will help save money on clothes and cut costs. But there will still be plenty of items you’ll need to buy.

Preparing for Some Upfront Costs

Depending on your insurance coverage, you could be going home from the hospital with a bundle of joy and a bundle of bills. Check your health insurance plan to gauge what your costs could be. To give you a sense, many new parents end up paying about $3,000 in out -of-pocket costs for pregnancy and delivery.

The amount of your hospital bill will depend on a lot of factors, including the part of the country in which you live, the size and location of the hospital, the length of your stay, and how much extra care you or your baby might require.

You’ll also need some starter equipment — a crib, changing table, dresser, and a baby monitor, for instance.

Smaller ticket items include a diaper bag and pail, a baby bathtub, bedding, and towels. Here’s another place where hand-me-downs and resale shops can help you save.

Recommended: Savings Calculator

Ready, Set, Transition

Remember those current expenses you thought about letting go of, like fancy coffees and some streaming services? You don’t have to wait until the baby arrives to make changes. You might want to practice by giving your new budget a test run before your delivery date.

To take it a step further, if one parent plans to quit working, even for a short while, you could start living on just one salary a few months early and put the extra income into an emergency fund. That money could come in handy later when unexpected expenses crop up.

Recommended: 5 Ways to Achieve Financial Security

Overwhelmed? Take Baby Steps

Preparing for a new baby, especially your first, can be exciting. It also can be a little overwhelming.

Doing a few breathing exercises may help reduce any financial stress you’re feeling as you’re working on your budget. Starting now with baby steps could help get you on track well before your little one arrives.

The Takeaway

The cost of raising a child can be as much as $30,000 a year (or even higher). As you plan for parenthood, it’s wise to develop a budget and see where you can economize. Hand-me-downs can help you save on purchases, and building an emergency fund can help you if an unexpected expense crops up. Having the right banking partner can also help you manage your money well as your family grows.

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 3.80% APY on SoFi Checking and Savings.

How to budget when you have a baby?

One good system for assessing your new spending style once you have a baby is to use the 50/30/20 budget rule. That means 50% of your take-home pay goes to needs, 30% to wants, and 20% to savings or additional debt payments. As you see how much your baby-related expenses are, you can update your budget, trim spending as needed, and find a balance.

What is the biggest expense for having a baby?

Often, the biggest expense for having a baby is child care. The exact amount will depend on where you live and what kind of care you opt for, but costs currently can range from, on average, $343 to more than $800 a month.

How much are diapers a month?

Typically, diapers can cost $70 to $80 a month, though figures can vary depending on the type your choose and where you live.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.


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.

SOBNK-Q225-018

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Apr
18
2025
woman budgeting looking in wallet mobile

Pros & Cons of a Cash Diet

By | Budgeting & Goals, money | Comments Off on Pros & Cons of a Cash Diet

A cash diet, meaning using just cash for daily spending, can help you avoid ringing up more credit card debt.

These days, many people’s spending habits are ruled by plastic. Debit cards, credit cards, and mobile wallets make transactions easy and effortless, but they can also make it easy to wind up with a mountain of debt and risky financial habits. As of 2025, U.S. consumers owed more than $1.21 trillion in credit card debt, according to the Federal Reserve Bank of New York. For some people, it might be worth trying out an all cash diet to help develop healthier spending habits.

Read on to learn some of the pros and cons of a cash diet plan, and how using cash may help you think about your money habits in a new way.

Key Points

•  A cash diet involves using cash for daily expenses to increase awareness of spending, help control a budget, and avoid credit card debt.

•  A cash diet promotes mindful spending through the immediate impact of each dollar spent; it meshes well with the envelope method.

•  Challenges of a cash diet include the risk of loss or theft and the inability to access credit card purchase protection.

•  Credit card rewards such as points, miles, and cash back are not available when using a cash diet.

•  Effective cash diet management involves creating a budget, using the envelope method, and saving any leftover cash for emergencies or debt payments.

What Is a Cash Diet?

A cash diet plan involves using only cash for all of your day-to-day expenses. This could include paying for your groceries, filling up your gas tank, or covering the bill for a meal out with a friend. Fixed expenses, such as rent, bills, or any existing debt payments, generally aren’t included.

