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If you’re searching for a credit card, but you need to build your credit, you may come across secured credit cards. What exactly is a secured credit card and how is it different from an unsecured card?

Read on to learn how both types of credit cards work to help decide whether a secured or unsecured credit card may be right for you.

What Is a Secured Credit Card?

A secured credit card offers a revolving line of credit that you can borrow from and then repay. What makes it different from an unsecured credit card is that with a secured credit card, you need to put down a deposit to “secure” the card before opening an account.

The bank holds onto that money as a form of collateral if you default on payments. The money is refundable if you close your account or upgrade to an unsecured (traditional) credit card. Your secured credit card’s credit limit is usually the same amount as your deposit. The deposit is typically at least $200 to $500, depending on the specific card and how much you can afford to put down.

A secured credit card is designed for building credit. So if you’re working on building your credit or don’t have much in the way of a credit history because you’re young or new to the country, it could be an option. The age requirement to get a credit card that’s secured is the same as for an unsecured credit card — typically age 18.

How Secured Credit Cards Work

As noted, you’ll need to put down a deposit to open a secured credit card. Your available line of credit is usually the same amount as your deposit. As part of the way credit cards work, you’ll need to pay the balance on the card, and your credit limit will get replenished as you make payments.

As with an unsecured credit card, there’s a minimum monthly payment you’re responsible for. If you carry a balance from month to month, you’ll incur interest charges. Your credit card activity, including your payment history, is generally reported to the three major credit bureaus, Experian®, Equifax®, and TransUnion®.

Your deposit on a secured credit card isn’t used to make payments should you fall behind or miss credit card payments altogether. If you’re unable to make payments and your account goes to default, you’ll lose your deposit. Plus, it can hurt your credit. If the balance you owe is larger than the deposit, you might be on the hook for the difference owed.

Secured credit cards may offer a “graduation” option. In other words, if you make on-time payments and show a track record of responsible financial behavior, the credit card issuer might offer you an unsecured credit card.

Recommended: Tips for Using a Credit Card Responsibly

Pros and Cons of a Secured Credit Card

Let’s look at some of the advantages and downsides of a secured credit card:

Pros of a Secured Credit Card	Cons of a Secured Credit Card
May qualify with a low credit score or limited credit history	Need to provide a deposit
Could be easier to get approved for than an unsecured credit card	Credit limit is usually low
May be a way to build credit as activity is reported to credit bureaus	May have higher interest rates and more fees than secured credit cards
Offers a revolving line of credit you can use as long as you make payments	Could lose your deposit if you’re late or miss payments

What Is an Unsecured Credit Card?

Also known as a traditional credit card, an unsecured credit card doesn’t require a deposit or collateral. Instead, you’re offered a credit limit based on your creditworthiness and other factors, such as your income and existing debt. You’ll generally need a higher credit score and more robust credit history to qualify.

Just as with a secured credit card, the credit remaining on an unsecured credit card dwindles as you rack up a balance. Once you make a payment, your limit replenishes. For example, say your credit limit is $5,000. If your balance is $500, your credit limit goes down to $4,500. Once you pay off your balance, your credit limit goes back up to $5,000.

The annual percentage rate (APR) and terms associated with an unsecured credit card are usually (but not always) better than they are for a secured credit card. Typically, the better your credit score, the better your rates and terms are for an unsecured credit card. The average unsecured credit card APR as of February 2026 is 25.27%; meanwhile, many of the top secured credit cards have APRs that are around 28.49% or higher.

How Unsecured Credit Cards Work

Because an unsecured credit card is a form of revolving credit, you have access to that credit line as long as you remain in good standing and your account stays open. Unsecured credit cards also require you to make minimum monthly payments to avoid incurring late payment fees and harming your credit score. You’ll owe interest on any balance that carries over from month to month.

Sometimes, unsecured credit cards might offer perks, such as cash-back rewards and travel insurance.

Pros and Cons of an Unsecured Credit Card

Here are some of the pros and cons of traditional, or unsecured, credit cards:

Pros of an Unsecured Credit Card	Cons of an Unsecured Credit Card
Higher credit limits compared to secured credit cards	May be harder to get approved for
Typically need at least a fair credit score to qualify (580+)	Can incur interest and fees
May help you build your credit	Might entice you to spend more than you can afford due to higher credit limits
Opportunity to earn rewards and enjoy other benefits	Could damage your credit if not used responsibly

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

Similarities Between a Secured Credit Card and an Unsecured Credit Card

When it comes to a secured credit card vs. an unsecured credit, there are a number of similarities:

•   Both are revolving lines of credit, so you’ll have access to those lines of credit as long as you keep the card open and your account in good standing.

•   Your payments are reported to credit bureaus. If you make on-time payments, your credit score may be positively impacted. Conversely, your score can drop if you don’t use your credit card responsibly.

•   The process of how to apply for a credit card is usually similar for both a secured and unsecured credit card. You can usually fill out an application online, in person, over the phone, via an app, or through the mail.

•   Both secured and unsecured credit cards come with interest rates and fees. Depending on the card, there might be an annual fee.