For people who are dealing with debt, a cash diet may provide an opportunity to develop more transparent spending — which may help in getting a handle on existing debt and manage money better.

Get up to $300 with eligible direct deposit when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 3.80% APY on savings balances.

Up to 2-day-early paycheck.

Up to $3M of additional
FDIC insurance.


What Are Some Pros of a Cash Diet?

Here are some advantages of a cash diet:

•  One of the biggest potential benefits of an all cash diet is seeing what you spend. When using cash to pay for daily expenses, you can feel the immediate loss of a dollar spent. When using credit or debit cards, the impact of the money you’re spending is delayed, potentially making it easier to overspend or rack up debt.

•  Another possible benefit of a cash diet is that it may provide more oversight over your expenses and budget. If you take out a specific amount of money, it’s easy to keep track of how much you’ve spent by simply looking at the amount of cash you have left. This could help you learn how to be better with money.

•  Overall, adopting an all cash diet could provide you with more control and awareness over your spending decisions. Even though you are likely dipping into your cash reserves more often, it could help you manage the money in your bank account more wisely.

Recommended: Five Ways to Achieve Financial Security

What Are Some Cons of a Cash Diet?

Next, consider the potential downsides of a cash diet:

•  In some places, restaurants and other businesses are increasingly going cashless. Depending on which establishments you usually go to, an all cash diet could prove to be a challenge.

•  Additionally, unlike many major credit cards and debit cards, cash isn’t covered in case of theft or loss. This is something worth considering depending on how much money you plan to carry with you at a time. (Or you might use your debit card as a way of paying in cash.)

•  Your purchases will not be covered by your credit card’s protection plan.

•  Credit cards often offer perks that can incentivize signing up and spending, such as credit card rewards points and miles, and cash back programs. Using cash comes with no such rewards. If you’re considering switching over to an all cash diet for the long term, it’s worth considering how losing access to these kinds of benefits may impact you.

•  With this diet, you’ll need access to cash. If it’s challenging for you to get to ATMs or retailers that offer cash back, this could be an issue.

•  It’s also worth noting that an all cash cash diet may not build your credit score. That’s because your credit score is derived from data on how you manage credit month to month and over time.

Starting a Cash Diet

If you’ve decided to try out an all cash diet, you might want to start by creating a budget. Once you’ve determined your average monthly net income, outline the fixed expenses you have — such as rent, bills, and debt payments — and figure out how much money you have left over after paying them.

Whatever money is left over represents the maximum you’re able to spend on day-to-day costs, such as food and gas. Cash dieters typically withdraw this amount in cash. Some might prefer to budget for the amount of time between pay periods or to stick to a monthly cash diet plan. The choice is up to you.

From there, a common way of organizing a cash diet is to use the envelope method. This includes outlining each of your spending categories — such as social activities, food and groceries, and shopping — and distributing your money across each area based on how much you typically spend. The cash for each of these categories is put in a separate envelope, which may make it easier to stay on top of your spending.

Since life isn’t exactly predictable, you might want to consider creating an additional envelope for unexpected expenses that may not fall into a regular category. An emergency fund could help cover unexpected costs like a car repair.

Managing an All Cash Diet

Though it may sound simple in principle, using a cash diet isn’t always smooth sailing. For instance, if you run out of cash before it’s time to replenish your envelopes — whether that’s at your next paycheck or at the beginning of the month — a cash diet dictates that you won’t be able to buy anything else.

Though an all cash diet may be helpful in improving your understanding of your spending habits and helping to curb impulse spending, it can also mean that you may have to get creative about how you deal with cash shortages without reaching for your credit card.

On the other end of the spectrum, there is a chance you may have some cash left over. If this happens, you could consider depositing it in your emergency savings account.

If you don’t already have a fund for emergencies, you may want to start one with any cash you have left over. If you have enough to save and put towards your current debt, then you might consider using the cash to make an extra payment on your highest interest debt.

Recommended: Emergency Fund Calculator

Understanding Your Spending Habits

Depending on your individual situation and goals, a cash diet may be a temporary experiment or a long-term strategy. You could try it out for a month to see how you feel.

Whether you’re in it for the short-term or the long haul, you may find that a cash diet gives you space to reflect on your money habits and develop a better understanding of where your money is going. A cash diet plan can be a valuable experience and can make it easier to build a more sustainable financial future.

The Takeaway

A cash diet involves using only cash for daily spending to help you control the outflow of money and avoid credit card debt. It can be a good solution for some people trying to manage their money better. The tradeoffs include the challenge of using cash at businesses that prefer plastic and the possibility of losing cash (or having it stolen), among others. If you do try a cash diet, it can be helpful to partner with a bank that has a robust network of ATMs.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What are the pros of using a cash diet?

A cash diet can be helpful as it encourages mindful spending and helps you avoid racking up high-interest credit card debt.

What are the cons of a cash diet?

Cons of a cash diet include the risk of losing cash or having it stolen, not earning credit card rewards, and not earning credit card rewards.

What is a cash diet?

A cash diet involves using cash for most or all of your daily spending, rather than relying on credit cards. It can help you better track your spending and avoid credit card debt.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOBNK-Q225-019

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Apr
16
2025
FAFSA Grants: Everything You Need to Know

FAFSA Grants & Other Types of Financial Aid

By | Going to College, Student Loans, student_loan | Comments Off on FAFSA Grants & Other Types of Financial Aid

Spending a couple of hours filing the Free Application for Federal Student Aid, more commonly known as the FAFSA®, may not seem like your idea of fun. However, skipping the FAFSA could mean losing out on need-based grants. If you qualify, grants can be an incredibly helpful addition to your financial aid award for one main reason: You don’t have to repay them.

Let’s jump into some specific details about grants, including the connection between the FAFSA and grants, types of grants, and more information about this worthwhile addition to your financial aid award.

Does FAFSA Give Grants?

The FAFSA itself doesn’t give grants because the FAFSA is an application. When you file the FAFSA, the colleges and universities you have on your list will award you money based on your individual FAFSA data. Filing the FAFSA can qualify you for grants from the federal government. Many states and colleges use FAFSA data to award their own aid. Grants can come from:

•   The federal government

•   State governments

•   College or career schools

•   Private or nonprofit organizations

Recommended: SoFi FAFSA Guide

Does FAFSA Give Grants for Graduate School?

As a graduate or professional student, you may wonder, “Does FAFSA give grants for graduate school?” Certain grants, such as Pell Grants, go to undergraduate students only. However, graduate students can tap into a few federal programs, though these are usually need-based. Here are two examples:

•   TEACH Grants: Graduate students can get a TEACH Grant as long as they agree to teach in a high-need field in a school for low-income students. They must also agree to fulfill a few other requirements, as well.

•   Fulbright Grants : Qualified graduate students can tap into Fulbright Grants for study/research projects or for English teaching assistant programs. Fulbright Grants are sponsored by the U.S. Department of State and can help students expand upon their international studies.

Some corporations and other organizations also offer grants for graduate students, though it’s important to note that the FAFSA isn’t necessarily needed to qualify. Take a close look at the qualifications for corporate grants and other organizations as you find them.

Recommended: Finding & Applying to Scholarships for Grad School

Is Pell Grant the Same as FAFSA?

No, the Pell Grant is not the same as the FAFSA, which is simply an application. The FAFSA is not the actual entity that gives you financial aid. Federal grants, like the Pell Grant, come from the federal government through the U.S. Department of Education.

Types of FAFSA Grants

Let’s walk through a few types of grants and their requirements that you may become eligible for when you file the FAFSA.

Pell Grants

The Pell Grant program is the largest federal grant program available to undergraduate students. In order to qualify for the Pell Grant, you must demonstrate financial need.

How much can you receive from the Pell Grant? Right now, the maximum Federal Pell Grant award is $7,395 for the 2024-25 award year. Check from year to year because the award amount might change slightly.

Recommended: What Is a Pell Grant?