•   Both types of credit cards usually offer a grace period, which is the period between when your billing cycle ends and your payment due date. During this time, you may not be charged interest as long as you pay off your balance in full by the payment due date.

•   While it’s less common among unsecured credit cards, both types of credit cards might feature perks, such as cash-back rewards, travel miles, car rental insurance, and price protection.

Differences Between a Secured Credit Card and an Unsecured Credit Card

There are a handful of features that set these two types of credit cards apart:

•   For starters, secured credit cards require a security deposit, whereas unsecured credit cards do not.

•   The credit limit for a secured credit card usually matches the deposit amount. With unsecured credit cards, the credit limit usually depends on a number of factors, such as your creditworthiness.

•   Secured credit cards generally carry higher interest rates and fees, whereas unsecured credit cards typically have lower interest rates and fees.

Secured vs. Unsecured Credit Card: Which Is Right for You?

Now that you know the similarities and differences between a secured and an unsecured credit card, you can start to assess which one might be right for you. Here’s an overview to help you better compare what sets secured vs. unsecured credit cards apart:

Secured Credit Card	Unsecured Credit Card
Requires a deposit to open	Does not require a deposit
Usually available for those with slim credit histories or lower credit scores	Usually need at least fair to good credit to qualify
Lower credit limits, which are based on the amount of the deposit	Higher credit limits available, based on creditworthiness
Fewer card options available	Variety of card options, such as cash-back cards, travel cards, and business cards

Staying on Top of Your Credit After Choosing a Card

No matter if you choose a secured credit card or an unsecured credit card, it’s important to stay on top of your payments. Ideally, you would pay the balance in full each billing cycle. Otherwise, you’ll owe interest.

Making at least the minimum payment each month is important to keep credit intact and avoid late fees. If you’re struggling to make payments, reach out to the lender and see what they can do. They might be able to change the payment due date so it’s more in line with what’s feasible for you, for example.

The Takeaway

Whether an individual applies for a secured credit card and an unsecured one may depend largely on the strength of their credit. A secured card may be helpful if they’re working to establish or build credit, while an unsecured card could be the option for someone whose credit is more established and who wants to earn rewards.

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

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Is an unsecured or secured credit card better?

Whether a secured vs. unsecured credit card is better depends on your situation. A secured credit card might be right for someone who is having trouble getting approved for a secured card and can afford to make the deposit. An unsecured credit card may be an option for a person who has at least a fair credit score, is looking for a higher credit limit, and would like more card options.

Should your first credit card be secured or unsecured?

If you have a thin credit history, are looking to build credit, and can afford the security deposit, a secured credit card is generally easier to qualify for. Note, however, that these cards generally have a higher interest rate and a lower credit limit. While an unsecured credit card doesn’t require a deposit, it might be harder to get approved for one if your credit is poor or you don’t have much of a credit history yet.

Does a secured credit card hurt your credit?

As long as you pay your bills on time every month and use the card responsibly, a secured credit card may positively impact your credit. Secured credit cards are designed for building credit, which means a secured card could be an option for someone who is working on their credit or doesn’t have much of a credit history.

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Photo credit: iStock/cesar fernandez dominguez

SoFi Credit Cards are 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.

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

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

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If you drive a car in Texas, you’ll need to make room in your budget for car insurance. The state requires it. The amount you’ll pay for protection depends on a number of factors, such as your driving record, age, car type, and insurer. Understanding the cost of coverage in your area can help as you’re comparing quotes. Keep reading to learn more about the average cost of car insurance in Texas.

How Much Does Car Insurance Cost in Texas?

The average cost of car insurance in Texas is $2,346 per year, according to a 2025 U.S. News & World Report analysis of cheap car insurance companies. By comparison, the national average is $2,012 per year.

Average Car Insurance Cost in Texas per Month

The average cost of car insurance in Texas is $195.50 per month, which is $27.83 more than the national monthly average of $167.67. But as the chart below shows, prices can vary greatly among different insurers in the state.

Company	Average Cost Per Month	Average Annual Cost
AmTrust Insurance	$134	$1,608
Allstate	$384.75	$4,617
Geico	$177.92	$2,135
Mercury	$174.67	$2,096
National General	$166.83	$2,002
Progressive	$172.67	$2,072
State Farm	$150	$1,800
Texas Farm Bureau	$75.83	$910
USAA	$113.08	$1,357

Source: U.S. News & World Report

Average Car Insurance Cost in Texas by City

Where you live in Texas can also impact how much you spend on car insurance. The rate of theft, vandalism, and accidents in your area can help online car insurance providers estimate how likely you may be to file a claim, which can raise insurance costs. As the chart below demonstrates, rates vary, even among 10 major cities in Texas.

City	Average Annual Cost
Arlington	$2,839
Austin	$2,616
Corpus Christi	$2,657
Dallas	$3,146
El Paso	$2,646
Fort Worth	$2,750
Houston	$3,153
Lubbock	$2,592
Plano	$2,686
San Antonio	$2,782

Source: Bankrate.com

Recommended: A Comprehensive Guide to Car Insurance

Average Car Insurance Cost in Texas by Driver Age and Gender

Usually, teen drivers (aka new drivers) can expect to spend more on car insurance than older drivers. Gender is another consideration for insurers. Because women statistically get in fewer car accidents and have fewer DUI incidents, they tend to pay less for car insurance. Here’s a look at average annual premiums by different age groups.