What are the Pell Grant eligibility requirements? The exact amount you’ll get depends on your Student Aid Index (SAI), formerly known as Expected Family Contribution (EFC), the amount your family should pay for college, and the cost of attendance. The amount you can receive depends on your status as a full- or part-time student and whether you plan to attend school as a full- or part-time student.

Federal Supplemental Educational Opportunity Grants (FSEOG)

The need-based Federal Supplemental Educational Opportunity Grant (FSEOG) gives each participating school a certain amount of FSEOG funds, and these schools give FSEOG Grants to students who have the most financial need.

You can receive between $100 and $4,000 a year, depending on factors beyond financial need, including:

•   Application timing

•   Amount of other aid you receive

•   Availability of funds at the institution you attend

Teacher Education Assistance for College and Higher Education (TEACH) Grants

The Teacher Education Assistance for College and Higher Education (TEACH) Grant Program gives you funds through a TEACH Grant-eligible program at a school that participates in the program. You must agree to teach:

•   Full time for at least four years

•   In a high-need field

•   At a low-income elementary school, secondary school, or educational service agency

You must also undergo TEACH Grant counseling and complete the TEACH Grant Agreement to Serve or Repay to qualify.

Iraq and Afghanistan Service Grants

If your parent or guardian died during or as a result of military service in Iraq or Afghanistan, students may be able to take advantage of Iraq and Afghanistan Service Grants .

You can receive the same amount of grant money for an Iraq and Afghanistan Service Grant as the maximum Federal Pell Grant for your award year. However, you cannot exceed your cost of attendance for that award year. The maximum Federal Pell Grant award is $7,395 from July 1, 2024 to June 30, 2025.

Take a look at the eligibility requirements:

•   You may not receive a Federal Pell Grant but must meet the remaining Federal Pell Grant eligibility requirements.

•   Your parent or guardian died as a result of military service in the armed forces in Iraq or Afghanistan after the events of 9/11.

•   You were under 24 years old or enrolled in college at least part-time at the time of your parent or guardian’s death.

To qualify, you must file the FAFSA form every year you remain in school.

Recommended: How to Complete the FAFSA Step by Step

Do You Have to Pay Back FAFSA Grants?

Do you have to pay back FAFSA grants? (It’s a common question — and a good one!) Like scholarships, you generally do not need to repay FAFSA grants, unless you withdraw from school and owe a refund. Filing the FAFSA is the only way you can qualify for federal grants.

FAFSA Grant Repayment

While grants generally do not require repayment, there are a few circumstances in which the grant may need to be repaid. Briefly, here are some reasons you may have to repay a FAFSA grant:

•   You left or withdrew early from the program for which you received grants.

•   Your enrollment status changed, which impacts your eligibility for the grant.

•   You received outside scholarships or grants that reduced your need for grants.

It’s a good idea to look carefully at the requirements for each grant. You can ask a financial aid professional at your college or university for specific information about grant eligibility, award amounts, and other requirements.

Additional Funding Options for College

When you receive a financial aid award from a college, it will include financial aid such as FAFSA grants and scholarships, work-study, and federal student loans. Some students may also consider borrowing private student loans. Let’s walk through the definition of each. Note that you can also get financial aid for a second bachelor’s.

Scholarships

A scholarship is a type of financial aid that you don’t have to repay. Scholarships can be need-based or merit-based (based on talents or interests, independent of your financial need).

Federal Work-Study

Undergraduate, graduate, and professional students with financial need may be eligible for work-study programs. You can tap into part-time jobs, usually on campus, during your enrollment in school. Full- or part-time students can qualify for work-study jobs.

You cannot go over your work-study award limit. In other words, let’s say you receive $1,500 in work-study. You can work as many hours as you can up to that limit. Many schools offer you payment in the form of a check or direct deposit into your bank account.

Your school must participate in the federal work-study program, so check with your school’s financial aid office for more information.

Federal Student Loans

Most financial aid awards contain federal student loans, which come from the federal government, through the U.S. Department of Education.

Take a look at three main types of federal student loans:

•   Direct Subsidized Loans: Direct Subsidized Loans are federal loans that have a low interest rate (currently 6.53% for undergraduate students and 8.08% for graduate or professional students). The U.S. Department of Education pays the interest on Direct Subsidized Loans while you are in college. The amount of loan money you can qualify for depends on your year in school and whether you are a dependent or independent student. For example, dependent undergraduates can qualify for $5,500 to $7,500 per year in Direct Loans. However, you cannot receive more than $3,500 to $5,500 of this amount in subsidized loans. Take a look at the Direct Subsidized Loan website for more information or ask the financial aid office at your school.

•   Direct Unsubsidized Loans: The major difference between Direct Subsidized Loans and Direct Unsubsidized Loans is that the U.S. Department of Education does not pay the interest on Direct Unsubsidized Loans while you are in college. However, the interest rate is the same as with Direct Subsidized Loans (currently 6.53% for undergraduate students and 8.08% for graduate or professional students). Learn more about Direct Unsubsidized Loans from your college or university’s financial aid office or through the federal student loan website.

•   Direct PLUS Loans for parents and graduate/professional students: Parents and graduate or professional students can take out Direct PLUS Loans through the U.S. Department of Education. The borrower must pay the interest on the loan. You (or your parents) must undergo a credit check. You can receive up to the cost of attendance for a Direct PLUS loan, though your school will likely subtract any other financial aid received.

Federal student loans offer benefits such as fixed interest rates and income-driven repayment plans.

Private Student Loans

Private student loans differ from federal student loans because they don’t come from the federal government, but instead can come from a bank, credit union, state agency, or school. Private student loan interest rates vary and you can usually borrow up to the cost of attendance (the amount of money it costs to attend your school), including living expenses.

It’s a good idea to shop around among lenders for the best interest rates. Once you land on the right lender for you, go through the lender’s application process. It’s worth noting that private student loans lack the borrower protections afforded to federal student loans, so they’re typically considered an option only after borrowers have reviewed all of their other choices.

You may also need a cosigner when you get a private student loan. A cosigner signs for the loan with you — they are just as responsible for the repayment of your loan as you are. Not everyone who takes out a private student loan needs a cosigner, but if you don’t have any credit (or if you have less than stellar credit), you may need to ask a trusted adult to cosign a loan with you.

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

The Takeaway

If you’re wondering whether you want a FAFSA grant on your financial aid award letter, the answer is yes! You do not have to repay grants, so they’re a lot like scholarships in that way. You must file the FAFSA in order to qualify for federal grants for college, so take the time to fill it out carefully and apply as soon as you can.

When federal aid isn’t enough to pay for college, students may consider private student loans. If you’re interested in a private student loan, consider SoFi. SoFi offers competitive rates with flexible repayment options and no origination fees. It takes just a few minutes to check your rate.

About the author

Melissa Brock

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.

Photo credit: iStock/syahrir maulana

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Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


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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Creditworthiness Explained

Why Does Creditworthiness Matter?

By | Credit, Financial Independence | Comments Off on Why Does Creditworthiness Matter?

To be creditworthy means you are considered suitable to access credit, whether that means you’re getting a loan or a line of credit (such as a credit card). You have proven that you have managed debt responsibly in the past and are likely to do so again in the future.

In other words, lenders see you as not a risky borrower who might be late with payments or default on your debt. You appear to be someone who will make payments on time and pay off what you owe.

Here, you’ll learn important intel about how creditworthiness is determined (it’s more than your credit score) and why it’s important.

Key Points

•   Creditworthiness measures the likelihood of timely debt repayment, impacting loan and credit card terms.

•   Factors affecting creditworthiness include payment history, debt amount, credit history length, credit mix, and new credit applications.

•   Building creditworthiness involves timely payments, reducing debt, maintaining old accounts, and avoiding frequent new credit applications.

•   Strong creditworthiness can lead to better loan terms, higher credit limits, and lower interest rates.

•   Creditworthiness can influence employment opportunities, as some employers review credit reports during the hiring process.

What Is Creditworthiness and Why Does It Matter?

In short, a consumer’s creditworthiness is what lenders assess to hedge their bets that the borrower won’t default on — fail to repay — a loan.