Age of Driver	Average Annual Cost for Female Drivers	Average Annual Cost for Male Drivers
17	$7,115	$7,819
25	$2,771	$2,952
40	$2,191	$2,198
60	$1,958	$2,005

Source: U.S. News & World Report

Average Car Insurance Rates After an At-Fault Accident

Your driving record plays a significant role in the auto insurance rates you’re likely to be offered. In general, the better a driver’s record is, the less they’ll spend on insurance. This table compares how much someone can generally expect to pay for car insurance in Texas when they have a clean record with what they may be charged after just one at-fault accident.

Type of Car Insurance	Clean Record Average Annual Premium	After One At-Fault Accident Average Annual Premium
Average Annual Policy	$1,200	$2,000

Source: Insuranceopedia

Average Car Insurance Costs for Good and Bad Credit

Some insurance companies examine applicants’ credit scores when determining rates, since certain credit behaviors can indicate how likely someone is to file a claim. Rates may be higher for drivers with lower credit scores.

See how the average cost of car insurance in Texas differs between drivers with good credit scores and those with lower ones.

Car Insurance	Good Credit Annual Premium	Bad Credit Annual Premium
Cheapest Average Annual Cost	$910	$2,065

Source: U.S. News & World Report

What Else Affects Car Insurance Costs?

Other factors that can affect car insurance costs include:

How Much You Drive

The more someone drives, the more likely they are to get in an accident simply because they’re on the road more often. As a result, driving more miles can lead to higher insurance prices.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

Make and Model of Your Car

When setting a rate, insurance companies often consider how expensive it would be to repair or replace the driver’s car. The higher these costs are, the more the driver will likely pay for coverage.

Amount of Coverage

How much car insurance do you need? The amount may be based on your personal preference or your state’s minimum car insurance requirements. But in general, the more coverage you have, the more expensive your policy will probably be.

Related: Car Insurance Terms, Explained

How to Get Affordable Car Insurance

Looking to lower your car insurance costs? Consider these tips and tricks for finding a more affordable car insurance policy.

Compare Quotes From Different Insurers

There’s no need to accept the first quote you’re offered. Instead, shop around with a few different auto insurance issuers to see which can offer you the most coverage for the best price.

Recommended: How to Get Car Insurance

Choose a New Car Carefully

If you’re shopping for a new car, you may want to factor in the cost of insurance. The Insurance Institute for Highway Safety website offers information about insurance loss results for different makes and models of cars.

Consider Whether a Higher Deductible Is Right for You

Choosing a higher deductible often means spending less on monthly premiums. However, it’s important to select a deductible you’ll be able to pay if you ever do need to file a claim.

Ask for Discounts

From taking a defensive driving course to earning good grades as a college student, there are many different ways you may qualify for a discount on your car insurance. If you’re looking to lower your monthly bill — and who isn’t? — then it can’t hurt to ask your insurer if you qualify for any discounts.

Recommended: Cheapest Car Insurance Companies: Find the Cheapest Car Insurance for You

The Takeaway

The average cost of car insurance in Texas is $2,346 per year, or $195.50 per month. The amount you’ll spend on car insurance depends on several factors, including your driving record, age, gender, location, credit score, and insurer.

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.

FAQ

How much is car insurance in Texas per month?

The average cost of car insurance in Texas is $2,346 annually. This breaks down to $195.50 per month.

Is car insurance expensive in Texas?

According to U.S. News & World Report, the average price of car insurance in Texas is higher than the costs in all but 12 other states.

Is $300 a lot for car insurance?

In many cases, the average monthly cost for coverage in Texas is well below $300. But remember, the amount you pay depends on a number of different factors. A 17-year-old woman, for example, could very well pay more than $300 per month, largely because of her age and lack of driving experience.

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Photo credit: iStock/lightkey

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.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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A credit card’s annual percentage rate (APR) represents the cost of borrowing money from a lender, typically stated as an annual interest rate. Thus, the APR on a credit card is an important number to know before charging a purchase — especially if you plan on carrying a balance on your credit card account.

Read on to learn more about credit card APRs and how they are determined.

What Is a Credit Card’s APR?

A credit card’s APR refers to the annualized cost of using your credit card to borrow funds. When an individual charges a purchase from a merchant that accepts credit card payments, they’re actually borrowing money from the credit card issuer. The credit card issuer pays the merchant, and the cardholder pays the credit card issuer based on the terms of their credit card agreement.

Depending on the type of transaction and when it’s paid back, some purchases may be subject to interest given how credit cards work. For instance, the purchase APR applies to any balance remaining after the statement due date. Interest is determined based on the credit card’s APR.

How Is APR Determined?

Because actual interest charges are calculated based on the credit card APR, it’s a good idea to get familiar with how APR is determined.

An integral part of how a credit card works, credit card APR is not a set rate that’s the same for every credit card and credit card holder. Rather, the interest rate on a credit card will depend on a number of factors, such as the cardholder’s credit score, what type of credit card it is (for example, whether it’s a rewards card or a card for people with low credit ratings), how the card is being used, and the current economic conditions (such as the prime rate).

In the U.S., the average credit card interest rate is currently 22.25%, per the most recent data released by the Federal Reserve. High interest rates have even prompted recent calls for credit card interest rate caps, though opinions on the potential impact of credit card caps are under debate.

That being said, there is a great deal of variance in APRs. A good APR for a credit card is one that results in the lowest interest charges — which means the lower, the better.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

Types of Credit Card APR

The concept of charging interest on borrowed money is not unique to credit cards. From car loans to mortgages, all types of loans have an interest rate attached. But one way credit card APR differs from the interest rates on some other lending products is that the interest charges on credit card transactions may vary depending on the type of transaction a cardholder makes.

Understanding the different types of credit card APRs can help an individual better anticipate actual interest costs before they apply for a credit card. Here are some common types of APR on credit card purchases.

Introductory APR or Promotional APR

It’s not uncommon to see credit card offers touting no interest — though it’s important to note that 0% APR is not usually a permanent credit card feature.

•   If a credit card offers an “introductory” or “promotional” APR, that generally means that the rate offered is only applied for a limited time. After that, the interest reverts to another (typically higher) APR.

•   How interest is applied to an introductory or promotional APR period will depend on the specific wording of the offer. For example, if a credit card offers a zero-interest promotional period (“0% APR for X months”), that means no interest is charged during that specified offer period. These periods are typically between six and 18 months.

Once the offer period ends and the APR reverts to the standard rate, interest is only charged on any outstanding balances from the date the promotional period ended. (Other terms, such as always making the credit card minimum payment by the due date, may also apply in order for the promotional rate to be valid.)

•   A promotional APR that defers interest doesn’t work in quite the same way. With deferred interest, the promotional or introductory rate only applies if the balance is paid in full by the end of the offer period. But interest on any remaining balance will be calculated based on the date of purchase, not the end of the offer period.

That’s why it’s important to be mindful of whether your spending is within your budget, even if it is technically within your credit card limit.

While the specifics of a promotional or introductory APR offer should be clearly spelled out in the terms and conditions, one way to spot such an offer is to look out for conditions — for example, “no interest if paid in full within 12 months.”

Recommended: 10 Advantages of Credit Cards

Cash Advance APR

It may be possible to draw cash from a credit card at an ATM or using convenience checks. However, credit card cash advances are often subject to a different (usually higher) APR and may begin to accrue interest starting from the transaction date.

Balance Transfer APR

Some credit cards may offer a lower APR rate for balances transferred from higher APR cards, which can be helpful if you’re looking to pay off high-interest debt. The balance transfer APR will usually only apply on a promotional or temporary basis, as noted above.

Purchase APR

This is the standard APR that is applied to most regular purchases charged to a credit card. It applies on any balance that remains after the statement due date. This is why, even if you’re disputing a credit card charge, for instance, it’s smart to pay off as much of your balance as you can to avoid interest accruing.

Penalty APR

Just as it sounds, penalty APR is a penalty fee. It’s higher than the regular purchase APR and kicks in as a result of payments that are more than 60 days late. The terms associated with penalty APR are disclosed in the credit card agreement.

Recommended: What Is a Credit Report?

The Takeaway

While credit cards can be a useful tool for managing cash flow (and even earning rewards and perks), it’s important to understand the costs involved. This includes understanding how credit card interest works and how credit card APR applies to credit card balances. Credit card APRs can vary widely, and it can be important to know what rate applies when so you can use your cards responsibly.

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

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

What does the APR not include?

Although the interest rate and when it’s applied may vary depending on the type of transaction, APR typically applies to any funds that are drawn from one’s credit card.

Do you pay credit card APR monthly?

Whether APR is charged depends on the type of transaction and when it’s paid off. For regular purchases, there is no credit card APR at all so long as the balance is paid in full by the statement due date.

Is APR based on current balance?

Like other types of interest, APR is a percentage of the balance owed on a credit card. How APR is applied to various types of purchases and when interest begins to accrue typically depends on the type of transaction and is detailed in the credit card agreement. Most regular balances only begin to accrue interest if any amount is remaining after the statement due date.

What happens if you pay more than the minimum balance on your credit card each month?

Purchase APR typically is applied to any balance remaining after the statement due date. By paying more than the minimum balance, an individual will reduce the amount of funds that are subject to interest.

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Photo credit: iStock/Eva-Katalin

SoFi Credit Cards are 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.

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 .

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Looking to start your own business? You’re not alone. Some 71% of Gen Z and millennials dream of being their own boss, according to a 2024 JustWorks/Harris Poll survey.

While launching your own business allows you plenty of professional freedom, the costs of setting up a business can be expensive. As you’re creating your business plan, one question you’ll likely face early on is, how much does it cost to start a business?

The average small business owner spends around $40,000 in their first full year. But that amount can vary significantly based on a number of factors, including the size, type, and location of the business.

Let’s take a closer look at the startup costs of different types of businesses and common ways to cover the expenses.

Typical Small Business Startup Costs

The adage is true: You have to spend money to make money. And unfortunately, some of the biggest business costs can come during the startup phase, when you are defining your business goals, finding a location, purchasing domain names, and generally investing in the infrastructure of your new company.