You can think of creditworthiness a bit like a report card for borrowers. Like a report card, your overall creditworthiness is composed of a variety of factors, each of which is weighted differently. The factors are calculated into an overall credit score, which is a bit like a grade point average (GPA).

Like a report card, your creditworthiness gives lenders a snapshot of your historical behavior — and although your past doesn’t always predict the future, it’s the main information creditors have to go on about how much of a risk you might be.

It’s possible to build creditworthiness, but doing so takes dedicated effort.

Why Does Creditworthiness Matter?

Creditworthiness is important in an array of ways. It’s not just about credit cards. Your creditworthiness will be assessed if you ever take out an auto loan or mortgage, or if you’re just signing a lease on a rental property. Your credit report might even be pulled as part of the job application process as an indication of your level of personal responsibility.

What’s more, higher creditworthiness tends to correlate with better loan terms, including higher limits and lower interest rates. Lower creditworthiness can mean you’re stuck with higher interest rates or extra fees, which, of course, make it more difficult to make on-time payments, get out of debt, and otherwise positively impact your creditworthiness for the future. A low enough level of creditworthiness may preclude you from qualifying for the loan (or lease, or job) altogether.

In short: Creditworthiness is really important for just about everyone, and it’s worth building and maintaining.

Recommended: Understanding Purchase Interest Charges on Credit Cards

How Is Creditworthiness Calculated?

So what specifically goes into the definition of creditworthiness?

That depends on whom you ask. Which factors will be most heavily weighted to determine your creditworthiness change based on what kind of credit or loan you’re applying for.

A credit card issuer, for example, may look specifically into your experience with revolving debt, while a mortgage lender may be more concerned with how you’ve handled fixed payments like installment loans.

While each lender will have its own specific criteria and look into different things, one of the most common measures of creditworthiness is a FICO® Score — the three-digit credit score based on information reported by the three main America credit bureaus, Experian®, Equifax®, and TransUnion®.

It’s important to understand that lenders will see more than just a three-digit FICO Score, which ranges from 300 to 850. The credit report they pull may also include specific information about your open and closed accounts, revolving credit balances, and repayment history, as well as red flags such as past-due amounts, defaults, bankruptcies, and collections.

Lenders may also take your income and the length of time you’ve worked at your current job into consideration, as well as assets (like investments and properties) you own.

You may already know that credit scores range from poor (300 to 579) to exceptional (800 to 850). But those scores are underpinned by a specific algorithm that takes a variety of different historical credit behavior into account.

Specifically, your FICO Score is calculated using the following data points, each of which is weighted differently:

•   Payment history, 35%: The single most important factor determining your credit score is whether or not you’ve consistently paid on your loans and credit lines on time.
•   Amounts owed, 30%: This factor refers to how much of your available credit you’re currently using. Having higher balances (also known as your credit utilization) can indicate more risk to a lender, since it may be more difficult for someone with a lot of debt to keep up with paying a new account.
•   Length of credit history, 15%: Having a longer credit history gives lenders more context for your past behavior, so this factor is given some weight in determining your credit score.
•   Credit mix: 10%: This factor refers to how many different kinds of credit you have, such as installment loans, credit cards, and mortgages. It’s not necessary to have each, but having a healthy mix can help build your score.
•   New credit, 10%: Applying for a lot of new credit recently can look like a red flag to lenders, so having too many hard inquiries can ding your score.

Recommended: What Is a FICO Score and Why Does it Matter?

Building Creditworthiness

If you have a low credit score or a number of negative factors on your report, you may feel overwhelmed at the prospect of changing your creditworthiness for the better. But the good news is, it is possible to positively impact your credit score and build your overall credit profile. It just takes time, dedication, and persistence.

Given the importance of payment history, making on-time payments is usually the most important thing you can do to build your credit score.

Because the amount of revolving debt you have is an important metric, reducing your overall debt can help, too — and will free up more money in your budget to put toward other financial goals.

If you’re working to pay off certain credit cards, it may not be best to close them once you’ve stopped using them. Keeping them open will help increase the overall length of your credit history. However, you may need to charge (and then pay off) a nominal amount each month to keep the card issuer from closing the account due to inactivity.