In order to make sure your business is on firm financial footing, you’ll need more than just a business checking account and a small business credit card. What’s important is to estimate your small business startup costs in advance so that you have a good understanding of what you’ll need and why. Here are some common ones to keep in mind:

Payroll

Many small businesses start out as a company of one. But if you’re planning on having employees, salary will likely be one of the biggest costs you’ll face. After all, offering an attractive pay and benefits package can help you recruit and retain top talent.

In addition to wages, you may also want to budget for other payroll costs, such as overtime, vacation pay, bonuses, commissions, and benefits.

Office Space

No matter what your business is, you’ll need somewhere to work. Are you leasing a storefront, or will you buy a membership to a coworking space or startup incubator? Even if you’re planning to work from home, you’ll want to consider whether your new business will increase your internet bills.

And don’t forget about the supplies you’ll need to do the work. Depending on your business, this could include computers, phones, chairs and desks, paper supplies, or filing cabinets.

Recommended: Best Cities to Start a Business in the U.S.

Inventory

How much it costs to start a company varies a lot, and one major factor in that variance is inventory. If you’re starting a business that sells products, you’ll need to have some inventory ready to go. Calculating stock as part of your startup costs helps ensure that you can buy your product in advance so that you’re ready to serve customers from day one.

Licenses, Permits, and Insurance

Some businesses, especially storefronts and restaurants, require more legal legwork than others.

For example, if you’re starting a native-plants landscaping business, will you need a permit? If you’re opening a new bar, will you have to get a liquor license? Licenses and permits vary by city and state, but most require an application fee.

Likewise, your new business may need one or more insurance policies to protect you in case of future litigation, so be sure to factor in the cost of monthly premiums.

And don’t forget about the costs associated with registering your business. Whether you plan to set up shop as a corporation, limited liability corporation or other business entity, you’ll often need to pay a nominal fee. The amount will depend on the state where you operate.

And if you plan on enlisting the help of a lawyer, accountant, or tax professional to get your business up and running, add those potential costs to your budget as well.

Advertising

Getting the word out about your new business is one of the most important things you can do to ensure that your business starts off strong. Whether you want to advertise on social media or rent a billboard, your startup costs should reflect money you plan to put toward taking out ads for your business.

Technology and Software

No matter what kind of business you have, technology is likely to play a key role. If you’re creating a product, you’ll probably need equipment to make it, but also software to track inventory, payment processing tools, and possibly workforce management and payroll programs. Internet startups are reliant on the e-commerce software they’re using to sell their products and services. And retail and restaurants generally need payment processing tools, as well as software to manage scheduling and payroll, among other things.

As you’re planning, consider what tech you’ll need to manage your operation. A realistic budget will include costs for setting up and maintaining your technology systems.

If there’s a major piece of tech or manufacturing equipment you need to run your business, you may be able to use equipment financing. This kind of funding can be easier for new companies to get since the equipment itself acts as collateral for the loan.

Professional Services

As mentioned earlier, from time to time, you may need specialized professional help for various tasks associated with your business. In many of these cases, you may want to hire someone with expertise on a project basis rather than as a full-time employee.

For example, you may want to use an accountant for bookkeeping and tax preparation; a lawyer when you need to initiate or approve a contract; or an IT expert to help with maintaining computer systems and cybersecurity. Depending on your company’s growth, you may even need to hire a human resources specialist to help you with hiring.

As you look at your business plan, think about what kinds of professional services you might need at various points in your company’s progress and add those costs to your budget.

Utilities and Operational Costs

Whether your business is in your home or in a dedicated building, you’ll need to consider the additional costs of supporting your office and operations. These may include utilities such as electricity, water and sewer charges, gas, heat, trash pickup, and internet access. If you’re working solo from home, you may not be spending much extra on these, but if you’re starting up a restaurant, for instance, these costs could be significant.

Unexpected Expenses and Emergency Funds

While you can’t expect the unexpected, you can prepare. Generally, it can be a good idea for small businesses to have between three and six months worth of their expenses set aside. That way, they’ll be able to cover costs if they hit a lull or experience equipment breakdowns. You may also find this fund helpful if, for instance, you need to replace a major piece of equipment, like a delivery truck.

Coming up with this reserve may be daunting, but you can build it up over time. Having a business line of credit may also help access funds you can draw on when you have an emergency.

Differences in Startup Costs Based on Industry

The actual cost of starting a small business can vary by business and industry. Here’s what you might be looking at if you want to start one of these common types of small businesses.

Online Business Startup Costs

As with brick-and-mortar stores, the cost of doing business online varies depending on the type of business you have. But in general, you’ll need to budget for things like:

•  Web hosting service and domain name

•  Web design and optimization

•  E-commerce software

•  Payment processing

•  Content creation and social media

If you’re selling products, you’ll need to invest in inventory and shipping. If you’re providing services, you may need to hire employees. All of these costs can be significant.

However, one benefit of starting your small business online is that you may be able to keep other costs low. For example, if you can conduct business from home, you may not need to rent office space, which can be a major savings. If you’re able to do the work without purchasing inventory or hiring employees, the startup costs can be even lower.