You may want to use that credit card for one low monthly bill, such as your Netflix subscription, and pay it off in full each statement cycle.

It’s also a good idea to check your credit report at least once a year. The Fair Credit Reporting Act requires that the three big credit bureaus provide you with a free copy of your credit report once every 12 months; you may find them available weekly as well. The free credit report source authorized by federal law is AnnualCreditReport.com.

These reports don’t include your credit scores, but you’ll still get the opportunity to assess your report for fraudulent items and dispute them. You may also be able to get your credit score for no charge as a perk from your financial institution or your credit card issuer. See what’s available.

Recommended: Breaking Down the Different Types of Credit Cards

The Takeaway

Creditworthiness is the measure by which a potential lender assesses how much of a risk it’s taking by offering you a loan or line of credit. Building your creditworthiness and maintaining it is important for ensuring you have access to loans, credit cards, and even employment opportunities. Being creditworthy can help you snag lower rates and more favorable terms, whether you are shopping for a home loan or new credit card.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Why is creditworthiness important?

Creditworthiness measures how likely you are to repay debts and do so on time. It lets lenders know you handle debt responsibly, and it may encourage them to offer you better terms when extending you credit.

What is creditworthiness most affected by?

Your payment history is the single biggest contributor to your credit score at 35%. This reflects how well you have paid debt on time in the past.

What are 3 reasons credit is important?

Creditworthiness is important because it shows you have good financial management habits, it shows potential lenders that you are a good candidate for loans and revolving lines of credit, and it can encourage them to offer you favorable rates and terms.




*See Pricing, Terms & Conditions at SoFi.com/card/terms.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 .


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Apr
15
2025

How to Buy Car Insurance in 5 Simple Steps

By | Financial Independence, Insurance | Comments Off on How to Buy Car Insurance in 5 Simple Steps

If you drive a car, you need car insurance — and not just because it’s the law in nearly every state.

Fortunately, these days, getting car insurance is usually a simple process. You can buy car insurance online, over the phone, or even in person — but the easiest way to do so is with a few mouse clicks.

Key Points

•   Determine the necessary type of car insurance coverage to meet personal and legal requirements.

•   Gather essential information about all drivers and vehicles for accurate insurance quotes.

•   Choose a method to shop for car insurance, such as online, phone, or in person.

•   Utilize comparison tools to evaluate multiple insurance quotes efficiently.

•   Periodically review and adjust car insurance policies to ensure they remain suitable and cost-effective.

5 Steps to Getting Car Insurance

Knowing how to get car insurance that suits the type of vehicle you have and your driving habits is easier when you know your way around the car insurance market. Here’s our step-by-step guide to buying automobile insurance.

1. Figure Out What Type Of Coverage You Need.

The first step in learning how to get insurance on a car? Understanding what car insurance is in the first place and how much coverage you really need.

There’s a veritable dictionary of different auto insurance terms to understand, but one of the most important distinctions is between liability insurance and full insurance coverage.

•   Liability insurance is coverage that pays out to another driver if you’re found to be at fault in an accident. Liability insurance is further split into property damage and bodily injury coverage, coverage for vehicular damages and medical expenses, respectively.

•   Uninsured/underinsured motorist coverage is another type of liability insurance that pays out in the event of an accident involving another driver who doesn’t have insurance (or much of it).

•   Full coverage includes liability insurance but also pays out for damage to your own vehicle, even if you’re at fault. This may include collision coverage, which pays out in the event of an accident involving another vehicle, and comprehensive coverage, which pays out in the event of non-collision damages, such as fire, falling objects, or glass damage.

•   You may also be able to purchase medical payments coverage, which can offset the cost of your medical bills in the event of an accident, or personal injury protection insurance, which can help with lost wages and other expenses. These types of coverage kick in regardless of who’s at fault.

Most state laws only require liability insurance. However, this varies, as do the minimum policy limits in each state, so be sure to get familiar with your state laws before you go shopping.

Requirements aside, full coverage might be worth considering. Even in a minor accident, you could face thousands of dollars in repair costs, not to mention random damages like a windshield crack due to a rock kicked up on the highway.

And keep in mind, too, that even full coverage doesn’t mean everything is covered or coverages are unlimited. How much coverage you decide you want is up to you. It’s worth factoring in the age and value of your vehicle, other coverages you may have that can help, and how high a deductible you could afford to pay out of pocket in the event of an accident. Higher deductibles generally mean lower monthly car premiums — but, of course, you’re on the hook for a larger portion of the expenses if you do need to file a claim.

Recommended: What Does Car Insurance Cover?

Discover real-time vehicle values with Auto Tracker.¹

Now you can instantly monitor vehicle prices in this unprecedented market—to help you make smart money moves.

2. Gather Your Information.

Once you have an idea of the kind of coverage you need, it’s time to get serious about shopping for auto insurance. You’ll need certain information in order to buy an auto insurance policy, so in order to make the transaction go smoothly, it’s a good idea to gather the following ahead of time:

•   The name and birth date of every driver to be put on the policy

•   The driver’s license number and issuing state of every driver to be put on the policy

•   The driving history (both at-fault and no-fault accidents) of every driver to be put on the policy

•   The car’s make, model, and vehicle identification number

•   The car’s current mileage

•   The estimated mileage the car is driven each year, as well as its primary purpose (business or leisure)

•   Any car safety features, like car alarms

•   The address the car is kept at most of the time

•   The name and policy number of your current insurance plan, if you have one

Other information may also be required, but gathering the basic details ahead of time should help save you some time.

3. Choose Your Shopping Method.

There are three main ways to purchase car insurance: directly from an insurance company, through a captive agent, or through an independent broker.

•   Buying auto insurance directly (either online or over the phone) from an insurance company means you can do the research yourself. However, getting individual quotes from a variety of different companies can take time.

•   Buying auto insurance through a captive agent means you’re working with a representative from a single insurance company, which can be useful if you want a single point of contact who can help walk you through every step of the process. This might also be a good idea if you have more than one insurance policy through the same company because you may qualify for multi-policy discounts.

•   Buying auto insurance through an independent broker can create a bespoke insurance-buying experience where the broker does the footwork of shopping around for the best deal to suit your needs. However, your premiums may include a broker’s fee.

Each approach has its own drawbacks and benefits, and the best one when deciding how to get auto insurance for you will depend on your preferences.

4. Compare Quotes.

Car insurance is one of those areas of life where you can save a lot of money by shopping around. Of course, getting multiple quotes can be time consuming, but given that car insurance premiums can cost more than $172 per month, it might just be worth your time.

Fortunately, these days, there are some great auto insurance comparison websites and apps that can help you see your potential savings by filling out just a single form. (Be aware that you may start getting phone calls, emails, and letters from insurers eager to acquire your business, however.)

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

5. Drive Happy — But Check In Regularly.

We’ve all heard the commercials, but it really is true: You may stand to save money by switching your car insurance to a different carrier, so it’s worth checking in at least once a year to make sure you’re happy with your coverage and its cost.

That said, many carriers also offer loyalty discounts to longtime customers, and if you get a lower offer elsewhere, your insurer may be able to match it. Your car insurance premium may get lower over time if you improve your driving record or your credit history, and you may also be able to score discounts by bundling different types of insurance from the same provider (like renters insurance, homeowners insurance, etc).

Of course, it’s not just monthly costs that are worth considering. You may decide you want more or less coverage over time or as your life situation changes, which is another good reason to check in from time to time. Additionally, if you do decide to switch carriers, make sure you’re purchasing a policy of equivalent coverage. Otherwise, you’re not saving money on an equivalent product — you’re just buying something cheaper from elsewhere.

The Takeaway

Knowing how to buy car insurance might not be exciting, but car insurance is an important financial product that could relieve a financial burden in the case of an accident. As you start exploring your options, you’ll want to decide the type and amount of coverage you’ll need based on the age and value of your vehicle, your budget, and other coverage that you may have. Taking the opportunity to compare car insurance companies before committing to a policy can be a smart move that might save you money on your insurance rate.

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

SoFi brings you real rates, with no bait and switch.

Photo credit: iStock/LumiNola

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.

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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