Average startup cost: $2,000 to $20,000 or more (depending on your business)

Storefront Startup Costs

If your business idea requires a physical space, your startup costs might range from $50,000 to $1 million, depending on how large a store you’re planning and what the stock will be. A medium-sized clothing store or boutique, for instance, might cost between $50,000 and $150,000.

Although $150,000 might seem like a daunting number, remember that many smaller, independently owned stores began with a much smaller budget.

Average medium-sized retail startup cost: $80,000-$150,000

Restaurant Startup Costs

If you’re planning to start earning money by selling your grandma’s famous bánh mì, you could be looking at startup costs of anywhere from $30,000 to $100,000 for a used food truck or cart to up to $2 million to buy a franchise restaurant. Typically, costs for small restaurants, including coffee shops, fall somewhere in the $275,000 to $425,000 range.

Average startup cost: $375,000

Recommended: 15 Types of Business Loans to Consider

How to Finance Your Startup Business

Many people who want to start a business are overwhelmed by the initial costs, but there are several ways to fund your passion project.

Friends and Family

Perhaps one of the most common ways to raise money for your small business is to ask friends and family to invest in you.

Friends and family loans can be ideal for financing a new small business because you can negotiate low-interest rates, set up flexible pay-back schedules, and avoid bank fees. Of course, borrowing money from friends and family can quickly become complicated by family drama, so make sure to agree on conditions before taking out a loan from a relative.

Outside Investors

When we’re discussing startup companies, we frequently hear about so-called “angel investors” sweeping in to fully fund new businesses. But there are other practical ways to fund your small business with outside investors.

Some small businesses use crowdfunding platforms to find investors who each contribute a small amount, and others use startup funding networks to find investors looking to fund their specific type of business.

Outside investors will want to know that your business is likely to succeed, so you’ll need a solid business plan to land outside funders.

Personal Savings and Investments

Most people end up covering some of their small business startup costs out of their own personal savings. Self-funding your new business venture can be the most convenient option. After all, if you’re your own funder, you don’t have to worry about family drama or picky investors. And putting your own money on the line can be an extra motivation to make sure that your business is set up to succeed.

Of course, it can seem overwhelming to save up enough money to fund your small business. Luckily, there are simple strategies to effectively manage your money.

Business Loans

If you’re looking to purchase equipment, buy inventory, or pay for other business expenses, a business loan might make sense for you.

There are various types of small business loans available, each with different rates and repayment terms.

Note that in some cases, lenders may be reluctant to give loans to a brand-new business because they want to see at least a year of revenue. You might need to put up some type of collateral to qualify for funding. Or it may sometimes be easier to qualify for startup business loans, which are designed specifically for younger companies.

When you’re considering a loan, a small business loan calculator can be useful to help you estimate what your monthly costs might be, as well as the full costs over the life of the loan.

You may be able to get a Small Business Administration (SBA) loan. SBA loans are partially backed by the government and often come with more advantageous terms than other loans, though they may require more paperwork upfront.

Using an SBA loan calculator can help you understand what the monthly costs of an SBA loan would be.

Recommended: Business Term Loans: Everything You Need to Know

Personal Loans

A personal loan can be used for just about any purpose, which can make it attractive for entrepreneurs who want to turn their passion project into a reality. These loans are usually unsecured, which means they’re not backed by collateral, such as a home, car, or bank account balance.

Personal loan amounts vary. However, some lenders offer personal loans for as much as $100,000. Most personal loans have shorter repayment terms, though the length of a loan can vary from a few months to several years.

While there’s a great deal of latitude in terms of how you use the funds, you might need to get your lender’s approval first if you intend on using the money directly for your business.

Recommended: How to Get a Small Business Loan in 6 Steps

The Takeaway

Going into business for yourself can be personally and professionally fulfilling. But it can also be expensive, especially if you’re starting from scratch. Estimating your startup costs early on can help ensure you’re on solid financial ground from the get-go. Labor, office space, and equipment are among the biggest expenses facing many entrepreneurs, but there are also smaller fees and charges you’ll likely need to consider.

Fortunately, small business owners have no shortage of options when it comes to covering startup costs. Dipping into personal savings and asking friends and family to invest are popular choices. Taking out a business loan or personal loan is another way to help finance a new business. The money can be used for a variety of purposes, and that flexibility can be especially useful when you’re just starting out.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

Large or small, grow your business with financing that’s a fit for you. Search business financing quotes today.

FAQ

What are the average startup costs for a small business?

Startup costs can vary significantly based on factors like the company’s type, industry, and location, but on average, a typical small business owner spends around $40,000 in the first year.

Can I start a business with no money?

It is possible to start a business without money, though it depends on the kind of business you have in mind. Some service-based businesses, such as pet care or being a virtual personal assistant, often don’t require money to start, and you may also not need funds to start selling hand-crafted goods. Dropshipping could be another option.

What business has the lowest startup cost?

Some of the businesses with the lowest startup costs are service-based companies that rely on skills you already have. For example, tutoring or freelance editing businesses can be relatively inexpensive to set up.

How long does it take for a business to become profitable?

You may see online that startups on average take as long as three to five years to become profitable. Bear in mind, however, that the amount of time it takes a business to achieve profitability can vary enormously, and low-overhead companies may be able to reduce that time.

What are the hidden costs of starting a business?

Costs that entrepreneurs may forget to take into account when they’re starting up a business can include utilities, office supplies, WiFi, and printing and mail charges.

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Photo credit: iStock/Wavebreakmedia

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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It is possible to pay bills with a credit card. Using a credit card in this way can help you earn rewards like cash back and travel points.

But it’s not always the right financial move. Keep reading to learn what bills you can pay with a credit card and how using a credit card to pay bills works.

Can You Pay Bills With a Credit Card?

Yes, it is possible to pay certain bills with a credit card. However, using a credit card responsibly is key.

When using a credit card to pay bills, it’s important to make sure doing so won’t cause you to rack up a high balance. Paying bills with a credit card makes the most sense when you can easily pay off your credit card balance in full right away.

If done responsibly, a card holder can earn credit card rewards — like cash back, travel points, and gift cards — for spending on purchases they have to make every month without paying interest. Plus, making regular, on-time payments can help build your credit score.

When Should You Not Use a Credit Card to Pay Bills?

As great as the potential to earn rewards is, if someone can’t afford to pay their credit card balance, charging their bills can lead to high interest charges and late fees (which are two ways credit card companies make money). High-interest credit cards have an average APR of about 20%–25%, and credit card interest typically compounds daily using a daily interest rate, all of which means debt can build up quickly when balances are carried.

It also might not make sense to pay bills with a credit card if it leads to paying an extra fee from the merchant.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

What Bills Can You Pay With a Credit Card?

There are limitations on which bills you can pay with a credit card. And, as briefly noted earlier, you may owe a fee for using a credit card to pay bills, which could outweigh the benefits earned.

Here are 10 examples of bills you can pay with a credit card, as well as explanations on how paying these bills with a credit card works.

1. Streaming Services

The vast majority of streaming services accept credit card payments to cover the monthly cost of the subscription. To pay this bill with a credit card, all you’ll need to do is enter their credit card number on the streaming service’s website. The card will then automatically get charged each month unless you cancel or suspend your membership.

It’s unlikely any streaming service will charge an extra fee for using a credit card to pay for their subscription.

2. Utilities

Some utilities providers allow credit card payments, so it’s worth investigating this option to determine if it’s accepted. If your utility provider will take a credit card payment, then setting it up is usually as simple as providing your credit card number when you pay your bill online, over the phone, or through the mail. You can often set up autopay as well.

However, watch out for the additional convenience and processing fees that some providers may charge. Higher bills are more likely to offset this fee given the greater earning potential for credit card points or other rewards.

3. Cable

Cable is another bill you can pay with a credit card. To determine how to do so, you’ll want to consult your cable provider. You may be able to enter your credit card number on the online payment portal or provide this information over the phone. Setting up autopay is also usually an option with a credit card.

There is typically no additional processing fee to pay cable bills.

4. Phone

Another bill you might pay with your credit card is your phone bill. You can likely set this up online on your phone provider’s website or by giving them a call. If you’re unsure of how to pay bills with a credit card, simply consult your phone provider.

You’ll typically face no additional processing fees.

5. Internet

Your internet service is another bill that you can cover using your credit card. As with other utilities and services, consult your internet provider if you need assistance getting this set up. In general, however, you can do so through your online payment portal. If you don’t want to go through the legwork each month, you can usually set up autopay with your credit card.

Most internet providers won’t charge an additional processing fee to pay your bill with a credit card, meaning those costs won’t cut into any rewards you earn with a cash back credit card or other type of rewards credit card.

6. Rent

Most landlords don’t allow credit card payments, but there are third-party solutions that can allow someone to pay their rent with a credit card. This includes services such as Plastiq and PlacePay, which act as intermediaries.

However, you’ll generally pay a convenience charge or other fees. You’ll want to assess whether the benefits of using your credit card to pay rent outweigh the costs.

7. Mortgage

Mortgage servicers generally don’t allow credit card payments. However, there are third-party payment processing services through which you could pay your mortgage. Still, some credit card issuers may prohibit you from paying your mortgage through these services.

In addition to restrictions, you’ll want to look out for processing fees. These could cancel out any rewards you could earn from covering your mortgage with a credit card.

8. Car Loan

Just like mortgage services, most auto lenders also don’t accept credit cards for loan payments. If you do find an auto lender who’s willing to accept a credit card for payment, you’ll likely face a hefty processing fee.

Additionally, credit card interest rates tend to be higher than those of auto loans, so if you’re not confident you could immediately pay off your credit card balance in full, you could simply end up paying a lot more in interest.

9. Taxes

It is possible to pay some taxes with a credit card. The IRS allows you to pay on its website using a credit card. However, you’ll face a processing fee ranging from 1.82% to 1.98%, depending on which payment processor you select. If you opt to pay using an integrated IRS e-file and e-pay service provider, such as TurboTax, your fee could range even higher.

10. Medical Bills

While you can pay medical bills with a credit card, it might not be the most cost-effective option. This is because credit cards can charge high interest and fees, and there’s the potential to damage your credit score. Many medical providers may offer interest-free or low-interest payment plans, or a personal loan could offer a lower rate than a credit card.

If you do think the rewards and convenience of using a credit card is worth the risk, the process of paying bills with a credit card will vary by medical institution. Before charging your medical bills to a credit card, you may want to at least try to negotiate medical bills down.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Benefits of Paying Bills With a Credit Card

There are a few key benefits associated with paying bills with a credit card.

1. Ease of Payment

It may be possible to pay a bill with a credit card online, in an app, or over the phone.

2. Easy to Prove Payment

If a payment dispute arises, paying by credit card is an easy way to keep a record of payments.

3. Identity Theft Protection

If either a credit card or someone’s personal information gets stolen, a credit card issuer will pay back some or all of the charges.

4. Autopay

It’s easy to use a credit card to set up autopay for bills so you never accidentally forget to pay them.

5. Can Build Credit History

Given how credit cards work, using a credit card to make payments and then paying that balance off on time and in full can help build your credit score.

6. Earn Rewards

Purchases made with a credit card helps earn cash back and credit card points.

Downsides of Paying Bills With a Credit Card

There are also some downsides to paying bills with a credit card that are worth keeping in mind.

1. May Cost More

Because many bill services charge fees to pay with a credit card, it’s possible to spend more than necessary on processing fees.

2. Can Lead to High-Interest Debt

If someone can’t afford to pay off their credit card balance after using it to pay for bills, they can end up with high-interest debt on their hands. As mentioned above, debt can accrue quickly on credit cards with high, compounding interest rates, and it’s unfortunately not an uncommon situation to be in. In the United States, the total credit card balance recently rose to $1.23 trillion.

In fact, credit card interest caps have become a hot topic, including a proposal for a temporary 10% cap on credit card interest rates. While opinions are divided on interest rate caps, one increasingly popular option is applying for a personal loan. Personal loans interest rates average 10-12%, compared to 20%-25% for credit cards, and they have predictable, fixed terms.

3. Processing Fees Can Cancel Out Rewards

It’s important to do the math to make sure that the cost of processing fees isn’t canceling out the cash back you’re earning with the purchase.

4. Leads to Another Bill to Pay

Similar to when you pay a credit card with another credit card, paying a bill with a credit card simply leads to another bill to pay. This can cause more hassle than it’s worth.

5. Can Hurt Credit Utilization Ratio

Carrying a higher balance on a credit card can lead to a higher credit utilization ratio, which is damaging to credit scores. One of the common credit card rules is to keep your utilization below 30%, meaning you’re not using more than this percentage of your total available credit at any given time.

Recommended: What Is a Charge Card

Guide to Using a Credit Card to Pay Bills

At this point, it’s clear that it is possible to pay some bills with a credit card. But should you? In short, it depends.

If the bill provider won’t charge a processing fee and the consumer can afford to pay off their credit card balance in full, then paying their bills with a credit card is a great way to earn rewards and build a credit score.

However, in many cases, the processing fee some merchants charge can outweigh the value of cash back or other rewards earned. Not to mention, carrying a credit card balance can lead to incurring expensive interest and fees.

The Takeaway

It is possible to pay some bills with a credit card, but doing so can lead to paying costly processing fees or even accruing interest charges. It’s important to crunch the numbers to see if paying a bill with a credit will result in earning enough rewards to justify any processing fees.

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.

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

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Should I put non-debt bills on a credit card?

If someone can afford to pay off their credit card balance in full and the processing fee they’ll owe isn’t, it can make sense to put a non-debt bill on their credit card. They just have to remember to then pay their credit card bill to avoid owing any fees or interest, which could undercut the potential benefits.

Is it wise to pay monthly bills with a credit card?

Paying monthly bills with a credit card can lead to processing fees in some scenarios. If someone won’t owe a fee, they can benefit from earning cash back by paying their bills with a credit card. This can be a savvy move to make if they can afford to pay off their credit card bill in full each month, thus avoiding interest charges.

Is it better to pay bills with a credit or debit card?

Paying a bill with a credit card can lead to earning rewards, which a debit card can’t offer. There’s also often purchase protection. However, if you’re worried about handling credit card debt responsibly, you may opt for using a debit card, as this will draw on money you already have in your bank account. With either a debit or credit card, however, you’ll want to look out for fees.

Should I pay off my credit card in full or leave a small balance?

It’s always best to pay off a credit card balance in full if possible before a credit card’s grace period ends. The grace period is the time between when the billing cycle ends and your payment becomes due. You won’t owe interest as long as you pay off your balance in full before the statement due date. Otherwise, you could owe interest charges and fees.

What happens if you pay the full amount on your credit card?

Paying the full amount on a credit card makes it possible to avoid paying interest. After a credit card is paid off in full, the consumer can simply enjoy the rewards they earned by making purchases with their credit card.

Does paying a bill with a credit card count as a purchase?

Yes, paying a bill with a credit card does count as a purchase. This makes it possible to earn cardholder rewards like cash back when paying bills.

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Photo credit: iStock/Damir Khabirov

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

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

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 .

SoFi Credit Cards are 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.

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